Edward Rhind commented, “It was a privilege to have assisted Avianca Group on this highly complex transaction.  Our ability to support clients on deals of this calibre demonstrates the strength of our lawyers and aviation team as a whole.  Congratulations to all parties involved.”

The post Campbells advises Avianca Group on US$1 Billion Senior Secured Notes Offering appeared first on Campbells.

The British Virgin Islands (“BVI”) continues to strengthen its financial services sector by aligning with international standards, including those set by the Financial Action Task Force (FATF). The BVI Business Companies (Amendment) Act 2024 (the “Amendment Act”), which modifies the BVI Business Companies Act (the “Act”), was published in the BVI Gazette on 26 September 2024 and came into force on 2 January 2025.

Below, we highlight the key amendments:

Register of Members

The Amendment Act introduces clarifications regarding the information required in a company’s register of members. Specifically, details about nominee shareholders must be maintained and filed with the BVI Registrar of Corporate Affairs (the “Registrar”).

Additionally, companies are now required to file their register of members with the Registrar within 30 days of incorporation or continuation into the BVI. Any changes to the register must also be filed within 30 days of such changes. Notably, the register of members will remain private unless the company opts to make it publicly accessible.

Listed companies and BVI funds are exempt from filing their register of members, but only at the time their shares are listed or when they are registered as a fund. Otherwise, the standard filing requirements apply. Companies that have been struck off, dissolved, and subsequently restored to the register are not required to submit a copy of their register of members.

Beneficial Ownership

The Amendment Act adopts the commonly accepted definition of a “beneficial owner” (i.e., ownership or control of 10% or more) and mandates that companies collect, maintain, and keep updated records of beneficial ownership information.

The Act also shifts the responsibility for filing beneficial ownership data from the Beneficial Ownership Secure Search Portal to the Registrar. Companies must file this information within 30 days of incorporation or continuation into the BVI.

Certain companies are exempt from this requirement, including:

• companies whose shares are listed on a recognised exchange; or
• BVI funds where such funds beneficial ownership information is held by either (i) a person who holds a Category 6 investment business licence in accordance with the Securities and Investment Business Act (as revised), or (ii) its authorised representative or other person licensed by the Financial Services Commission that has a physical presence in the BVI, and such person ensures that the beneficial ownership information can be provided to the Registrar within 24 hours of a request for such information.

In such cases, a notice must be filed with the Registrar within 30 days, providing the name and address of the individual holding the beneficial ownership information. Registered agents must verify the accuracy of beneficial ownership information prior to filing, and companies must update the Registrar within 30 days of any changes. Importantly, this information will not be publicly accessible.

Registered agents will be required to take reasonable measures to verify the beneficial information provided prior to filing and, where beneficial ownership information changes, the company must file information in respect of the change within 30 days of becoming aware of the same.

Significantly, this filing with the Registrar is not publicly accessible.

Appointment of first directors

The Amendment Act provides that the registered agent of a company must appoint a first director or directors within 15 days of the date of incorporation of the company. Previously a first director or directors was required to be appointed within 6 months of the date of incorporation of a company.

Rectification of register of directors

Where a register of directors does not include information or includes inaccurate information, or there is an unreasonable delay in entering the required information, the Amendment Act provides that a member, director, or any person aggrieved by the omission of the relevant information may apply to court for an order to rectify the register of directors.

Continuation under foreign law

Where a BVI company intends to redomicile out of the BVI, the Amendment Act widens the scope of the declaration that the directors are required to file with the Registrar. The declaration must include confirmation that a company does not have any pending requests from a competent authority to produce documents or provide information that has not been satisfied, that no receiver has been appointed over the company or its assets, and that the company is not aware of any legal proceedings pending against it or its shareholders, directors, officers or agents as it directly pertains to the affairs of the company.

Next Steps

For further questions or concerns regarding the Amendment Act, please reach out to your usual Campbells contact.

The post Campbells’ Guide to the 2024 BVI Business Companies Act Amendments appeared first on Campbells.

 The Beneficial Ownership Transparency Act, 2023, associated regulations and guidance (together the “Act” and the “New BOR Legislation”) were brought into force on 31 July 2024 (the “Commencement Date”) with enforcement relating to the new requirements under the Act commencing on 1 January 2025.

Background

Our advisory published on 20 April 2017 sets out in detail the beneficial ownership regime in the Cayman Islands (the “BOR”) that applied before the Commencement Date.

Key Changes to the BOR

 The following substantial changes have now been made to the Cayman Islands BOR as a result of the New BOR Legislation:

In Scope Entities

Cayman Islands companies, limited liability companies, limited liability partnerships and foundation companies continue to be in scope for the purposes of the BOR.  For the first time, the New BOR Legislation has now brought into scope exempted limited partnerships (commonly used as closed-ended funds) and limited partnerships (together “Legal Persons”).  Trusts and registered foreign companies continue to fall out of scope of the BOR.

In addition, entities such as general partners, subsidiaries of regulated entities, entities registered under the Securities Investment Business Act or the Virtual Asset Service Providers Act that were previously exempt from the BOR will now need to identify their registrable beneficial owners (“RBOs”) and provide details of their RBOs to their corporate services provider (“CSP”), save for those entities permitted to utilise the Alternative Compliance Route (as defined below).

Registrable Beneficial Owners

A RBO in relation to a Legal Person means an individual Beneficial Owner or a Reportable Legal Entity (“RLE”).

Individual RBO

The Act defines a “Beneficial Owner” as an individual who meets any of the following specified conditions:

• the individual ultimately owns or controls, whether through direct or indirect ownership or control, twenty-five per cent or more of the shares, voting rights or partnership interests in the Legal Person;
• the individual otherwise exercises ultimate effective control over the management of the Legal Person; or
• the individual is identified as exercising control of the Legal Person through other means.

Where an individual operates solely in the capacity of a “Professional Advisor” (which includes a lawyer, accountant, professional advisor or a financial advisor who provides advice or direction in a professional capacity) or a “Professional Manager” (which includes a liquidator, receiver or restructuring officer who exercises a statutory function), such individual will not be considered to meet the definition of a Beneficial Owner under the Act.

The Act also considers the following persons as individuals:

• a corporation sole;
• a government or government department of a country or territory or a part of a country or territory;
• an international organisation whose members include two or more countries or territories (or their governments); and
• a public authority.

Trustees

Where no individual meets any of the definitions of a Beneficial Owner but the trustees of a trust meets one of the definitions of a Beneficial Owner, the trustees of the trust will be the Beneficial Owners of the Legal Person if they have ultimate effective control over the activities of the trust other than solely in the capacity of a Professional Advisor or a Professional Manager.

Senior Managing Official

If no individual meets the definition of a Beneficial Owner, the Act provides that a Legal Person’s “Senior Managing Official” (“SMO”) will be identified as the contact person.  A Senior Managing Official includes (for the first time under the BOR) a director or a chief executive officer of the Legal Person and guidance provides further clarity on who to identify as a SMO in this respect.

Reportable Legal Entity

A reportable legal entity or “RLE” in relation to a Legal Person means another Legal Person (other than a foreign company, foreign entity or a foreign limited partnership) that if it were an individual would be a beneficial owner of the first mentioned legal person.

It is not necessary for a Legal Person to report individual beneficial owners of a RLE since that entity will itself have its own reporting obligations under the New BOR Legislation.

Alternative Compliance Route

Any Legal Person:

• licensed under a regulatory law[1];
• listed on the Cayman Islands Stock Exchange or an approved stock exchange[2]; or
• that is a subsidiary of an entity listed on the CSX or an approved stock exchange,

may provide their CSP with details of their regulatory license or listed status rather than provide details of their RBO.  The Legal Person’s CSP will in turn provide this information to the Competent Authority and this process is the “Alternative Compliance Route”.

Investment Funds

Legal Persons which are registered as mutual or private funds (“Registered Funds”) with the Cayman Islands Monetary Authority (“CIMA”) may provide their CSP with details of a “contact person” rather than their RBOs.  The contact person will not be required to maintain a beneficial ownership register, but must provide the Competent Authority with the requested beneficial ownership information within twenty-four hours of a request being made, or at any other time as the Competent Authority may reasonably stipulate.  Campbells Corporate Services Limited can act as the contact person for its Registered Fund clients and further information is available on request.

Alternatively, Legal Persons who may otherwise avail themselves of the Alternative Compliance Route may decide to opt in to the BOR and provide details of their RBOs to their CSP.

Obligations on Legal Persons that do not benefit from the Alternative Compliance Route

Such Legal Persons must:

• identify every RBO;
• give written notice to those individuals or entities which have been identified as RBO’s and to any individuals or entities whom the entity reasonably believes may be a RBO. That notice requires each addressee to respond within 30 days of receipt, confirming whether the individual or entity is a RBO and, if so, to confirm or correct any of the information required to be inserted in the BOR;
• establish and maintain an up to date beneficial ownership register which includes the RBOs of such Legal Person. The register must be kept at the Legal Person’s registered office and is typically maintained by the Legal Person’s CSP;
• where it becomes aware that there has been a ‘relevant change’[3]to the information contained in the BOR, give notice as soon as reasonably practicable (and no later than 30 days after it becomes aware of the relevant change) to the RBO requesting confirmation of the change;
• provide the required particulars of its RBOs which includes:
  • in respect of individuals:
    • name;
    • address;
    • date of birth;
    • nationality(ies);
    • information from their unexpired and valid passport, driver’s license or other government issued identification document;
    • the nature in which the individual owns or exercises control of the Legal Person;
    • the date on which the individual became (or ceased to be) a RBO;
  • in respect of RLEs:
    • name;
    • address of registered or principal office;
    • legal form and law by which it is governed;
    • the date on which the RLE became (or ceased to be) a RBO.

Statutory Offences and Penalties

The Act includes various offences and penalties and directors, managers, officers and partners of the Legal Person may also be liable to the same penalty as the Legal Person. The Competent Authority also has the power to impose administrative fines on any person who breaches the relevant provisions of the New BOR Legislation. The Competent Authority may strike an in-scope entity off the Register if an administrative fine remains unpaid for 90 days.

Public Accessibility

In December 2024, the Beneficial Ownership Transparency (Legitimate Interest Access) Regulations, 2024, (the “Access Regulations“) and the Beneficial Ownership Transparency (Access Restriction) Regulations, 2024, (the “Privacy Regulations“) were published.  The Access Regulations come into force on 28 February 2025.

The Access Regulations set out the framework for members of the public, who can evidence a “legitimate interest”, to access beneficial ownership information for a specific legal person where evidence is provided that the specific legal person is linked to money laundering or terrorist financing.

The Access Regulations develop the framework for members of the public that are:

• Engaged in journalism or bona fide academic research;
• Acting on behalf of a civil society organization whose purpose includes the prevention or combating of money laundering, its predicate offences or terrorism financing;
• Seeking information in the context of a potential or actual business relationship or transaction with the legal person about whom the information is sought; and
• who can evidence a legitimate interest, to access beneficial ownership information for legal persons where the information being sought is for the purpose of preventing, detecting, investigating, combating or prosecuting money laundering or its predicate offences or terrorist financing.

It will be necessary for the member of the public to submit an application with supporting documentation and to pay a fee (CI$30).  If the Competent Authority is satisfied with the application, it will provide the applicant with the requested information.

For individuals the following information will be accessible under the Access Regulations:

• name;
• country of residence;
• nationality;
• month or year of birth or both; and
• nature of control over the entity that falls within the scope of the New BOR Legislation.

The Privacy Regulations set out the framework for individuals to apply for protection from public disclosure under the Access Regulations where they believe that their association with the legal person, if disclosed, will place them, or an individual living with them, at serious risk of kidnapping, extortion, violence, intimidation, or other similar danger or serious harm.

The applicant must be a Registered Beneficial Owner or Senior Managing Official.  During the period which an application that has been made to the Competent Authority is being considered with a view to determining the application, the Competent Authority shall not disclose to any member of the public the information on the search platform which is the subject of the application. The Competent Authority will also not make available for public inspection an application made, any records or documents provided or received in support of that application or any notices in respect of the application.

Guidance on Applying for Access to Beneficial Ownership on the basis of Legitimate Interest and for the Protection from Disclosure was published by the Competent Authority on 17 December 2024 and is available here.

Next Steps

Campbells can assist with all of these aspects.  Please do not hesitate to contact your usual Campbells contact if you have any questions or require any additional assistance.

[1] The definition of regulatory law includes the Banks and Trust Companies Act, the Companies Management Act, the Insurance Act, the Mutual Funds Act, the Private Funds Act, the Virtual Asset Service Providers Act and the Securities Investment Business Act, each as revised from time to time.
[2]  As set out in Schedule 4 to the Cayman Islands Companies Act
[3] A relevant change occurs if:
– a RBO ceases to be a registrable beneficial owner in relation to the Legal Person; or
– any other change occurs as a result of which the ‘required particulars’ of a RBO in the Legal Person’s beneficial ownership register are incorrect, incomplete or not current.

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It outlines key amendments to legislative frameworks, as well as regulatory calendars of key annual filing dates for 2025 for both jurisdictions.

Click here to access: Caribbean Regulatory Update Q4 2024

Campbells advises both local and international banks, insurers, company managers, trust companies, investment managers, administrators and directors on regulatory and compliance matters. For further information please get in touch with your usual Campbells contact or one of the contacts below.

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Aliana will be working as an associate in the Corporate Department, specialising in funds. “I am thankful to Campbells for being instrumental in getting me to this point. I would not be where I am today without the unwavering support and guidance provided by each and every employee here. Joining Campbells would be an auspicious move for any young Caymanian who is pursuing a legal career.”

Aliana joined Campbells in August 2020 in the Compliance Department and commenced her Articles of Clerkship with the Firm in June 2023. Aliana is a graduate of the University of Liverpool where she was awarded an LLB with Honours. She also gained her Postgraduate Diploma in Legal Practice with Commendation from Northumbria University in 2020.

“We are pleased that Aliana has been called to the Cayman Bar and are proud to have witnessed her growth at Campbells. We are confident she will continue to achieve great success in her legal career,” said Head of Investment Funds and Co-Head of Corporate, Simon Thomas. “This milestone is a true testament to Aliana’s dedication, hard work, and passion for the law. Congratulations on this well-deserved achievement!”

Campbells is proud to support Caymanians pursuing the study and practice of law and offers a comprehensive Articled Clerk training programme. Campbells’ 18-month training program consists of carefully monitored rotations between different departments and ensures recipients receive active mentorship and a wide breadth of experience across all departments.

The post Campbells welcomes Aliana Dodds as newly admitted attorney appeared first on Campbells.

Bloks is China’s largest and leading player in the assembly character toy segment, according to Frost & Sullivan.  Leveraging its portfolio of more than 500 patents, in-house IP development capability and cooperative relationships with approximately 50 renowned IP franchises on a non-exclusive basis, they are dedicated to providing consumers with a wide range of quality-for-money assembly character toys. Bloks was selected as the “National Intellectual Property Advantage Enterprise” by the National Intellectual Property Administration; as well as “Shanghai Patent Work Demonstration Enterprise” by the Shanghai Intellectual Property Administration in 2023.

Freshfields and Clifford Chance acted as Hong Kong and U.S. legal counsel to Bloks and to the joint sponsors and the underwriters respectively. Jingtian & Gongcheng and King & Wood Mallesons acted as PRC legal counsel to Bloks and to the joint sponsors and the underwriters respectively. The joint sponsors are Goldman Sachs (Asia) L.L.C and Huatai Financial Holdings (Hong Kong) Limited, and the underwriters include Goldman Sachs (Asia) L.L.C and Huatai Financial Holdings (Hong Kong) Limited and Futu Securities International (Hong Kong) Limited.

Partner Jenny Nip led the transaction with support from associate Chantelle Chan and legal manager Ben Tao.

The post Campbells acted as the Cayman Islands legal counsel of Bloks Group Limited on its initial public offering and listing on Hong Kong Stock Exchange appeared first on Campbells.

The DNBs were issued in dematerialised registered form and cleared through The Central Money Markets Unit of The Hong Kong Monetary Authority. The DNBs and the beneficial interests were created and recorded on a digital asset platform. This transaction marks the first-ever digitally native bonds listed on HKEX with a BVI entity as the issuer and the first-ever digitally native bonds issued by a Chinese state-owned enterprise.  In addition, this is also the first digital bond issuance that has the benefit of a cross-border guarantee provided by a Chinese company and the first digital bond issuance that has a term of more than one year on the platform.

Zhuhai Huafa Group Co., Ltd. is Zhuhai’s biggest state-owned conglomerate in the People’s Republic of China and one of the companies listed among the Fortune China 500. Its businesses cover various sectors including urban city operations, real estate development, financial industry, business investment, commerce and trade services and modern services.

Linklaters (Hong Kong) acted as the legal adviser as to English and Hong Kong laws to the joint lead managers and King & Wood Mallesons (Hong Kong) acted as the legal adviser as to English and Hong Kong laws to the Issuer.

The post Campbells advises Zhuhai Huafa Group as BVI legal counsel on its first issuance of the Digitally Native Bonds appeared first on Campbells.

Click the following link to read the full article: Cayman Islands Discovery in S238 Litigation | Chambers Expert Focus

This article was first published on www.chambersandpartners.com. 

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Prior to embarking on a legal career, Carolina spent a couple of years working in Campbells’ Regulatory Reporting Department whilst undertaking her studies. “I’m excited to start as an Articled Clerk with Campbells. This is the start of what will hopefully be a long and satisfying career, and I appreciate the amount of hard work that lies ahead of me”, said Carolina.

“As the firm continues to grow, it is important that we continue to invest in the next generation of attorneys.

This is an important stage in Carolina’s professional journey and she has all the right attributes to succeed”, said Partner, Liam Faulkner.

Campbells is proud to continue its commitment to supporting Caymanians pursuing the study and practice of law and, in addition to offering a comprehensive Articled Clerk training programme, the Firm offers scholarships and summer internships. The 18-month training programme consists of rotations between different practice areas and ensures recipients receive active mentorship and a wide breadth of experience across all departments.

About Campbells Articled Clerk Programme:

The Campbells Articled Clerk Training Programme offers legal and professional development to qualifying Caymanians wishing to further their career in law. It provides students with the opportunity to develop their skills and knowledge by working with experienced attorneys and participate in a leading professional programme.

For additional information, please contact:
Ariana Seales
Head of Marketing
D +1 345 914 5885 | E aseales@campbellslegal.com 

The post Campbells welcomes new Articled Clerk Carolina Lopez appeared first on Campbells.

The JCPC ultimately allowed the appeal, finding that a shareholder has a right of action against the company to challenge the allotment of shares by the board of directors on the basis that the allotment was made for an improper purpose in circumstances where the allotment will cause detriment to the shareholder.

Background

The background to the dispute concerns a long-standing battle for control of the respondent company, China Shanshui Cement Group Ltd (the “Company”), a Cayman exempted company registered in Hong Kong as a non-Hong Kong company and listed on the Hong Kong Stock Exchange. The Company is a holding company of operating subsidiaries registered in Hong Kong and the People’s Republic of China (“PRC”), with the group being principally engaged in the production, distribution and supply of cement in the PRC.

The appellant, Tianrui (International) Holding Company Ltd (“Tianrui”) is a company incorporated in the British Virgin Islands with a shareholding of 28.16% of the Company. The other major shareholders of the Company are Asia Cement Corporation (“ACC”) with a 26.72% shareholding, China National Building Materials Co Ltd (“CNBM”) with a 16.67% shareholding, and China Shanshui Investment Company Limited (“CSI”) with a 25.09% shareholding.

In around May 2018, a majority of shareholders of the Company, including ACC, CNBM and CSI, voted at an extraordinary general meeting (“EGM”) of the Company to reconstitute the board of directors, with the reconstituted board comprising one director from CNBM, one director from ACC and three independent non-executive directors.

In or around August and October 2018, the Company issued convertible bonds in two tranches. At a subsequent EGM, a majority of shareholders passed a resolution mandating the directors to allot and issue new shares in the Company to the holders of the convertible bonds.

Tianrui alleged that the bondholders were parties connected to or affiliated with ACC and CNBM and that the issuance and allotment of shares was for the purpose of diluting Tianrui’s shareholding and obtaining control of the Company. Tianrui’s shareholding was decreased from 28.16% to 21.75%, with the result that Tianrui could no longer block special resolutions as its shareholding was under 25% and that, if the share issuance was valid, Tianrui could not prevent the merger of the Company and may have to have its shares bought out under s.238 of the Companies Act.

Tianrui commenced a writ action against the Company, seeking declarations that the exercise by the directors of the Company of the powers (i) to issue the convertible bonds, (ii) to convert the bonds into shares, and (iii) to issue the new shares, were not valid exercises of the relevant powers. The Company sought to strike out Tianrui’s claim as an abuse of process on the basis that Tianrui did not have standing to sue the Company for claims concerning alleged breaches by the directors of their fiduciary duties owed to the Company.

In the first instance decision in the Grand Court, Segal J rejected the argument that a shareholder did not have a personal claim because the shareholder could obtain redress by a derivative action, declining to follow the Court’s earlier decision in Gao v China Biologic Products Holdings, Inc [2018 (2) CILR 591] where the Court struck out a writ by a minority shareholder challenging the exercise of powers by a board of directors on the ground that the plaintiff lacked standing. Segal J held that Tianrui did have standing to bring a claim against the Company for improper dilution.

The Company appealed to the Court of Appeal, with the central question for the Court of Appeal being whether a minority shareholder had standing to sue the company in which it held shares in the face of two possible obstacles: first, that directors owe their fiduciaries duties to the company which appoints them and not to its shareholders, and secondly, the view that the damage suffered as a result of a breach of fiduciary duty by the directors is damage to the company itself, and not to the shareholder whose voting power has been diminished by the issue of new shares.

The Court of Appeal allowed the appeal, concluding that it remained Cayman law that an aggrieved shareholder has no personal right of action against the company and must found their claim on a basis that is consistent with the rule in Foss v Harbottle or with the fraud on the minority exception to that rule (discussed further below).

Privy Council decision

Tianrui then appealed to the JCPC, which heard the appeal in March 2024.

Issues for determination

The central issues for the JCPC’s determination were as follows:

• In circumstances where the duty of the directors alleged to have been breached is owed to the company, and not to its shareholders, what, if anything, is the shareholder’s cause of action?
• What, if any, distinctive aspects of the shareholder’s cause of action mean that it may be pursued notwithstanding the rule in Foss v Harbottle?
• Was the impugned exercise of the board of directors’ power void or voidable?
• Was the alleged breach of duty capable of being ratified by a majority of the company’s shareholders? If so, what is the consequence of the theoretical availability of ratification for the pursuit of the shareholder’s claim in the meantime?

JCPC’s findings

The JCPC ultimately allowed the appeal, finding that a shareholder has a right of action against a company where the board of directors has allotted shares for an improper purpose and this has negatively affected the shareholder. Accordingly, the JCPC held that the writ against the Company should not have been struck out and should be reinstated.

The JCPC recognised that the underpinning challenge by the Company to the right of Tianrui to bring the proceedings was the rule in Foss v Harbottle, made up of two related principles:

• First, where a wrong has been done to a company, only the company, not an individual shareholder, can take action. A breach by a director or by the board of directors of a duty which is owed to the company is a wrong done to the company, and the general rule is that only the company has a remedy for that breach.
• Secondly, the will of the majority of the shareholders of the company should, as a general rule, prevail in the running of the company’s business. Thus, if a transaction can be made binding on the company by a simple majority of shareholders, and that majority does not want to take action against a director or directors for breach of duty in relation to it, the majority can, as a general rule, waive the breach or ratify the irregular acts of the director or directors.

The exception to the operation of these principles is where the wrongdoers are themselves in control of the company. In that event, which is often called “fraud on the minority”, the aggrieved shareholder can bring a derivative action seeking relief on behalf of the company in which the cause of action is vested.

The JCPC reviewed the leading cases in England and Australia considering the exercise by directors of their powers for an improper purpose, citing the decisions of, inter alia, Punt v Symons & Co Ltd [1903] 2 Ch 506, Hogg v Cramphorn Ltd [1967] Ch 254, Bamford v Bamford [1970] Ch 2012, Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, Ngurli Ltd v McCann (1953) 90 CLR 425, and Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1988) 6 ACLC 1160. The JCPC highlighted that these cases had not considered the jurisprudential basis for a shareholder’s standing to bring a personal claim against a company.

In coming to the view that a shareholder whose holding is diluted by an improper allotment of shares by the directors may bring a personal claim against the company challenging the validity of that allotment, the JCPC adopted a “first principles” approach and provided the following analysis:

• The basis of a shareholder’s right to bring an action against the company to challenge an improper exercise of the directors’ powers to allot and issue shares is the contract between the shareholder and company set out in the memorandum and articles of association. The conferment upon the directors of its fiduciary powers to allot and issue shares is an important part of the contract between shareholders and the company, and it is implicit that the exercise of such fiduciary powers must be for a proper purpose.
• The right of a shareholder to sue the company is not dependent upon the alteration in the balance of power being adverse only to a minority of shareholders, nor is the personal right to sue dependent on the claiming shareholders being, or being part of, a majority. The JCPC considered that the size of the claimant’s shareholding was in principle irrelevant, and what mattered was that the claiming shareholder suffered an interference with its shareholder rights brought about by the improper share issue and allotment.
• It is irrelevant whether the company itself had a cause of action against the directors for a breach of duty owed to it. A shareholder’s action against the company could coexist with an action by the company in respect of the same breach of duty by the directors, so that the availability of the latter by no means excludes the former.
• Shareholders of a solvent company may, acting unanimously, ratify any action taken by the directors which falls within the corporate capacity of the company itself. However, if the shareholders seek to use their power to act by a majority, then they are constrained by the equitable principle that they may not do so by way of oppression of the dissenting majority and that constraint is inherent in the power of the majority of a class to bind the minority. Accordingly, the theoretical possibility of ratification was not sufficient to deprive a claimant shareholder of a cause of action.

Applying its analysis of the relevant principles, the JCPC concluded that the facts of this appeal presented a strong case for the availability of the shareholder’s personal action against the Company, finding that the writ should not have been struck out by the Court of Appeal and allowing the appeal.

Comment

The JCPC’s judgment provides welcome guidance on the ability of an aggrieved shareholder to bring a personal claim against a company in circumstances where a breach of fiduciary duty is alleged to have occurred, particularly where there has been an issuance and allotment of shares for the improper purpose of diluting the shareholder’s holding in a company.

The decision is also a significant development of the rights of shareholders in the Cayman Islands where there are no standalone statutory remedies available for minority oppression or unfair prejudice and where any shareholder remedies are largely obtained through the just and equitable winding up and/or derivative action regime, which may not always be fit for purpose in the circumstances of the case.

It remains to be seen whether the ability of a shareholder to bring a personal claim where their rights have been infringed is expanded outside of the context of improper dilution and what impact ratification may have to defeat personal claims of shareholders.

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