BRITISH VIRGIN ISLANDS Law and Practice Contributed by: Matthew Cowman, Alex Drysdale, Rosalind Nicholson and Omonike Robinson-Pickering, Walkers
6.8 Additional Governance Rights Theoretically, a bidder could seek contractual rights to appoint and remove directors of the target upon closing/acquisition of the target in order to flood the target’s board and gain control. Alternatively, additional governance rights could be enshrined within the target’s constitutional documents that would be adopted upon closing, and/or a share - holders’ agreement could be entered into, which could grant a wide variety of contractual governance rights. However, it would be difficult to force any such provi - sions on the remaining shareholders. Subject to any different voting thresholds in the existing Memoran - dum and Articles of Association, the Memorandum and Articles of Association of a BVI company may be amended upon the approval of a majority of share - holders present and voting in person or by proxy at a meeting or by way of written consent. Shareholders’ agreements entered into by some but not all share - holders will not be binding on those who do not agree to be bound, although the company will be so bound if it is a party. Care must be exercised by the directors in agreeing to any such additional governance rights as they have a fiduciary duty (subject to some limited exceptions) to act in the best interests of the company as a whole and not to act solely in the interests of a particular shareholder or shareholders. 6.9 Voting by Proxy Under BVI law, at a general meeting, each member is generally entitled to one vote for each share they hold, and such votes may be given in person or by proxy. Only shareholders with voting rights attached to their shares may attend and vote at a general meet - ing, except in the case of an amalgamation or merger, where all shares carry the right to vote regardless of
discharged. This will depend on the circumstances of the transaction and the overall deal terms, taking all factors into consideration. As a matter of practice, break fees in transactions involving BVI companies operating in the North American market tend to range from 1% to 4% of the merger consideration. If the BVI court were to deter - mine that a particular break fee was excessive and did not operate to provide commercial compensation to a party on termination, instead constituting a penalty, the fee may be unenforceable. “No Shop” Agreement “No shop” agreements or “lock-out” clauses can be included in transaction agreements involving BVI companies, whereby the target agrees not to solicit or engage with any other parties regarding the poten - tial transaction during a defined period of time. The restrictions will often include provisions to prevent the target company from soliciting a transaction or accepting a proposal from a third-party prospective bidder during a defined period of exclusivity. “Fiduciary Out” Clause Directors must be mindful of their fiduciary duties to the company during the course of any potential acqui - sition. In particular, directors will need to be careful to act in the best interests of the company, acting honestly and in good faith as required under the Act. A “fiduciary out” provision allows the board of a tar - get company to change its recommendation for the proposed bid and/or to terminate the agreement if fol - lowing through with the transaction would result in a breach of the directors’ fiduciary duties. While these provisions are usually the subject of intense negotia - tion in transactions, they are often accepted in prin - ciple. Such provisions may require the target board to sub - mit the transaction to its shareholders for approval, even when the board is no longer recommending the transaction – for example, where the target has received what it regards as a superior alternative pro - posal.
whether or not they would otherwise. 6.10 Squeeze-Out Mechanisms
The Act contains squeeze-out provisions, which apply only where the hostile party holds 90% of the votes of the outstanding shares entitled to vote and 90% of the votes of each class of share entitled to vote as a class. The squeeze-out provisions may also be restricted or
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