Bearer of good news: BVI Court rules on survival of power to convert bearer shares

In a recent decision, Sempacher Foundation v Lark Service Inc. & Others (BVIHC (Com) 2018/0027) ("Sempacher"), the BVI Commercial Court has ruled that BVI companies continue to have power to convert bearer shares to registered shares following the transition date of 31 December 2009 (the "Transition Date") and that there is no statutory time limit on the exercise by a BVI company of such a power.

The company whose shares were the subject of the decision was incorporated under the International Business Companies Act, 1984 (the "IBC Act"), with the power to issue either bearer shares or registered shares, as was then permissible under the IBC Act. The facts, so far as material were these: the company had issued two bearer share certificates, one (Certificate number 2 (the "Certificate")) representing 60% of the shares in the company being the principal focus of the case. This Certificate had not been deposited with or held by an authorised or recognised custodian prior to the Transition Date as required by paragraph 35 of Schedule 2 of the Business Companies Act 2004 (the "BCA") but had been held by a third party until February 2015. The company had not given notice to disapply Part IV of Schedule 2 of the BCA. In February 2015, the Certificate was delivered to BVI lawyers expressly for the purpose of their delivering it to the registered agent of the company with a request to exchange the bearer shares for registered shares.

Article 23 of the articles of association of the company concerned provided that the directors “shall" upon receiving a request to exchange a bearer share for a registered share, comply with such request by cancelling the bearer share certificate and issuing a certificate for the corresponding registered shares.

The question for the BVI Court was whether, as a matter of BVI law, the conversion or exchange of bearer shares for registered shares was permissible in February 2015, when the Certificate was delivered with the request for conversion. It was accepted that a BVI company has a continuing power to redeem bearer shares, as recognised and confirmed by the Eastern Caribbean Court of Appeal (on appeal from the BVI Commercial Court) in Bank of Nova Scotia Trust Company (Bahamas) Limited v Registrar of Corporate Affairs (BVICAP 2016/0009 0010). The Court had in Sempacher had to decide whether redemption was the only permissible option post the Transition Date or whether the statutory regime imposed in relation to bearer shares, continued to provide two avenues, that of conversion or exchange, and that of redemption, both exercisable by the company, through which existing bearer shares may be eradicated or eliminated.

In a lengthy and closely reasoned judgment, the Court conducted a detailed analysis of the provisions of the BCA which impose the legislative regime for dealing with bearer shares held in BVI incorporated companies. It concluded that, as a matter of statutory interpretation, the legislature intended to have the power in a company to convert bearer shares to registered shares running in parallel with the power to redeem existing bearer shares and that no time limit was placed by the legislature on the exercise of the companies' power of redemption or of conversion or exchange so that the power survived the Transition Date.

The Court determined that the intention of the relevant provisions of the BCA dealing with bearer shares, and how they are to be treated in relation to grandfathered bearer share companies after the Transition Date, is first, to impose upon such shares and such companies, a statutory regime and process directed at immobilising or disabling bearer shares not deposited with an authorised or recognised custodian by a certain date. And second, allowing for the ultimate removal of all bearer shares issued by BVI companies under the former IBC Act, by permitting the conversion or exchange of bearer shares for registered shares, or the redemption of bearer shares for cash or, exceptionally, for the company to be wound up on the application of the Financial Services Commission.

The effect of the judgment is to resolve any doubt as to whether it continued to be possible for a BVI company to convert or exchange existing bearer shares. It is now clear that, whilst outstanding bearer shares continue to be disabled unless deposited with an authorised or recognised custodian, their holders may deliver the bearer share certificate to the company for exchange or conversion to registered shares and, if they do so, the company may exercise its power to exchange or convert with the confidence that such a power survives and will continue to be exercisable without a cut off date.

BRITISH VIRGIN ISLANDS
Rosalind NicholsonPartnerT +1 284 852 2237rosalind.nicholson@walkersglobal.com

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