The Importance of Custody of Bearer Shares

April 2000

The case of Laura Saus de Villalba v. Adex International Limited and Juris Magister (Bahamas) Limited (sued as Trustee of Mercury Trust), highlights the problems, which can arise where arrangements as to the custody of bearer shares has not been sufficiently considered.

Clients, trustees and advisors to clients who have bearer share companies should review their current policy with respect to the issues of custody and transfer of bearer shares, to ensure that they are not faced with a problem similar to that highlighted by the decision in this case. Appropriate procedures for the safe custody and transfer of bearer shares are essential.

The Honourable Mr. Justice Kenneth Benjamin held in the High Court of the British Virgin Islands on 1st March 2000 that in accordance with the International Business Companies Act (Cap. 291) and the Articles of Association of the First Defendant, the delivery of a Bearer Share Certificate for the purpose of ownership from one person to another was a strict requirement.

The First Defendant is an International Business Company (“IBC”) incorporated in April 1998. The entire issued share capital of the IBC was issued in the form of Bearer Shares. The Certificate was delivered to the deceased.

The Plaintiff is the widow of the deceased. She argued that the Bearer Share Certificate was delivered to her by the deceased before his death on 27th February 1999 in Texas, United States. The Plaintiff also argued that, as the holder of the Bearer Share Certificate No. 1 she was the owner of the shares in the First Defendant.

The Second Defendant is a company incorporated in the Bahamas and is the sole Trustee of a trust established under the laws of the British Virgin Islands.

The Second Defendant contends that pursuant to oral instructions from the deceased on or about 8th September 1998, the sole director of the First Defendant passed a resolution dated 15th October 1998 canceling and declaring void Certificate No. 1 and issuing in its place Certificate No. 2 for the 50,000 shares. The Second Defendant as Trustee for the BVI trust is claiming ownership of the entire shareholding of the First Defendant and by extension control of its assets.

The parties agree that Certificate No. 1 was never delivered to the First Defendant or its Sole Director. Because the bearer share certificate was not delivered to the Director or agent of the IBC for cancellation, the Honourable Mr. Justice Kenneth Benjamin held that the Defence and Counterclaim of the First Defendant should be struck out as disclosing no reasonable defence.

The Defendants are currently appealing the Order. The grounds for the appeal include novel questions on the interpretation of the transfer provisions of bearer shares contained in Article 14 of the Articles of Association of the IBC. Leave to appeal was granted on 6 April 2000.