Overcoming Barriers to Completion of Corporate Transactions amidst COVID-19 Challenges
09 March 2020
The spread of Coronavirus (COVID-19) has had a significant impact on – and sparked uncertainty in – the global economy. With containment measures, including quarantine and travel restrictions increasingly prevalent, clients with Cayman Islands or British Virgin Islands (BVI) companies have been asking us how to overcome barriers to closing corporate transactions during these disrupted times. The concerns we have faced on closing transactions are largely practical and there are some simple measures which can be taken to address these.
How can I hold board and shareholder meetings if we cannot meet face-to-face?
Under Cayman Islands and BVI law, subject to a company's memorandum and articles of association (the M&A), there are no restrictions on where a meeting of the board or shareholders can be held. With current travel restrictions, face-to-face meetings are not always possible and a great benefit of Cayman Islands and BVI law is that both permit meetings of directors or shareholders to be held by telephone or by other electronic means – so long as all persons attending can hear each other (for example Skype, WebEx or Zoom calls).
Subject to a company's M&A, written resolutions of the directors or shareholders may also be passed unanimously (or, for a BVI company, if its M&A permits, by a majority of directors or shareholders). In such case, the written resolutions can be executed in counterpart, and may be executed by electronic signature (subject to certain conditions).
If I cannot get to a signing meeting, or my office is closed, or I am quarantined, how can I execute transaction documents?
With containment measures being implemented globally, an unprecedented number of people are working remotely – often without access to a printer or scanner. This poses a challenge to directors of Cayman Islands and BVI companies who may be required to execute transaction documents or board resolutions in anticipation of closing a transaction. Using electronic signatures to sign documents (whether transaction documents or board/shareholder resolutions) can help overcome these difficulties. Electronic signing typically involves either affixing an electronic signature to a contract, which is then emailed to the other contracting parties, or the use of encrypted e-signature platforms such as DocuSign.
The Electronic Transactions Law (2003 Revision) of the Cayman Islands and the Electronic Transactions Act, 2001 of the BVI (which will shortly be repealed and replaced this year by a newly enhanced and modernised act), recognises electronic signatures as legally valid, binding and enforceable where the signatory intends to sign the relevant document and the e-signature is as reliable as is appropriate for the purposes for which the document is generated. Note that for BVI transactions, counterparties to a document signed by e-signature must consent to receiving the e-signature.
In order for the e-signature to be presumed 'reliable', the e-signature must be unique to the signatory; the means of creating the e-signature must be linked to, and under the control of, the signatory (and no other person); and any alteration made to the e-signature or document after the time of signing must be detectable.
Generally, agreements, written resolutions of directors or shareholders and the witnessing of a signature or a seal can all be executed electronically if the above requirements are met. Where a document requires the affixing of a common seal, an electronic seal of a Cayman Islands and BVI company can be affixed if permitted by the governing law of the document and the company's M&A.
Traditional wet-ink signatures will still be required for a limited number of documents with special execution formalities – e.g. wills and, under BVI law, for contracts for the transfer of interest in real estate, powers of attorney, documents that need to be notarised (depending on the laws of the relevant jurisdiction) and any other agreement (including deeds) that is specifically required by law to be made under hand.
Affixing of a Common Seal
A BVI company must have a common seal and an imprint of the seal must be kept at the office of the registered agent. A Cayman Islands company does not need to have a common seal, but if it has one, it can be kept at any place the company may determine from time to time, and it may maintain duplicate seals around the world.
Directors should ask at the outset of the transaction whether the affixing of the common seal will be required as a matter of the governing law of the relevant transaction documents. This enables directors to take practical steps to approve and quickly re-locate the original seal, or create a new common seal, as may be required. The affixing of an electronic seal with the electronic signature of a witness may also be possible (subject to certain conditions).
Powers of Attorney and Notarisation
Where signing needs to take place in a specific location or a signatory is unable to sign transaction documents (whether because of travel restrictions, flight cancellations, limited access to technology or otherwise the signatory is unavailable), a company should consider at the early stages of the transaction whether a power of attorney would be appropriate. This ensures that an attorney-in-fact is in the right place to ensure that transaction documents can be duly executed for completion of the transaction.
Depending upon the nature of the documents to be executed and the execution formalities, a power of attorney may not even be necessary – for instance, both BVI and Cayman Islands companies may expressly approve "authorised signatories" to sign transaction documents on behalf of that company, even if the signatory is not a director or officer of the company.
It is also important to identify early on whether documents need to be notarised, so that an appropriate notary can be located. We have recently experienced delays on transactions because of the inability for signatories to meet face-to-face with notaries, or when notaries have been unable to access their offices where their notarial stamps are stored. Some jurisdictions will permit e-notarisation or notarisation by way of video-conference, which may be beneficial under current circumstances.
What other factors might delay the closing of my transaction?
With the importance of confidentiality, physical data-rooms are sometimes used for conducting due diligence in connection with a potential corporate transaction or financing. Corporate entities and investment funds should be alive to the difficulties of conducting physical due diligence under current circumstances, and the impact this may have on the timing of a potential transaction. It may be more practical to upload documents into a virtual data-room such as Intralinks (with security limitations on access, printing and saving) to preserve confidentiality.
Where the closing of a transaction is subject to receipt of certain original conditions precedent (for example, original share certificates pursuant to a share security), parties need to be mindful of, and prepare for, potential delays caused by flight cancellations or the inability to access couriers in a timely fashion.
Out of Adversity Comes Opportunity
COVID-19 has created an unprecedented set of challenges globally, but by taking some simple practical measures, businesses with Cayman Islands and BVI companies can mitigate the impact on their corporate transactions.
This crisis presents opportunities for legislators and businesses to embrace technology to improve business continuity – perhaps by better enabling remote working and creating further efficiencies in corporate transactions. Indeed, some of the measures increasingly being adopted by the business community may catalyse the evolution of best working practices for the future.