Do shareholders of foreign companies require leave to bring derivative proceedings in the British Virgin Islands?

Facts

The BVI Commercial Court recently considered a claim for costs of a discontinued strike-out application, which was brought by the defendants as part of an ongoing multi-jurisdictional family dispute. The claimant's substantive action in the British Virgin Islands involved derivative proceedings, which were brought on behalf of a company that was domiciled in Liberia, for the recovery of funds which the defendants were alleged to have wrongfully paid to another entity.

In considering that application, the court gave clear guidance on whether Section 184C of the BVI Business Companies Act 2004 will apply to companies incorporated out of the jurisdiction. Section 184C requires a member of a company to seek the leave of the court to bring derivative proceedings on the company's behalf; no such requirement exists for actions brought in Liberia.

The defendants submitted that, as a matter of private international law, the process for obtaining leave as set out in Section 184C was a procedural requirement of the lex fori (as opposed to a matter of substantive law) and therefore the claimant was bound by the section.

The claimant argued that the question was in fact one of statutory interpretation and not of private international law, due to the meaning ascribed to 'company' under Section 3 of the Business Companies Act.

Decision

In finding for the claimant, the court agreed and held that it was plain that the Section 184C requirement to obtain leave relates only to derivative claims made on behalf of a company incorporated under the BVI Business Companies Act - namely, a company incorporated in the British Virgin Islands.

As the action was brought on behalf of a Liberian company, Section 184C did not apply and the claimant was not required to obtain the leave of the court prior to commencing the action.

Comment

This decision is a welcome clarification of the operation of Section 184C. It also makes the jurisdiction a more attractive forum in which to bring derivative claims on behalf of foreign companies, since any prospective claimant will be able to commence proceedings without first obtaining leave from the court.

For further information on this topic please contact Andrew Thorp or Shuvra Deb at Harney Westwood & Riegels' Tortola office by telephone (+1 284 494 2233) or email (andrew.thorp@harneys.com or shuvra.deb@harneys.com). Alternatively contact James Noble at Harney Westwood & Riegels' Hong Kong office by telephone (+852 3195 7200) or email (james.noble@harneys.com). The Harney Westwood & Riegels website can be accessed at www.harneys.com.

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