Unfair Prejudice Claims In The British Virgin Islands: A Guide For Shareholders

The British Virgin Islands ("BVI") has long been a preferred jurisdiction for the incorporation of companies, particularly for cross-border investment and asset protection structures. However, where there are shareholders, there is always the potential for disputes. One of the most important protections available to minority shareholders in the BVI is the unfair prejudice claim, governed by section 184I of the BVI Business Companies Act, 2004 (as amended) ("the Act").

What Is Unfair Prejudice?

The Act provides a statutory remedy for shareholders who believe that their rights have been disregarded, or their interests unfairly harmed by those in control of the company.

Unfair prejudice arises where:

· The affairs of a company have been, are being or are likely to be, conducted in a manner that is; or

· Any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial

to a shareholder (otherwise known as a "member" of the company).

Who Can Bring a Claim?

Any shareholder of a BVI company may bring an unfair prejudice claim. To succeed, a claimant must demonstrate that:

· The company's affairs are being, or have been, conducted in a manner that is unfairly prejudicial; or

· An act or omission by the company has been, or would be, so prejudicial.

The test is objective in the sense that there is no need to show intention or bad faith (see English case of Re Bovey Hotels Ventures Ltd 31 July 1981 (unreported)).

It is important to note, however, that following TIPP Investments PCC v Chagala Group Limited (BVIHCM 102/2016) the remedy does not appear to be available to the beneficial owners of shares who hold their interest through nominees.

Common Grounds for Unfair Prejudice

Examples of conduct that may give rise to an unfair prejudice claim include:

· Exclusion from management in a quasi-partnership company;

· Diversion of business opportunities by directors or majority shareholders;

· Misuse of company assets or breach of directors' fiduciary duties;

· Dilution of minority shareholding through improper share issuances;

· Failure to provide financial information or hold shareholder meetings; and/or

· Improper removal of directors or interference with voting rights.

Each case turns on its specific facts, and the BVI High Court's focus is on the effect of the conduct and not necessarily its legality.

What Remedies Are Available?

The BVI High Court has a broad discretion to grant relief. Under section 184I(2) of the Act, the Court may make any order it sees fit to cure the unfair prejudice. Common remedies include:

· Buy-out orders, compelling majority shareholders to purchase the minority's shares at a fair value;

· Injunctions to prevent or reverse certain corporate actions;

· Regulation of the company's future conduct, such as requiring board appointments;

· Setting aside any decision made or action taken by the company or its directors in breach of the Act or the memorandum or articles of the company;

· Directing the rectification of the records of the company;

· Appointment of receivers; and/or

· Orders for winding up the company (generally only in more extreme cases).

Procedural Considerations

Unfair prejudice claims are typically heard in the BVI Commercial Court (a division of the BVI High Court), which is well-versed in complex shareholder disputes. Key points to note include:

· The claim must be properly served;

· The claimant needs to present detailed evidence demonstrating both the conduct and the prejudice suffered; and

· Expert valuation evidence may be required if a buy-out is sought.

Given the complexity of such claims, early legal advice is essential to ensure proper framing and support for the case.

Judicial Trends

The BVI High Court has consistently demonstrated a willingness to uphold minority shareholders' rights while maintaining a business-friendly approach to corporate governance. The jurisprudence reflects a careful balancing act between respecting majority rule and preventing abuse.

Notably, the latest caselaw in the area emphasises that commercial unfairness (not just legal wrongs) is sufficient to ground a claim. The BVI High Court will scrutinise whether the conduct departed from the standards of fair dealing expected in the context of a shareholder relationship.

The following key judgments have provided some clarity on application of s.184I:

· Soemarli Lie v Ng Min Hong and Success Overseas Finance Limited (BVIHCV 2016/0013): The BVI Commercial Court found that the claimant was unfairly prejudiced by the majority shareholder's actions, including wrongful denial of access to company records and improper disposal of assets. The Court emphasised the importance of protecting minority shareholders' rights and ordered appropriate remedies;

· Yao Juan v Kwok Kin Kwok & Crown Treasure [2022] UKPC 52: The Privy Council upheld the BVI Court of Appeal's decision, and in so doing emphasised the BVI High Court's wide discretion in granting remedies under section 184I, including the making of a liquidation order. The case underscored the principle that remedies should be tailored to the specific circumstances and the nature of the unfair prejudice; and