Commonwealth Caribbean Company Law

Description

In the last twenty five years, company law in the Commonwealth Caribbean has undergone dramatic changes, from a model influenced by English law to a new, harmonised collection of regional legislation based on the Caricom and CLI model Acts that vary substantially across Caricom member states. The variation within Caribbean company law presents an enormous challenge, both in terms of the breadth of the subject and in addressing the difference in provisions of one state’s Company Law Act as opposed to another. Using the Caricom model Act and CLI model Act as a basis for its structure, Commonwealth Caribbean Company Law examines and compares regional implementation of company law in an accessible and comprehensive manner that will be invaluable to students and practitioners in the region. Title Copyright Dedication CONTENTS Preface Table of Cases Table of Statutes 1 MODERN COMMONWEALTH CARIBBEAN COMPANY LAW IN PERSPECTIVE INTRODUCTION ENGLISH ORIGINS OF COMMONWEALTH CARIBBEAN COMPANY LAW Legislative roots Summary of English Company Legislation in the Commonwealth Caribbean ENGLISH CASE LAW DEVELOPMENTS AND COMMONWEALTH CARIBBEAN COMPANY LAW An overview NEW COMPANIES LEGISLATION IN THE COMMONWEALTH CARIBBEAN Caricom Draft Model Act and the Barbados Act Purposes of the new Companies Acts Major changes introduced by new Companies Acts Canadian cases in Commonwealth Caribbean company law Methodological problems and solutions CONCLUSION 2 CLASSIFICATION OF COMPANIES INTRODUCTION MEANING OF ‘COMPANY’ PRIVATE AND PUBLIC COMPANIES PUBLIC COMPANIES AND COMPANIES WHICH ARE NOT PUBLIC COMPANIES Non-profit companies Incorporation Directors Membership Bye-laws Dissolution and distribution of property COMPANIES LIMITED BY GUARANTEE Meaning of company limited by guarantee Uses of company limited by guarantee Incorporation of companies limited by guarantee COMPANIES INCORPORATED OUTSIDE THE TERRITORY CONCERNED Overview of the provisions in the Acts EXTERNAL COMPANIES Carrying on of undertaking by external company Obligation to register Requirements for registration Restrictions on activities Obligation to name attorney Certificate of registration Effect of registration Suspension of registration Cancellation of registration Revival of registration Name display Fundamental changes Returns Incapacity of external company Resumption of action OUTSIDE COMPANIES Obligation to deliver documents to Registrar Power of Registrar to direct name change of outside company Power of outside company to hold land Duty of outside company to deliver to Registrar alteration of documents Duty in respect of outside company’s accounts Obligation to state name of its country of incorporation Service on outside company Removing outside company’s name from the register FORMER-ACT COMPANIES CONSTRAINED SHARE COMPANIES CONCLUSION 3 COMPANY FORMATION INTRODUCTION NATURE OF THE RIGHT TO INCORPORATE Voluntary and involuntary incorporation Registrar’s duty to register Certificate of incorporation Right to incorporate in a foreign language EXERCISING THE RIGHT TO INCORPORATE Who may exercise the right to incorporate Formalities for incorporation Articles of incorporation Acts Articles of incorporation Memorandum of Association Acts CORPORATE NAME Overview Request for name search and reservation application Principles applicable to the granting of a name THE BYE-LAWS LEGAL STATUS OF ARTICLES OF INCORPORATION Articles of Incorporation Acts other than the Jamaican Act Under the Jamaican Act ARTICLES OF CONTINUANCE CONCLUSION 4 PROMOTION AND PRE-INCORPORATION TRANSACTIONS INTRODUCTION COMPANY PROMOTERS Meaning of promoter Need to regulate company promoters Duties of promoters Remedies for breach of promoter’s fiduciary duties PRE-INCORPORATION CONTRACTS Basic statutory provisions The common law and statutory intervention The scope of section 16 Section 16(1) and personal liability and rights Section 16(2): adoption by the company Section 16(4) and apportionment of liability by the court Exemption from personal liability CONCLUSION 5 CORPORATE PERSONALITY INTRODUCTION SEPARATE LEGAL PERSONALITY The Salomon principle Separate legal personality and constitutional fundamental rights Separate legal personality and the ‘one-man company’ Corporate personality and corporate groups Separate legal personality and limited liability ‘PIERCING OR LIFTING THE CORPORATE VEIL’ Concepts and definitions Under case law Corporate structure a device to evade limitations imposed on conduct by law Under legislation SEPARATE LEGAL PERSONALITY AND CORPORATE CIVIL AND CRIMINAL LIABILITY Rules of attribution Attribution of corporate civil liability Attribution of corporate criminal liability CONCLUSION 6 CORPORATE CAPACITY AND CORPORATE AGENCY INTRODUCTION CORPORATE CAPACITY The basic statutory provisions Rules on corporate capacity THE EXERCISE OF CORPORATE POWER Corporate agency The Companies Acts and the constructive notice doctrine The Companies Acts and the rule in Turquand’s Case CONCLUSION 7 RAISING SHARE CAPITAL INTRODUCTION SHARE CAPITAL Legal concept of capital Nominal or authorised capital Authorised minimum share capital SHARE ISSUE Meaning of share issue Nominal or par value and no par value Issue at discount Issue at premium Bearer shares or share warrants and bearer certificates Pre-emptive rights issue Conversion privileges, options and rights issue PAYMENT FOR SHARES The basic rule Payment in money Payment in property or past services STATED CAPITAL ACCOUNT Meaning of stated capital account Rules governing operation of stated capital account CONCLUSION 8 CAPITAL MAINTENANCE INTRODUCTION THE CAPITAL MAINTENANCE DOCTRINE Common law doctrine STATUTORY RULES ON OWN-SHARE OWNERSHIP The general statutory prohibition The statutory exceptions to the general prohibition Statutory rules on own-share purchase Statutory rules on share redemption Donated shares FINANCIAL ASSISTANCE IN OWN-SHARE ACQUISITION Rationale for statutory provisions Overview of the statutory provisions Acts other than Guyanese Act Cases where company permitted to give financial assistance Under the Guyanese Act DIVIDENDS Authority to declare dividends Payment of dividends Form of dividend STATED CAPITAL REDUCTION Rationale of the stated capital reduction rules Permitted reduction of stated capital Procedure for reduction Protection of creditors in stated capital reduction Directors’ liability for improper capital reduction STATED CAPITAL ADJUSTMENT PAYMENT OF COMMISSIONS OUT OF STATED CAPITAL ACCOUNT CONCLUSION 9 SHARES, CLASSES OF SHARES AND CLASS RIGHTS INTRODUCTION LEGAL NATURE OF SHARES Statutory provisions Legal nature of shares CLASSES OF SHARES Concept of classes of shares Power to issue classes of shares Issue of shares in series Rights attaching to different classes of shares Ordinary shares Preference shares Redeemable shares CLASS RIGHTS Construction of class rights articles Equality of rights Rights set out in articles are exhaustive Cumulative dividends ALTERATION OF CLASS RIGHTS Power to alter class rights Protection of class rights from prejudicial alteration CONCLUSION 10 DIRECTORS AND OTHER OFFICERS INTRODUCTION WHO ARE COMPANY DIRECTORS? De jure and de facto directors Shadow directors Alternate directors DIRECTORS’ MANDATE TO MANAGE Legal basis of management mandate Nature of management mandate The management mandate and the unanimous shareholder agreements Management mandate and the articles of incorporation Directors’ role in relation to bye-laws Delegation of directors’ powers NUMBER OF DIRECTORS Setting the number Alteration of number DISQUALIFICATION OF DIRECTORS Minors and persons of unsound mind Bankrupt persons Court disqualified directors Person persistently in default of the Companies Act Company as corporate director SHARE QUALIFICATION OF DIRECTORS APPOINTMENT AND ELECTION OF DIRECTORS Appointment of first directors Consent to appointment Election of subsequent directors Filling directors’ vacancies Defective appointment or election of directors Tenure of directors REMUNERATION OF DIRECTORS REMOVAL OF DIRECTORS Shareholders’ power of removal Limitations on shareholders’ power of removal Filling vacancy on removal of a director Director’s right to state case to shareholders Removal of director under the Jamaican Act DIRECTORS’ MEETINGS Organisational meeting Regular directors’ meetings Alternative to directors’ meetings Other officers The secretary of the company CONCLUSION 11 DIRECTORS’ STATUTORY FIDUCIARY DUTY INTRODUCTION THEORETICAL UNDERPINNINGS OF THE STATUTORY FIDUCIARY DUTY TO WHOM AND BY WHOM IS THE STATUTORY DUTY OWED? To whom is the duty owed? Who owes the duty? NATURE OF THE DUTY TO ACT ‘HONESTLY AND IN GOOD FAITH WITH A VIEW TO THE BEST INTERESTS OF THE COMPANY’ What is acting honestly and in good faith? Determining the best interests of the company THE STATUTORY FIDUCIARY DUTY AND THE PROPER PURPOSE TEST The basic statutory provision and the proper purpose test Does the statutory provision exclude the proper purpose test? THE STATUTORY FIDUCIARY DUTY AND THE DUTY NOT TO FETTER DISCRETION The basic statutory provision and the no-fetter rule The case authority Interpretation of the basic statutory provision CONCLUSION 12 DIRECTORS’ DUTY OF LOYALTY INTRODUCTION STATUTORY DUTY TO DISCLOSE INTERESTS IN CONTRACTS WITH COMPANY Basic statutory provision Common law background to statutory provisions Analysis of the statutory provision COMMON LAW NO-PROFIT DUTIES Applicability of common law no-profit rules No-profit rule stated Misuse of corporate opportunities or information DUTY TO AVOID COMPETITION CONCLUSION 13 DIRECTORS’ STATUTORY NON-FIDUCIARY DUTIES INTRODUCTION DUTY OF CARE, DILIGENCE AND SKILL Basic statutory provisions Content of the statutory duty ‘Care’ and ‘skill’ in conducting company’s affairs Standard of care, diligence and skill Statutory defences to breach of care and skill duty DUTY TO COMPLY WITH THE ACT, ARTICLES AND UNANIMOUS SHAREHOLDER AGREEMENT CONCLUSION 14 DIRECTORS’ LIABILITIES INTRODUCTION SPECIFIC STATUTORY LIABILITIES Liability for shares issue Liability for certain other dealings with share capital Liability to contribute to judgment Limitation on actions to enforce liability STATUTORY DEFENCES TO LIABILITY Defence based on lack of consent The good faith reliance defence WAIVER OF BREACHES OF DUTY INDEMNITIES Policy goals of indemnity provisions Discretionary indemnity As of right indemnity INSURANCE CONCLUSION 15 SHAREHOLDERS’ DECISION-MAKING RIGHTS INTRODUCTION MEETINGS AND CORPORATE DECISION-MAKING The theory Different types of meetings Place of meetings Calling meetings PROPOSALS AND MEMBERS’ RESOLUTIONS AND CIRCULARS Background to the statutory provisions Proposals Members’ resolutions and circulars Shareholders’ list Quorum Voting the shares PROXIES Background to the proxy provisions The proxy voting machinery The proxy solicitation machinery SHARE REGISTRANTS RESOLUTIONS IN LIEU OF MEETINGS SHAREHOLDERS’ AGREEMENTS Pooling agreements and voting trusts Pooling agreements Unanimous shareholder agreements CONCLUSION 16 SHAREHOLDERS AND THE COMPLAINANT REMEDIES INTRODUCTION THE CONCEPT OF COMPLAINANT Basic statutory provisions Shareholders and debenture-holders Directors and officers The Registrar ‘Proper person’ DERIVATIVE ACTION Basic statutory provisions Background to statutory provisions Statutory derivative action THE OPPRESSION REMEDY Basic oppression remedy provisions Background to the oppression remedy provisions Analysis of the oppression remedy provisions Court orders Shareholder ratification and derivative and oppression actions Settlement of derivative and oppression actions Interim costs in derivative and oppression actions CONCLUSION 17 OTHER SHAREHOLDERS’ REMEDIES INTRODUCTION INVESTIGATIONS Types of investigations Nature and function of investigations Court-ordered investigations Registrar’s investigations Minister’s investigations Registrar’s inquiries into proxies and insider trading Compliance and restraining orders Rectification orders CONCLUSION 18 DISSENTING SHAREHOLDER’S APPRAISAL REMEDY INTRODUCTION NATURE OF THE APPRAISAL REMEDY Overview of the dissent right provisions Unconditional right to dissent Conditional right to dissent Right to dissent non-exclusive Interpreting the dissent provisions THEORIES OF THE ROLE OF THE APPRAISAL REMEDY Legislative balance of minority and majority rights theory Solution to asset substitution problem theory Solution to the agency problem theory DETERMINING FAIR VALUE Overview Time of valuation Value arising from the fundamental change Approaches to determining fair value Fair value and premiums DISSENT PROCEDURE Who may exercise the right Initiating the dissent process Notice to dissenter of adoption of the resolution Dissenter’s notice of demand for payment Dissenter’s share certificates Legal effect of notice of demand for payment Written offer to pay Notification of inability lawfully to pay Payment for shares FIXING FAIR VALUE BY THE COURT Application to the court Directions by the court Appointment of appraiser Final order of the court Power to allow a reasonable rate of interest FIXING FAIR VALUE UNDER THE BAHAMAS ACT CONCLUSION 19 PROSPECTUSES INTRODUCTION PROSPECTUS PROVISIONS Aims and objectives of the prospectus provisions What is a prospectus? Contents of a prospectus When is a prospectus required? NOTICES PROVISIONS General prohibition against notices Exceptions to the prohibition Application of the notices rules Certificate of non-contravention of notices rules REGISTRATION OF PROSPECTUS Requirement for registration Conditions to be satisfied for registration Refusal of registration by Registrar PROSPECTUS PRESUMED CONTRACTS TO SUBSCRIBE FOR OR PURCHASE SHARES OR DEBENTURES IN A PROSPECTUS Making the contract Subscription lists Minimum subscription STATEMENTS IN LIEU OF PROSPECTUS CONCLUSION 20 LIABILITIES FOR MISLEADING PROSPECTUSES INTRODUCTION DAMAGES AT COMMON LAW Contractual claims Tort claims DAMAGES UNDER THE MISREPRESENTATION ACTS RESCISSION IN EQUITY Overview of the rescission remedy What must be proved Summary of applicable rules Rescission against the company Loss of the right to rescind REMEDIES UNDER THE COMPANIES ACTS Claim for loss or damage Defences to claim for loss or damage Indemnification of persons named without their consent STATUTORY RESCISSION AND REPAYMENT Nature and scope of the remedy Who may claim the remedy When may the remedy be claimed Effect of rescission and repayment judgment Effect of liquidation or insolvency of company on remedy Defences to rescission and repayment action Underwriting contracts and rescission and repayment CONCLUSION 21 COMPANY CHARGES INTRODUCTION LEGAL NATURE OF A COMPANY CHARGE Charges and security interests A charge distinguished from personal rights A charge distinguished from other forms of consensual real security A charge and retention of title agreements DETERMINING WHETHER A CHARGE EXISTS TYPES OF COMPANY CHARGE Overview Fixed charges Floating charges Unsettled aspects of the floating charge Nature of the interest created by floating charge Theoretical basis of power to carry on business Crystallisation REGISTRATION OF CHARGES General comment Obligation to register Registration of charge on acquisition Certificate of registration Registration with the Registrar of Titles Charges requiring registration Effect of registration Effect of non-registration Effect of insufficient stamp duty Endorsement on debenture Memorandum of satisfaction and payment Rectification of omission or misstatement Company’s duty to retain copy of charge instrument Registration of charges created by external companies REGISTRATION OF CHARGES IN ANGUILLA CONCLUSION 22 DEBENTURES AND TRUST DEEDS INTRODUCTION DEBENTURES Debentures defined Power to issue debentures LEGAL REQUIREMENTS OF DEBENTURES Overview Unsecured debenture Debenture covered by trust deed Debenture without a covering trust deed Consequences of non-inclusion of statements TRUST DEEDS Meaning and advantages of covering trust deeds Legal recourse for non-execution of covering trust deed Formalities of a covering trust deed Trustees of trust deeds Duties of trustees Rights of trustees Rights of debenture-holders CONCLUSION 23 RECEIVERS AND RECEIVER-MANAGERS INTRODUCTION APPLICABILITY OF THE COMPANIES ACTS AND THE BIAs CONCEPTS AND DEFINITIONS Meaning of receivers and receiver-managers Meaning of receiver Meaning of receiver-manager APPOINTMENT OF RECEIVERS AND RECEIVER-MANAGERS Who may be appointed a receiver or receiver-manager? Who may appoint a receiver or receiver-manager? Time at which right to appoint arises Procedure to be followed in appointing Registration of the receiver Validity of appointment Judicial guidance on validity of appointment REMOVAL, REPLACEMENT AND RESIGNATION OF RECEIVERS AND RECEIVER-MANAGERS Removal and replacement Resignation EFFECT OF APPOINTMENT OF RECEIVERS AND RECEIVER-MANAGERS Effect upon company’s personality Effect upon company’s management POWERS OF RECEIVER AND RECEIVER-MANAGER Power to take possession of assets subject to security interest Power of sale Power to carry on the business of the company Powers conferred by the instrument of appointment DUTIES OF RECEIVERS AND RECEIVER-MANAGERS Overview Duty to act honestly and in good faith Duty to deal with company property in a commercially reasonable manner Duty to give notice of appointment Duty to take company’s property in custody Accounting duties Duty to take action in relation to statement of affairs Duty in respect of preferential debts Recoupment of payments to preferential creditors Duty to cease acting LIABILITY OF RECEIVER AND RECEIVER-MANAGERS Contractual liability Liability in respect of invalid appointment CONCLUSION 24 INSIDER TRADING INTRODUCTION INSIDER TRADING AT COMMON LAW An overview Directors’ fiduciary duties Breach of confidence Misrepresentation STATUTORY CIVIL ACTION FOR INSIDER TRADING Overview Who may bring an action What must be proved Measure of damages Onus of proof Liability to compensate claimant Liability to account to the company Time limit on action PROHIBITIONS AGAINST AN INSIDER SELLING SHORT, SELLING CALLS OR BUYING PUTS Prohibition against selling short Prohibition against selling a call or buying a put Liability for contravention of prohibitions against selling short, selling a call or buying a put CONCLUSION 25 FUNDAMENTAL COMPANY CHANGES INTRODUCTION FUNDAMENTAL CHANGES TO ARTICLES An overview List of fundamental amendments allowed Procedure for amendments to articles Amendments and class votes Registration of amendments Re-stated articles ALTERATION OF ARTICLES (BAHAMAS, BELIZE, JAMAICA, ST CHRISTOPHER/NEVIS) Nature of the power of alteration Judicial review of the statutory power of alteration The Allen v Gold Reefs of West Africa Ltd test AMALGAMATIONS An overview Definitions and concepts Legal consequences of an amalgamation Procedure for effecting amalgamations Amalgamations by agreement Vertical short-form amalgamation Horizontal short-form amalgamation Registration of the amalgamation Certificate of amalgamation MERGERS AND CONSOLIDATIONS (BAHAMAS) Definitions and concepts Conditions for mergers or consolidations Procedure for merger or consolidation Merger with subsidiary Legal effect of mergers and consolidations REORGANISATIONS Definitions and concepts Powers of the court in making reorganisation order Implementation of reorganisation order No dissent rights ARRANGEMENTS Definitions and concepts Application to court for approval of arrangement Powers of the court in respect of applications Filing of articles of arrangement CONCLUSION 26 FINANCIAL DISCLOSURE AND AUDIT REQUIREMENTS INTRODUCTION DISCLOSURE REQUIREMENTS Maintaining financial records Annual accounts Auditors’ report Further financial information Exemption from disclosure of financial statements Directors’ approval of financial statements ACCESS TO FINANCIAL STATEMENTS Shareholder access Public access AUDIT REQUIREMENTS Audit committees Auditors Rights and powers of auditors Auditor’s duty in the conduct of the audit Liability for negligent audit Exemption from liability for defamation CONCLUSION 27 TRANSFERS OF SHARES AND DEBENTURES INTRODUCTION RIGHT TO TRANSFER SHARES AND DEBENTURES Transfer of shares Transfer of debentures Transfer of shares or debentures by person entitled by operation of law Effect of provisions in articles or bye-laws on statutory transfer rules RESTRICTIONS ON THE RIGHT TO TRANSFER Basic rules relating to restrictions on the transfer of shares General approach to restriction provisions Approach to restrictions in pre-emption provisions Approach to restrictions conferring discretion on directors MANNER OF TRANSFERRING SHARES AND DEBENTURES Sale and purchase Share certificates and debentures GIFT TRANSACTIONS LIENS ON SHARES CONCLUSION 28 CORPORATE REGISTERS AND RECORDS INTRODUCTION REGISTERED OFFICE OF COMPANY COMPANY REGISTERS AND RECORDS Company registers Company records ACCESS TO REGISTERS AND RECORDS Access by directors and shareholders Access by creditors Access by the public Access to shareholders’ lists Access to options list CONCLUSION 29 TAKEOVER BIDS INTRODUCTION TAKEOVER BIDS UNDER THE COMPANIES ACTS Concepts and definitions Companies Acts provisions COMPANIES REGULATIONS ON TAKEOVER BIDS Overview The mandatory offers rules The takeover bid circular rules Information in takeover bid circulars generally The rules on permissible conditions on a formal offer The Directors’ Circular Rules The rule against unequal consideration The rule against lock-up of shares The rule that offeror must take up and pay for shares The rule that offeror must appoint member of the Exchange as manager The special rules in respect of listed companies TAKEOVER BID DEFENCES The poison pill defence Validity of takeover bid defences CONCLUSION Index