While researching for the article "Lessons from Delaware"1 , the role of the corporate lawyer in Delaware stood out as a significant reason for the success of Delaware. When looking at offshore financial centres, the corporate lawyer plays an equally important role, although perhaps not as well developed as in Delaware. Further, when discussing the difficulties faced by certain offshore financial centres, the issue circled back to the role of corporate lawyers, and their inability to progress change.

It is the thesis of this article that the offshore financial centre that best emulates the role of corporate lawyers in Delaware will likely be the most successful transactional offshore financial centre. The British Virgin Islands (BVI) is well positioned, if it chooses to do so, to adopt a Delaware type model and by doing so to advance ahead of its competitor jurisdictions and become a leading transactional offshore financial centre.

First let us look at Delaware. The most important corporate law statute in Delaware is the Delaware General Corporation Law (DGCL). The Delaware General Assembly (the legislative body) is responsible for the DGCL. In the ordinary course of other legislation for which the General Assembly is responsible, there are debates in the house, debates in committee and other public consultations on legislation. None of this takes place for changes to the DGCL. When changes are made to the DGCL, the vote by the General Assembly is invariably unanimous with no partisan controversy2.

The reason for the lack of debate in the General Assembly is that all changes to the DGCL and related corporate law originates from and is drafted by the Corporation Law Section of the Delaware State Bar Association. In particular, it is the governing body, the Council, of the Corporate Law Section which develops the legislative changes, debates the issues and drafts the proposed amendments. This process is a significant reason that Delaware is able to keep its corporate law legislation at the cutting edge of corporate law legislation in the United States.

The Council is made up of twenty three members. These members are all corporate lawyers and litigation lawyers in Delaware. "As a matter of practice, and in recognition of the size of their corporate practice groups, seven of the large commercial firms in Wilmington [ Delaware] have nominated two members each; the other members practice in smaller firms, all in Wilmington"3. As such, the Council represents a cross section of the corporate (as well as the litigation) lawyers in Delaware. Notably absent are any lawyers not based there.

Proposed changes are suggested to Council members, whether by their clients or from lawyers outside of Delaware, who then bring up the proposals in Council. However, "the work of the Council proceeds in private. There is a strongly held tradition that preliminary or potential legislative proposals are not to be discussed with or disseminated to persons outside the firms represented on the Council"4.

The members of the Council act in the best interests of the state. The members are "obligated to leave parochial client interests behind when proposing corporate legislation, to present issues fairly and in an even handed fashion and always deal candidly with the legislature on matters involving corporate law"5.

Once the Council has drafted and agreed amendments, the amendments are submitted to the Corporation Law Section for approval and then to the Delaware General Assembly. The approval of the Corporation Law Section is usually routinely obtained, although not always. If the interests of other stakeholders were not considered by the Council, which is rare but happens, then the interests of these other stakeholder are raised at the meeting of the Corporation Law Section. The Council will consider the issues raised and, if required, revise the draft legislation. Once approved by the Corporation Law Section, the amendment is almost invariably approved by the Delaware General Assembly6.

This interaction can be best described as follows: "The DGCL is the great beneficiary of an unwritten compact between the bar and the state legislature. In broad outline, the terms of the compact recognize that the legislature will call upon the expertise of the Corporation Law Section of the Delaware State Bar Association to recommend, review and draft almost all amendments to the statute.7" However, the Corporation Law Section and the Council are always acutely aware that they must strive to maintain the trust and confidence of the General Assembly8.

In this way, Delaware keeps its corporate legislation at the cutting edge.

The process is not nearly as formalized but is not dissimilar in many of the offshore financial centers. In virtually all offshore financial centers, there are one or two law firms which stand out as the largest firms. It is these firms which propose and draft legislative changes to the corporate law statutes. When this happens the jurisdiction moves forward. However, there are often forces at work blocking or slowing down these changes. Interestingly, these forces are not the smaller law firms or other private sector bodies, but rather Government or regulatory forces. Further, it is the experience of these firms that the bodies are not blocking or slowing down these changes for genuine legislative or regulatory reasons. A case in point at the time of the writing of this article is the proposed LLC (limited liability company) legislation for the Cayman Islands which was drafted by the private sector and is 'stuck' in the Attorney General's chambers for review. Cayman Island lawyers are frustrated by these delays, and generally do not believe that the delays are as a result of a genuine desire to improve the draft legislation.

I am afraid that there are no studies or journal articles to cite as evidence of this practice. The evidence is entirely anecdotal. However, the evidence cuts across many jurisdictions and there is a great deal of such anecdotal evidence. For those in doubt, they should discuss the issue with private sector members in the various offshore jurisdictions.

However, what this does mean is that the offshore financial centre which adopts a quasi-formal but private sector multi-firm driven model, such as is used in Delaware, will have the platform for ensuring that their corporate legislation is on the cutting edge of offshore corporate legislation, and will greatly assist it in being a leading transactional offshore financial centre.

It is important though to emphasise the nature of the changes to the company law that are being referred to. The BVI Business Companies Act and the DGCL deal with the internal affairs of a company. They deal with the company as a legal entity and the theoretical underpinnings of this artificial entity. Amendments to the DGCL are very conservative. Changes are not proposed unless a problem has been identified, either through litigation or the practice of corporate lawyers. The amendments proposed by the Council usually do not generate controversy, as they are often on technical issues9.

There is a distinction between regulation and company law, and it is for this reason that most company law statutes do not regulate, other than with respect to the internal affairs of the company. As such, the regulators should still regulate, and let the persons who deal with the company law day in and day out be responsible for the development of that law.

But why is it desirable to be a leading transactional offshore financial centre? Being a leading transactional jurisdiction adds more substance. It means more business and industry, as evidenced by the Cayman Islands, Bermuda and the Channel Islands. It means more opportunities in financial services, as well as generally more economic activity throughout the economy. It also diversifies the BVI economy away from its reliance on the incorporation business. To be certain, the BVI has already expanded significantly since I arrived in the BVI sixteen years ago. However, further growth is required to become a leading transactional offshore financial centre.

Delaware is the most successful model of a company law jurisdiction. Further, Delaware is not in competition with offshore. The offshore financial centre which emulates Delaware will likely be the most successful transactional offshore financial centre. Supporting the role of corporate lawyers in developing corporate legislation is a big step in this regard.

As originally seen in Business BVI.

Footnotes

1 Published on page of this magazine.

2 Lawrence A Hamermesh, "The Policy Foundations of Delaware Corporate Law", 2006.

3 Hammermesh.

4 Hammermesh.

5 Lewis S. Black., Jr, "Why Corporations Chose Delaware", 2007.

6"No proposals recommended by the Corporate Law Section have ever failed to pass in the General Assembly", Curtis Alva, Delware and the Market for Corporate Charters: History and Agency, 1988.

7 Black.

8 Hammermesh.

9 Marcel Kahn & Edward Rock, Symbiotic Federalism and the Structure of Corporate Law, 2005.

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