In ICM SPC v Jarvis, the Court held that section 49 of the Business Companies Act 2004 does not require a formal, signed subscription agreement for a share issue to be valid. A contemporaneous exchange of emails, read together with their attachments, may be enough.

The decision is commercially significant for funds, companies, boards and insolvency practitioners: informal correspondence exchanged while a share issue is being progressed can have binding consequences, even where formal subscription documents have not yet been signed.

The appeal arose out of the liquidation of Phoenix. We covered the first instance decision in a previous blog post, and a related stay application in another.

ICM SPC, acting on behalf of Ancile Special Opportunity and Recovery Fund Segregated Portfolio (ASOR), had been entered on Phoenix's register of members as holder of 440,935 shares, valued at around US$40 million. When Phoenix was put into liquidation the following year, the joint liquidators settled a list of members that included ASOR. ASOR objected, arguing that the share issue was void under section 49 because it had never agreed in writing to become a shareholder, and applied under section 193(3) of the Insolvency Act 2003 to be removed from the list. If ASOR remained on the list, it could be liable to contribute to the company's assets in the liquidation. The judge dismissed ASOR’s application at first instance. ASOR appealed to the Court of Appeal, which ultimately upheld the first instance decision.

Section 49 provides that a share issue which increases or imposes a liability on a person is void unless that person "agrees in writing to becoming the holder of the share". ASOR argued this provision required a single, formal, bilateral subscription agreement setting out the number of shares, the consideration and the effective date. The Court disagreed with this interpretation of the provision.

Instead, it held that section 49 does not require an executed agreement or even a signature: all it requires is a written record, whether in one document or several contemporaneous documents read together, sufficient to identify the person becoming the holder of the share(s), the company, the shareholding in question, and the fact of assent to it.

Applying that test, the Court found that an exchange of emails between Phoenix and ASOR's representative, together with an attachment setting out the proposed shareholding, was sufficient to show ASOR’s assent to becoming the holder of the shares. It did not matter that one email, in which ASOR's representative confirmed "good receipt of the revised Shareholder structure and adequacy of the same", was not itself "a model of legal drafting", and “did not use the words ‘subscribe’, ‘allot’, ‘issue’, or ‘agree to be bound"’. The surrounding correspondence showed that (i) the shares were about to be issued, (ii) the proposed shareholding had been circulated, and (iii) ASOR’s representative had confirmed that the revised structure was correct. Read together, the emails and attachment were sufficient to establish that ASOR had agreed in writing to become the holder of the shares.

The Court of Appeal also confirmed – dismissing the respondent liquidators' counter-notice on this point – that the written assent required by section 49 must exist before or at the time the shares are issued. Documents created afterwards cannot cure a defective issue, but they remain admissible as evidence corroborating that assent was given earlier. A certificate ASOR later signed, describing itself as holder of the shares, could not retrospectively validate the issue – but it did support the conclusion that ASOR had agreed to the shareholding at the time the shares were issued.

The Court indicated that even if ASOR had succeeded in its interpretation and application of section 49, it would still have refused to remove ASOR from the settled list of members.

The Court considered it relevant that ASOR had remained on the register for almost a year before Phoenix entered liquidation and had represented itself to a third party as being a shareholder in that period. ASOR did not apply to the Court for removal until well after liquidation had commenced. In those circumstances, the Court held that ASOR's own conduct and the practical consequences for creditors would have justified refusing relief regardless of the section 49 analysis.

The decision provides welcome clarity on the approach the BVI courts will take in determining whether written assent has been provided under section 49.

Companies, funds and boards progressing a share issue by email, ahead of any formal subscription paperwork, should be aware that an email exchange confirming the identity of the person becoming the holder and its intended shareholding may be enough to establish shareholder status and the liabilities that follow from it. The absence of a signed subscription agreement will not necessarily prevent a court from finding that written assent has already been given.

The full judgment can be read here.