Privy Council Hands Down Judgment In BVI Shareholder Rights

The Privy Council has recently handed down the judgment in Staray Capital Limited and another v Cha Yang [2017] UKPC 43, concerning the circumstances in which majority shareholder decisions to amend the Memorandum & Articles of Association (M&A) of a British Virgin Islands Company for reasons that are not in good faith to a company's best interests can be set aside. The case illustrates that the burden of proof is on the minority shareholder seeking to have the amendment set aside to prove bad faith. Moreover, the Privy Council explicitly decided that the fact that an amendment is intended to affect a particular minority shareholder and does affect that shareholder is not sufficient to prove such bad faith.

The Staray judgment is the most recent in a line of cases following the leading case of Citco Banking Corporation N.V. v Pussers Limited and another (the Citco case) in which O'Neal Webster successfully represented the Respondent, Pussers Limited. The Citco case has been followed, not only in cases from the BVI but also in English courts, including the Court of Appeal (see Charterhouse Capital Ltd [2015] EWCA Civ 536).

The Staray case has now confirmed that Cisco remains the leading decision about the limits of shareholder power where the majority seeks to make changes to the constitutional documents of a company.

The M&A of a BVI company takes effect as a statutory contract between the BVI company and its members, and between the members themselves. Section 12 of the BVI Business Companies Act (BVIBCA) confers the power to amend a statutory contract but does not impose any limits on that power. The Citco case illustrates that such limitations will nevertheless arise at common law.

Pussers Limited is a well-known and successful restaurant and pub based in Road Town, Tortola, with branches both within and outside of the BVI. At an extraordinary general meeting in 2004, Pussers resolved (by special resolution) to amend the M&A to create a new class of shares each carrying 50 votes, all of which would be held by its chairman, Mr. Charles Tobias, giving him undisputable control of Pussers Limited.

The Privy Council discussed the test to apply in order to determine whether the amendments made by the majority shareholders to the M&A were in good faith in the interests of the company. The Privy Council ruled that as long as there were grounds upon which a reasonable man could make the same decision, the courts would not interfere in the...