Over the last few weeks, I have issued legal opinions to leading banks in Hong Kong; one of the largest banks in the United States; the HM Land Registry in the United Kingdom; the Corporate Affairs and Intellectual Property Office in Barbados; and other institutions, firms, corporates, and individuals around the globe. In each case, the legal opinion formed an important part of the documentation required to close or to make a determination regarding the transaction in question. In some cases, the opinion was legally more important than others. However, in each case, the opinion played a vital role in giving the recipient peace of mind regarding BVI law matters related to the BVI entity involved in the transaction.
Types of Opinions
Most financing transactions require a legal opinion where the BVI entity is a borrower, is providing some type of security or guarantee, or is involved in other complex funding arrangements. In these cases, the opinion is usually required to cover due incorporation, good standing status, due execution of the relevant documents, enforceability, and security registration, where applicable.
Otherwise, opinions are required for a host of other types of corporate transactions, including sale and purchase transactions involving real property and other asset classes, bank account openings, mergers, continuations, plans of arrangement, private placements, and stock exchange listings, among others. Some opinions will cover factual situations involving share issuances, directors’ duties, redemption of shares, payment of dividends, dissenters’ rights, amendments to constitutional documents, interpretation of joint venture arrangements, and the applicability of licensing requirements, to name a few.
Accordingly, the nature of the legal opinion will vary, but for all types of opinions there are certain crucial documents or information which need to be reviewed. These include: (i) the transaction documents involved or the legal issues to be addressed; (ii) the results of searches conducted at the BVI Registry of Corporate Affairs and the BVI High Court Registry; (iii) the constitutional documents of the entity; (iv) information provided by the entity’s BVI registered agent regarding its directors, members, officers and register of charges; (v) the relevant legislation to be considered; and, where applicable, (vi) resolutions which authorized entry into transaction documents or approved a particular type of transaction, for example, a share issuance or a merger.
No Opinion Required – Potential Dangers
In some instances, persons entering into transactions with BVI entities opt not to obtain a legal opinion and to simply rely on representations made by another party. Sometimes this works out just fine, but in other cases it can lead to significant issues. There are times where, without a request for a legal opinion, it would not have been recognized that the company was struck off the BVI register of companies or deemed dissolved for non-payment of licence fees over many years which impacts the BVI company’s ability to validly enter into the transaction. The legal opinion process might uncover other serious issues. For instance, that the directors are not properly appointed or not properly authorized to enter into the transaction; that the shareholding is incorrect or not properly papered; or that the transaction documents contain a charge that ought to be registered in the BVI to maintain priority for the charge holder.
On transactional matters, a legal opinion often clarifies procedures and sets out the likely outcomes or consequences of the transaction. For example, in a merger situation the opinion would highlight the fact that all assets and liabilities of the merging entities follow the surviving entity. With respect to internal corporate matters, without an opinion or advice, clients are often unaware that a solvency test has to be satisfied for a dividend to be paid or for a redemption to be carried out or that a particular company is not authorized to issue beyond a certain number of shares. Accordingly, requesting a legal opinion will help to avoid some of the possible dangers and allow for a more seamless and comforting transaction.
What Does a Legal Opinion Cover?
A legal opinion will generally cover the following matters:
- Background – an explanation of the relevant transaction or issue, together with details of the documents reviewed and the searches conducted in preparing the opinion.
- Assumptions – a number of assumptions will be made in the opinion, mainly about factual matters which cannot reasonably be verified, particularly in cross border transactions (such as authenticity of signatures), or for which the information is just not available.
- Qualifications – these will limit the opinion when absolute assurance cannot be given on some issues. They often relate to points of law, such as limitations on enforcement or outcomes in an insolvency scenario.
- Opinions – this is the key element of the legal opinion. Opinions are statements relating to specific points of law and will generally cover matters such as due incorporation, good standing, the entity’s ability to enter into the transaction documents, and the enforceability of those documents. In a corporate scenario, these statements will express a view on the particular transaction at hand, such as a redemption of shares, merger, continuation, or other.
A legal opinion is a useful tool in any transaction involving a BVI entity, helping to highlight issues that might otherwise be missed. Conducting a registry search and obtaining information from the registered agent, reviewing constitutional documents and resolutions, and analyzing applicable legislation all play important roles in ensuring the recipient has a comprehensive view of the situation. The legal opinion will help them make the best decision possible, as they enter into a transaction or carry out a corporate procedure.
*The information provided in this article is for educational purposes only and should not be construed as legal advice. If you have further questions or need legal advice, please contact the author, Christopher Simpson, directly at +1 284-393-5800.