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Harneys has recently acted for a client in an important and novel case on the effect of a redemption notice, served by a company on a member, under the BVI Business Companies Act ("the Act"). The case will be of general interest in the context of the compulsory redemption of shares in BVI companies.
The case concerned section 176 of the Act which provides that the members of a company holding 90% of the voting shares may give a written instruction to the company directing the company to redeem the shares held by the remaining members. Upon receipt of the written instruction the company must redeem the shares of the remaining members and give notice to each member whose shares are to be redeemed stating a redemption price. Section 179 (1)(d) then states that a member is entitled to payment of the fair value for its shares upon dissenting from the redemption. The Act then sets out a mechanism for an appraisal if the member and the company fail to agree on a fair value.
In the case, there was a prolonged argument between a member and the company (which acted as the manager and investment advisor to an investment fund) as to the right value for the shares and the correct mechanism under the Act - the company eventually arguing that the member had lost its rights under the Act to the appraisal process.
In granting the member's claim for summary judgment, the Court agreed that the redemption of the shares had not been completed unless and until the shares had been acquired by agreement or following an appraisal of their fair value under the Act. The Court went on to say that the issuance of a notice to a member commences the process towards redemption rather than completes the redemption. Therefore the member was still a member with what the Court described as "residual rights" until the redemption process set out in the Act is completed. Importantly this included the right to apply to Court to ensure that the company complies with its obligations under the Act.
The company's argument that the member had lost its ability to benefit from the appraisal system and would then be limited to the value which the company put forward, was rejected. The Court stated that where time limits had expired, for example due to failed negotiations, the Court would use its inherent jurisdiction to ensure that the matter is dealt with fairly. The case also shows that the Courts are likely to take a purposive approach to the new shareholder protections brought in by the Act.
For further information please contact Christopher Young (christopher.young@harneys.com) or Phillip Kite (phillip.kite@harneys.com). |
