More Questions Of Standing Of Beneficial Shareholders

In a recent decision in the case of TIPP Investments PCC v. Chagala Group Ltd. et al (BVIHCM 102/2016), Mr Justice Davis-White clarified the issue of the standing of beneficial shareholders that we highlighted in our previous article. As we had said was the likely outcome of any reconsideration of the case of Headstart Class F Holdings Ltd and another v Y2K Finance Inc (BVIHCV 278/2007), was a judgment that a beneficial owner that held its interest through a nominee was not a member (for the purposes of s.184 of the BVI Business Companies Act 2004 (BCA)) and consequently did not have standing to bring an unfair prejudice claim. The Headstart case had been wrongly decided, having been based on erroneous interpretation of the English case of Atlas Ltd & ors v Brightview & ors [2004] BCC 542.

While the decision in the TIPP Investments case clarifies the position in respect of unfair prejudice and related claims, there remain a number of other areas in which questions over the standing of beneficial shareholders are worth considering.

Rectification claims

The circumstances in which a beneficial owner - one who feels he has wrongly been omitted from the register of members - may have resort to the summary rectification procedure provided by s.43 of the BCA was considered by the Privy Council last year in the case of Nilon v Royal Westminster [2015] UKPC 2.

The Privy Council ruled definitively that rectification is a summary procedure which is generally restricted to resolving errors or omissions in registration: it therefore can only be invoked to settle simple disputes over legal ownership, as opposed to disputes as to beneficial ownership of shares. It should not be used to resolve more complex disputes between members, for example contractual disputes under a joint venture agreement (as in this case). The court concluded that: "proceedings for rectification can only be brought where the applicant has a right to registration by virtue of a valid transfer of legal title, and not merely a prospective claim against the company dependent on the conversion of an equitable right to a legal title by an order for specific performance of a contract."

The Privy Council ultimately found that BVI was not the appropriate forum for the dispute.1

Insolvency and applications to appoint a liquidator

Courts in the BVI and more recently the Cayman Islands have indicated that there are some avenues of redress for beneficial owners of shares in an insolvent...

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