Facts
- The case concerned Ciban Management Corporation and Citco (BVI) Ltd, involving asset transfers following the liquidation of a company.
- Dispute arose as to whether payments made without formal shareholder votes were valid.
- The disagreement centered on applying the Duomatic principle to validate informal approvals of company actions.
- The Privy Council considered whether informal shareholder agreement could render the payments lawful in the British Virgin Islands context.
- The case impacts companies operating in offshore jurisdictions, especially regarding actions taken after liquidation.
Issues
- Whether informal shareholder agreement, absent formal procedural compliance, was sufficient to validate company actions under the Duomatic principle.
- Whether all shareholders had to unanimously consent for the Duomatic principle to apply.
- Whether shareholders needed to be aware of all material facts and consequences when giving consent.
- Whether actions validated under the Duomatic principle must still be within the company’s legal powers.
Decision
- The Privy Council confirmed that the Duomatic principle applies in the British Virgin Islands.
- The Court held that informal but unanimous shareholder approval could make company actions lawful, even in the absence of formal procedures.
- It was emphasized that unanimous consent from all shareholders is necessary; majority consent is insufficient.
- The Privy Council stressed the need for clear evidence showing that each shareholder was aware of the essential facts before consenting.
- The Court clarified that the Duomatic principle does not validate actions that a company has no legal authority to perform.
Legal Principles
- The Duomatic principle permits informal, unanimous shareholder agreement to validate company decisions that would otherwise require formal approval.
- All shareholders must give genuine consent, with full knowledge of the relevant facts and implications.
- The principle cannot be used to legitimize company actions outside the scope of legal authority or to override statutory or common law requirements.
- Companies should maintain clear records of shareholder agreement and awareness to avoid future disputes and demonstrate compliance.
- Unanimous consent protects minority shareholders from disadvantageous informal decisions.
Conclusion
The Privy Council's decision in Ciban Management Corporation v Citco (BVI) Ltd affirms that the Duomatic principle enables informal unanimous shareholder approval to validate company actions, but only if all shareholders are fully informed and the action is lawful. Proper records and strict adherence to these requirements are essential, especially in contexts like liquidation and in offshore jurisdictions.