The judgment addresses:

  • the ability of the holder of disabled bearer shares to deliver those shares for conversion into registered shares, together with the right to vote those shares before the company has acted upon the request;
  • the law that governs the transfer of a bearer share;
  • the deeming provisions within Section 117 of the BVI Business Companies Act 2004 (the BVIBCA) which provides that the acts of a person as a director are valid, notwithstanding that the person’s appointment was defective;
  • the proper construction of an unusual provision within the BVIBCA at Section 109(6) which provides that where a company does not have a director, any person that manages, directs or supervises the management of the business and affairs of the company is deemed to be a director for the purposes of the BVIBCA.

Bearer Shares

Lark Services Inc. (Lark BVI) is a company that was incorporated under the International Business Companies Act 2004 (the IBC Act), at a time when bearer shares were very much de rigueur.  In 2004, the legislature enacted the BVIBCA which contained provisions designed to phase out bearer shares, by bringing about their immobilisation after 1 January 2010.

The transitional provisions to the BVIBCA had the effect of bringing about the automatic re-registration of companies incorporated under the old IBC Act, and providing for a change to the Articles of former IBC Act companies to prevent them from issuing bearer shares or exchanging registered shares for bearer shares.  The transitional provisions also contained provisions enabling the company to force the redemption of outstanding grandfathered bearer shares.  For any existing bearer shares, an immobilisation regime was introduced which had the effect of suspending any rights which attach to the share for so long as the bearer share has not been deposited with an authorised custodian.

Encouraged by provisions within the BVIBCA that provided for a time period within which it was possible to apply to the Court for an extension of time within which to deliver the bearer share to an authorised custodian, a view evolved that after 1 January 2010 all rights associated with a bearer share were forever lost.  However, in Nova Scotia v. Registrar of Corporate Affairs[1] the Court of Appeal confirmed that this was not so: pursuant to Section 36 of the transitional provisions to the BVIBCA, it remained possible for a bearer share to be redeemed.  Far from being contrary to public policy for this to occur, the Court of Appeal (perhaps predictably) held that any other conclusion would infringe the Constitution: that the legislature could not have intended, and did not intend, to expropriate the rights of bearer share holders, without the payment of compensation.  The rights attaching to those shares were merely suspended, to encourage the bearer share holder to fall into line. Nova Scotia thus held that the bearer share holder had a right to the proceeds of his redemption, and to the payment of fair value.

This decision left unresolved a separate issue.  In 2012, the legislature amended Section 38(2) of the BVIBCA to make it clear that “notwithstanding anything in this Act or the Articles of a company, it was possible to convert a bearer share to a registered share at any time.”  But the ghost of the now discredited view that bearer shares were permanently disabled appeared to subsist.  So the argument went that Nova Scotia decided that redemption was the only available route for the holder of a disabled bearer share, and that the rights of a bearer share holder were circumscribed by the transitional provisions, with the result that Section 38(2) had no application.

The Facts

Against that background, the facts in Sempacher can be summarised briefly.  Lark BVI had two grandfathered bearer share certificates in issue: one representing 60 shares, (held by Sempacher), and one representing 40 shares.  Following the restoration of the company after a period of inactivity, two professional directors employed by a corporate services provider called Paton Moreno & Asvat (PMA) resigned their office as a director, after purporting to appoint two directors nominated by each shareholder (the PMA Resolution).  Through inadvertence on their part, that resolution was effective to appoint nobody: the outgoing directors had a power to appoint directors only to fill a vacancy, and because they had not yet resigned, there was no vacancy.

Sempacher then delivered its bearer shares to the registered agent of Lark BVI, PMA, with a request that they be converted into registered shares.  However, by this time the two nominees of the minority shareholder were claiming (erroneously) to have been the only two directors appointed by the PMA Resolution, such that they had control of the board.  Relying upon Section 70(3) of the BVIBCA which provides that a bearer share ceases to be disabled when it is delivered to the company for conversion into a registered share, Sempacher then voted its shares to direct the registered agent to convert the shares into registered shares, and to remove any directors then purporting to hold office, and to replace them with nominees of Sempacher.

The minority shareholder cried foul, and suggested that these steps were impossible: that a disabled bearer share could not be converted; that even if it could, it could not be voted until a registered share had been issued.  The minority, still claiming to hold office, then purported to allot shares to themselves, to redeem Sempacher’s bearer shares for nominal consideration, and to transfer the assets of Lark BVI for no real consideration to a similarly styled entity incorporated in Norway (Lark Norway), an entity controlled by the wife of the holder of the minority (and still disabled) bearer shares.

The Right to Convert

The litigation was tried over five days before Mr. Justice Gerard St. C Farara QC, acting as a Judge of the Commercial Division.  The judgment therefore benefits from his considerable knowledge of the development of company law in the Territory.  He held that Section 38(2) meant what it said: that it was open to the holder of a disabled bearer share to deliver the share for conversion.  The Articles of Association of Lark BVI provided that when such a bearer share was delivered, the company was under a contractual obligation to exchange it (“the directors shall exchange…”).

Farara J also accepted that Sempacher validly voted its bearer shares to require the company to exchange them, and to remove and replace the board, on the basis that Section 70(2) was to be construed as re- enabling the bearer shares when they were delivered for conversion.  It followed that the only directors ever in office after the defective PMA Resolution were those appointed by Sempacher, and every resolution purportedly passed by the minority was invalid.  The Judge reached this conclusion both as a matter of statutory construction, and on an application of Duomatic principles.  The Court also accepted that Duomatic was capable of being invoked not just by the registered holder of a share, but also by its beneficial owner: Shahar v. Tsitsekkos[2].

This decision is to be welcomed and is of wider significance: it preserves the rights of a disabled bearer share holder for the limited purpose of securing a redemption or conversion of that share, and it means that the cumbersome practice that had arisen following Nova Scotia of appointing a receiver following the restoration of a bearer share company with the power to redeem a share will be unnecessary in many cases.  Perhaps more importantly, the minority in Sempacher had attempted to clothe the steps which they took subsequently to transfer the assets of the company to themselves with a veneer of respectability, by maintaining that the immobilisation regime had the effect of rendering the majority powerless to complain of that conduct.  The judgment in Sempacher puts that judgment right.

The Law Relating to Transfer of a Bearer Share

The Defendants, however, had another string to their bow: they sought to impeach the validity of Sempacher’s title to the bearer shares, and thus its standing to maintain proceedings at all.  By the terms of a series of documents executed in 2004, the assets of a trust (including the bearer shares) were appointed to Sempacher, but the bearer share certificate remained throughout in the physical possession of the administrator to the former trustee.  It signed a declaration recording that following the appointment of the assets of the trust, it held the bearer share certificate as custodian for Sempacher.

With effect from 31 December 2009 it became impossible to lawfully transfer an interest in a bearer share.  It was therefore argued that Sempacher only came to hold the bearer shares when they were surrendered by the custodian in 2015.  Sempacher argued that it became the owner of the bearer shares in 2004, even though it did not come into physical possession of the bearer certificate.

A question therefore arose as to the law governing the transfer of the bearer shares to Sempacher: whether the transfer to Sempacher in 2004 was governed by BVI law, or by Swiss law.  The minority argued that BVI law applied, since Section 245 of the BVIBCA provides that the situs of shares in a company is in the BVI.  But Sempacher argued that because a bearer share certificate is a form of negotiable instrument, the law of the place where the bearer share certificate was held applied: thus Swiss law.  The Court accepted the submission of the majority: adopting a statement to this effect in Dicey & Morris, the Judge accepted that Swiss law applied.

Even had BVI law applied, the Court held that it would have reached the same conclusion.  The Court accepted that ownership of a negotiable instrument can be transferred by constructive delivery, as where a warehouseman attorns in respect of goods in his warehouse, or where a solicitor holding a negotiable instrument is instead instructed to hold it for the person to whom it is sold.

Were the Resolutions Valid Anyway?

Faced with a finding that they never validly held office as directors, the Defendants sought to argue that the steps taken pursuant to their resolutions were effective anyway, relying upon the deeming provisions at Section 117 and 109(6) of the BVIBCA:

  • Section 117 is a provision which is substantially similar to Section 161 of the Companies Act 2006 in England, which provides that the acts of a person as a director are valid notwithstanding the fact that such director was not properly appointed.
  • Section 109(6) is more unusual, apparently unique to the BVI, which provides that where a company has no directors, any person managing the affairs of the company is deemed to be a director for the purposes of the BVIBCA.

Farara J rejected both submissions.  He accepted that Section 117 operates only to validate a defect in the appointment of a director where the power to appoint clearly existed.  Relying upon Morris v. Kanssen[3] he held that this was not a case of a defective appointment by the outgoing PMA directors, but one which did not take place at all.  The Court held that Section 117 was also inoperable where the person purportedly appointed is aware of the defect in his appointment.

Section 109(6) is a more curious provision, which does not have an equivalent in England.  Farara J concluded that the appropriate approach to this provision was that:

  • It applied to the management of the business and affairs of the company, and not to the more formal, constitutional and regulated decision making process of the board.
  • It was inapplicable to validate breaches of duty, and that it applied only where the “directors” concerned had acted in good faith and for a proper purpose. Albeit without reaching a concluded view, this also appears to have been the view of the English Court of Appeal when considering this issue in Gelley v. Shepherd[4].

Expert Evidence

The Sempacher decision is also likely to be welcomed for its rigorous analysis of Swiss law, and its application of the principle that an expert must provide evidence in an effort to genuinely assist the Court, rather than the party instructing the expert.

The Defendants’ expert was the subject of a detailed cross-examination on this issue.  She was found to have engaged in speculation designed to assist the Defendant, to have been selective in her citation of authority, and to have adopted a reasoning which served “significantly, to undermine or to call into question the soundness of [her] understanding of Swiss law, and her independence and impartiality as a legal expert.”

By contrast, the Judge found the Claimant’s expert to be a “considerably more knowledgeable, experienced, competent and compelling expert as to the applicable Swiss law. Dr. Gross has had a long and very extensive practice before all courts in Switzerland and is clearly a very knowledgeable and able Swiss lawyer and advocate.”  The Court therefore rejected the apparently controversial notion that the existence of an “in rem” contract is a necessary prerequisite to the valid transfer of ownership in a moveable object under Swiss law.


BVI Dispute Resolution Head Andrew Willins appeared as the lead advocate at the trial on behalf of the successful Claimant, with Ryan Hocking then on secondment to Appleby from the London Bar, and Laure-Astrid Wigglesworth. The Claimant’s expert was Dr. Balz Gross of Homburger AG.

[1] BVIHCAPP 2016/0009

[2]  [2004] EWHC 2659

[3] [1946] AC 459

[4]  [2013] EWCA Civ 1172

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