Worldwide: Offshore Case Digest: Issue No. 8 - Bermuda, The British Virgin Islands And The Cayman Islands

BERMUDA

Court of Appeal

July

SECTION 103 OF THE COMPANIES ACT, 1981 – MINORITY SHAREHOLDER – DEFINITION OF HOLDER AND PURCHASER

(1) MFP-2000, LP -v- (1) Viking Capital Limited (2) Misa Investments Limited [2014] CA (Bda) 1 Civ (22 July 2014)

On 29 September 2011 Viking Capital Ltd & Misa Investment Ltd ("V&M"), 95% majority holders of the relevant ordinary shares in Viking River Cruises Ltd. ("VRC"), gave a Section 103(1) notice to MFP 2000 to purchase its 2.4% minority holdings of ordinary shares in VRC. Following the activation by that notice of the appraisal process, V&M transferred all of their 95% majority holdings to an associated company, Viking Cruises Ltd ("VC"). In the resultant re-structuring of V&M and its associated companies, VC emerged as the holders of virtually all of VRC. In short, the 95% majority shareholders of VRC transferred all their shares in it to themselves under another corporate name.

Section 103(1) of the Companies Act, 1981 identifies the start of a mechanism described in the remainder of the section by which holders of a 95% majority of shares or class of shares, on service of a notice on the remaining minority holders, may compulsorily purchase the latter's shares, subject to entitling them all to the same terms. On V&M's case, 95% majority holders responsible for initiating such a process may have recourse to the mechanism for which it provides, whether or not thereafter they, the 95% majority holders, retain their holdings. On MFP's case, V&M, having divested themselves of their 95% majority holdings following service of the notice on which they rely, had no locus standi to resort to Section 103.

The issue turned on the respective meanings of, and relationship between, the words 'holders' and 'purchasers' in Section 103(1).

The Judge at first instance ruled that, notwithstanding the transfer by V&M to VC of their 95% majority holdings in VRC during the appraisal period, V&M, as 'purchasers' within the meaning of that word in Section 103, remained entitled to acquire MFP's shares at a price to be fixed by the Court. The conclusion of the first instance judgment was that: "... Section 103 provides a mechanism whereby the holders of not less than 95% of the shares in the company can purchase the shares of the minority. That means the holders of not less than 95% of the shares at the date when a Section 103 notice is given. The majority need not retain their shares until the minority shares have been acquired or the notice cancelled".

The Court of Appeal agreed and held that the word 'purchasers' cannot sensibly refer to persons or bodies who were not 95% majority shareholders responsible for activation of the Section 103 processes in question. In summary, 95% majority holders who give notice under Section 103 may proceed to purchase remaining minority holdings subject to and by means of appraisal if invoked, even if they or some of their number, have in the meantime divested themselves voluntarily or involuntarily of all or part of their holdings.

In the view of the Court of Appeal, the structure and wording of Section 103 obliges and entitles 95% majority holders who have served a Section 103(1) notice to acquire the remaining minority holdings, whether or not they remain 95% majority holders at the time of any appraisal invoked by the minority holders. Section 103(1)'s opening words, "The holders ... hereinafter in this Section referred to as the 'purchasers', simply presage the mechanism set out in the remainder of the provision by which they, the 'holders' responsible for giving the notice, become and remain entitled, until completion of the appraisal process and subject to compliance with it, to acquire the minority shares.

The above conclusion would be sufficient in itself to resolve the appeal in favour of V&M. However, the Court of Appeal added that it agreed with the First Instance Judge's observations that Section 103 has as its dominant purpose the facilitation of ready corporate restructuring while also providing fair treatment to minority holders.

Accordingly, the Court dismissed MFP's appeal and held that V&M remained entitled under their Section 103(1) notice to acquire MFP's shares at a price yet to be fixed.

Supreme Court

July

INTERNATIONAL COOPERATION (TAX INFORMATION EXCHANGE AGREEMENTS) ACT, 2005 (THE "2005 ACT") – COSTS

Ministry of Finance -v- O [2014] SC (Bda) 60 Civ (17 July 2014)

Section 6 of the 2005 Act imposes a statutory duty upon a person served with a production order to provide the information sought, provided that, it is within his possession or control. The 2005 Act is silent as to who should bear the costs of compliance.

In an earlier ruling of the Court, the Defendant, "O", was ordered to produce copies of various documents to the Plaintiff. The question of who, as between the Plaintiff and the Defendant, should bear the costs of complying with the order was adjourned to this hearing.

The Judge held that competing policy considerations urged upon him by the parties, while persuasive, were evenly balanced and therefore cancelled each other out. Despite this, it was considered desirable that there should be a common approach to the costs of production orders, whether made in criminal or regulatory proceedings. In the absence of a settled practice in Bermuda, the Judge proposed to adopt the practice as to the costs of criminal production orders made in England and Wales. Thus, it was held in the case of production orders made under TIEAs and served on third parties in the financial services industry, the third party Respondent should generally bear the costs of compliance with the order. It followed that the Defendant was ordered to bear its costs of complying with the earlier production order.

August

COMPANY LAW - DECLARATORY RELIEF – INTERIM INJUNCTION – REMOVAL OF DIRECTORS – SERIOUS ISSUE TO BE TRIED – BALANCE OF CONVENIENCE

Oung Shih Hua James -v- Paladin Limited [2014] SC (Bda) 62 Com (14 August 2014)

The Plaintiff in this case is seeking a declaration that a lawfully convened special general meeting ("SGM") of the Defendant company was held on 1 August 2014 and that various resolutions were validly passed thereat; most significantly, resolutions that removed or purportedly removed certain directors and appointed new directors. For the purposes of this hearing, the Plaintiff sought interim injunctive relief (to restrain the Defendant Board members the Plaintiff contends were validly removed, from purporting to act on behalf of the Company).

In applying the test for an injunction, the Judge first considered whether there was a serious issue to be tried. It was explained to the Court by the plaintiff that before any business could be conducted at the SGM, the Chairman had raised concerns about the propriety of certain nominees to the Board and purported to adjourn the meeting, in his discretion, without seeking the direction of the meeting itself. The meeting continued with an acting Chairman being 'appointed' and the proposed resolutions were duly passed. In this respect, the Judge noted that according to the byelaws, there was no open-ended unfettered discretion in the Chairman of a general meeting to post pone or adjourn a meeting and the power to adjourn can only be exercised at the direction of the shareholders. The Judge also noted this proposition to be consistent with general notions of English-based company law supported in argument by reference to National Dwellings Society -v- Sykes [1894] 3 Ch. 159. The Judge therefore held there was a serious issue to be tried, namely whether the SGM was in fact validly continued, and whether those persons who are purporting to still be Board members are not.

The Judge went on to hold that the balance of convenience was in favour of granting injunctive relief. An overwhelming factor was that the 'rival Board', had accepted, in a notification through the Hong Kong Stock Exchange, that there should effectively be a standstill until matters can be clarified. The Judge therefore held, the status quo, which is an uncertain Board composition, should be preserved until a trial can take place as soon as possible.

The Judge noted that it was clearly in the interests of justice generally and the reputation of Bermuda and the Hong Kong Stock Exchange for a dispute about who controls a company to be resolved at the earliest possible opportunity. The Judge granted the interim injunction sought and gave directions for an expedited trial.

PLACING AGREEMENT – CHANGE OF CONTROL – URGENT INJUNCTION TO RESTRAIN SPECIAL GENERAL MEETING – APPROPRIATE FORUM (BVI)

(1) Gold Seal Holding Limited (2) Five Star Investments Limited (3) Oung Shih Hua (also known as James Oung) (4) Huang Weizong Martin (5) Kwok Wai chi -v- (1) Paladin Limited (2) Chen Te Kuang (also known as Mike Chen) (3) Law Fong [2014] SC (Bda) 66 Civ (27 August 2014)

Paladin Limited, the first Defendant, is a Bermudian company listed on the Hong Kong Stock Exchange which is ultimately owned by various members of the Oung family. The present proceedings were commenced by the controllers of the first Defendant to challenge the implementation and validity of a 29 April 2014 Placing Agreement and resolution transferring control over Paladin to the second and third Defendants, and purportedly approved by Paladin's Board of Directors on 19 May 2014.

On 21 May 2014, Hellman J granted an ex parte Injunction restraining the implementation by Paladin of the said Placing Agreement. Following an inter partes hearing on 29 May 2014, he discharged that injunction on the grounds that, inter alia, there was no serious issue to be tried and that damages would have been an adequate remedy. On 13 June 2014, the Plaintiffs filed a Statement of Claim in which an additional complaint emerged. The Board of Paladin were alleged to have failed to convene a special general meeting ("SGM") requisitioned by the first and second Plaintiffs under Section 74 of the Companies Act, 1981, who accordingly themselves convened the SGM for 16 June 2014. The Defence filed on 26 June 2014 countered that the Board itself had duly convened a SGM and that the 16 June 2014 SGM had not been validly convened. The purpose of the SGM was in practical terms for the controllers of Paladin to reassert control of the composition of the Board.

In this application, the second Defendant sought an urgent injunction restraining Paladin from holding a SGM due to be held on the 1 August 2014 and from putting to its shareholders at any meeting any resolutions, or otherwise passing or putting into effect any resolutions, which have the effect, directly or indirectly, of altering the Board composition of the Respondent. The Judge refused this application and made the following useful observations:

In the present case, the only substantive causes of action explicitly supported by evidence lay against the second Defendant, Five Star Investment Limited ("Five Star"), which is resident in the British Virgin Islands, and related to matters (the status of its shareholding and the proposed exercise of its corporate power through voting its shares in Paladin at the SGM) that are primarily governed by BVI law. It was not contended by the second Defendant that the BVI Court was not competent to grant injunctive relief in support of any arguable claim that the exercise of Five Star's power to vote its shares in Paladin ought properly to be restrained pending a determination of the dispute as to who was entitled to control Five Star.

Accordingly, BVI appeared to be both the most appropriate forum for the substantive action concerning the control of a BVI company and the most suitable venue for seeking the specific type of interim relief sought instead from this Court.

To read this issue in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions