Knowledge

Background

In this case, the BVI Court of Appeal (the "Court") considered whether a court-appointed director of two BVI companies, Intimere Holdings Ltd and Hellicorp Investments Ltd (the "Companies"), was entitled to inspect company records, including unredacted engagement letters with legal counsel which revealed the identity of a third-party litigation funder who was paying the Companies' legal bills in several court cases. The director, Ms. Papanikolaou, sought access to the documents under sections 100 and 184B of the BVI Business Companies Act, 2004 (the "BCA") in order to discharge her duties as a director.

The Companies opposed disclosure, arguing that Ms. Papanikolaou was acting for an improper purpose — i.e., to benefit the principal of a minority shareholder (Felix LP), one of the two shareholders of Intimere Holdings Ltd, whom they accused of leading a hostile campaign against the Companies and their ultimate beneficial owner. The Companies claimed the funder's identity was not relevant to Ms. Papanikolaou's duties and could be misused if revealed.

First Instance judgment

In the Commercial Division of the High Court, Mr Justice Wallbank granted Ms. Papanikolaou's application, allowing full inspection, including the unredacted engagement letters. He held that the BCA provided a mandatory, unqualified right for directors to inspect company records under section 100(1), and that Ms. Papanikolaou was seeking disclosure for a legitimate reason, namely, to assess the Companies' financial exposure in ongoing litigation, and that any responsible director would have such concerns. Allegations of improper purpose, he ruled, were speculative and unsupported by evidence.

Appeal and legal issues

The Companies appealed, arguing that:

• section 100 should permit refusal where a director is acting for an improper purpose;
• the Judge had made an error of fact by concluding that Ms. Papanikolaou acted for a proper purpose; and
• the Judge had incorrectly interpreted section 100 as leaving no room for improper purpose considerations.

Court of Appeal's analysis

Director's right to inspect records is mandatory

The Court reaffirmed that section 100(1) grants a mandatory and unqualified right for directors to inspect documents and records. Unlike shareholders, whose rights under section 100(2) may be refused, directors' rights are not subject to discretion.

Improper purpose test still applies

The Court clarified that, while section 100 is mandatory, directors must act in accordance with their fiduciary duties. If a director seeks to inspect documents for an improper purpose, the Court can refuse the application under section 184B. However, the burden is on the party opposing the inspection to prove that it has been sought for an improper purpose.

The Court further held that, contrary to the Companies' argument, Mr Justice Wallbank had assessed the allegation of improper purpose and had rightly concluded that there was insufficient evidence showing Ms. Papanikolaou was acting in bad faith or colluding with hostile parties.

The Court agreed that Ms. Papanikolaou's desire to know the litigation funder's identity was reasonable. Without knowing who was funding ongoing litigation or the terms of such funding, she could not adequately assess the Companies' financial risk or fulfil her duties as a director.

The Court emphasised that mere suspicion, conjecture, or past affiliations are not enough to justify restricting a director's statutory rights. What is required is real "cogent" evidence. In this case, the Court held that there was no cogent evidence linking Ms. Papanikolaou to any improper use of the information.

Outcome and upshot

The appeal was dismissed with costs. The Court upheld the lower court's decision that Ms. Papanikolaou should have full access to the Companies' documents, including the unredacted engagement letters.

This decision clarifies the mandatory effect of section 100(1) of the BCA and that the burden will be on a party alleging improper purpose to prove it, by reference to cogent evidence. Mere suspicion or past affiliation will not be sufficient to establish an improper purpose. However, it should be noted that the Court's decision does not suggest that section 100 does not permit refusal of an application to inspect company documents where the court is satisfied (on evidence) that an applicant is acting for an improper purpose.