BAHAMAS Law and Practice Contributed by: Adrian Hunt and Gabrielle Rahming, Graham Thompson
against the responsible individuals, as discussed in 3.3 Shareholders’ Claims Against Fraudulent Direc- tors. This issue is further addressed in 3.2 Claims Against Ultimate Beneficial Owners . 3.2 Claims Against Ultimate Beneficial Owners In The Bahamas, the general principle is that a com - pany is treated as a separate legal personality, distinct from its directors, shareholders and ultimate beneficial owner(s) (see Salomon v Salomon & Co Limited [1897] AC 22). This means that a company has distinct legal rights and obligations from those who stand behind the company. Further, these individuals are ordinarily shielded from personal liability by the “corporate veil”. Accordingly, directors are generally protected by the “corporate veil” from personal claims based on acts properly done in the course of the company’s man - agement. This protection is reinforced under Sec - tion 55 of the International Business Companies Act, which states that in performing such functions, the directors of a company must act honestly and in good faith with a view to the best interest of the company and exercise the care, diligence and skill that a rea - sonably prudent person would exercise in comparable circumstances. However, this protection is not abso - lute. Bahamian law, applying common law principles, recognises circumstances upon which it is necessary to look beyond the corporate veil. Courts have lifted the veil to prevent misuse of cor - porate structures for fraud, concealment or avoidance of obligations (see Re a Company [1985] BCLC 333). Similarly, Bahamian law recognises piercing the cor - porate veil but emphasises flexibility rather than a rigid approach, concluding that the separate entity princi - ple is not applied where it yields a result “too fragrantly opposed to justice”. Therefore, where a company is merely a sham, façade or alter ego of its beneficial owner, and is being used to perpetuate fraud, the Bahamian court may not apply the separate legal personality principle and impose liability directly on the controlling individual. Nevertheless, in circumstances where the corporate veil is not “pierced” or “lifted”, individuals behind a
company may incur direct personal liability, namely where these individuals: • personally participate in fraudulent misrepresenta - tions; • procure or direct the commission of a tort; and • breach fiduciary duties owed. 3.3 Shareholders’ Claims Against Fraudulent Directors As a general rule, for breach of directors’ duties, where the company suffers loss as a result, the only “person” with legal standing to pursue a claim on behalf of the company is the company itself. Under Section 79 of the Companies Act and Section 40 of the International Business Companies Act, subject to any limitations in its memorandum or articles or any unanimous share - holder agreement, directors have the authority to manage the business and affairs. In exercising such authority, directors and officers must act honestly and in good faith, with a view to the best interests of the company. Where such duties are breached, particu - larly in cases involving fraud, the company is the entity that suffers the loss and is therefore typically the prop - erty party to bring proceedings. There are of course exceptions to address issues where the alleged wrongdoers are in control of the company and therefore would not, in practice, vote in favour of issuing proceedings against themselves. To address the difficulty that may arise in circumstances where the alleged wrongdoers are themselves in con - trol of the company, common law has developed the mechanism of the derivative action, which permits shareholders to bring proceedings on behalf of the company. Derivative Actions A derivative action allows a shareholder to pursue claims in respect of wrongs done to the company where those in control have failed or refuse to act. This ensures that directors cannot rely on their control of the company to protect themselves from the conse - quences of their breaches and avoid liability. Double Derivative Actions Bahamian law, through common law, also recognises instances where members of a company’s holding
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