Category: Law Articles

Corporate Governance continues to expand globally, and indeed in The Bahamas, as organizations as well as the legislature recognizes the need for greater transparency in companies.

Legislation continues to be developed in order to ensure those with daily control of corporate entities are acting in the interest of all its stakeholders and not just for the sole benefit of any one constituent.

Minority shareholders should be in a position to receive information concerning those with greater beneficial interests in their companies and any dealings those individuals may have concerning material contracts with their companies. This is the direction taken by governance regime globally and The Bahamas is enhancing its laws to make such disclosures a requirement.

Updates to The Bahamas’ Securities Industry Rules were made by way of the Securities Industry (Corporate Governance) (Amendment) Rules, 2020 this April. The amendments requires additional disclosures be made by directors. Additionally, the Chairman and CFO must attest to the accuracy of the financial statements in writing.

In summary the new Rules provides as follows:

1. prospective nominees to the Board of a company must disclose prior to appointment:
   a. the number and nature of any memberships he may have on other Boards,
   b. any employment or compensated commitments with other companies, public issuers or regulated entities;
2. a nominating committee (if any) must determine whether any prospective nominee can effectively contribute to the performance of the Board where such nominee holds more than one directorship or has other employment or compensated commitments;
3. where a prospective nominee is elected or appointed and did disclose membership on other boards, employment or compensated commitments and any of those commitments are terminated he/she must inform the board of this;
4. external Auditors under these amendments no longer have to make disclosures of conflicts of interest (see 11 (2));
5. directors have a duty to disclose memberships, employment or compensated commitments held as well as details of any appointments to the board committees of and any ownership interests in other companies, public issuers or regulated entities;
6. where a director or officer is a director or officer of a company who is party to a material contract or proposed material contract with the contracting company, this must be disclosed by the director or officer of the company.

The insertion of a new paragraph 2A makes it mandatory that when directors vote on any material contract for which a fellow director or officer of the company has advised that he is an officer or director of the proposed contracting company, the vote must be by an expressed resolution and that director or officer must recuse himself and not take part in the voting.

7. The Chairman and CFO must satisfy the board that the financial statements present a true and fair view of the affairs of the company – this must be done in writing; and

8. finally, (as in the previous Rules a and b continues to apply as stated below – however, c is newly introduced) the annual report of the company must disclose:
a. directors’ interests in contracts with the company, its subsidiaries and holding company and the nature and details of the contracts and such interests of the director;
b. any service and material contracts with controlling shareholders.
c. details of any board membership, employment or compensated positions held by directors and any board committees and ownership interests in other companies, public issuers and regulated entities.

A part of a corporate secretary’s role is to assist companies in managing their corporate governance and board obligations.

It is a good idea for corporate secretaries to prepare proper board charters to aid directors and officers in complying with regulatory requirements. Corporate secretaries should work with the company’s executives in developing corporate governance policies that will ensure company wide adherence to regulations and general good governance as a whole.

The Securities Commission of The Bahamas has stated that the amendments made to the Rules are “based on a review of The Bahamas’ Ease of Doing Business rating, with a view to improving minority shareholder protections, strengthening disclosure requirements for directors, nominee directors and officers of public issuers, and addressing shareholder rights generally”.

The author of this article is a Corporate Governance Attorney specializing in assisting public issuers as well those companies whose shares are not publicly sold or listed. Capital Law Associates provides Corporate Secretary services and assists companies in preparing board charters and directors protocols. Additionally, we assist companies with regulatory filings and general counsel services. We can be contacted at [email protected].

Have you ever looked at a Force Majeure clause and think, “I’ll never use this provision of my contract”?  Well now is the time to review your contracts and determine whether you could possibly invoke for your benefit, or perhaps conversely, have invoked by another party to your disadvantage a force majeure clause, because of the COVID-19 outbreak.

What exactly is a force majeure? A force majeure clause is a clause inserted into a contract which allows a party or usually both parties to have the ability to not perform some or all of the terms of the contract without being penalised – the force majeure provision usually covers act of good, plague, strike, war, labour disputes or government intervention. It is an event that is not foreseeable and could not have been anticipated at the time of the contract; and was not the making of the person asserting it.

It is important to note that not because there is a force majeure event that takes place one can immediately invoke this clause to avoid performance of the contract.

Here are some of the elements that one must consider when seeking to successfully invoke (or refute) a force majeure clause:

1. Has the force majeure created such a circumstance that it is impossible to perform the terms of the contract;
2. Was the contract prematurely ended or the provision not performed in anticipation of the force majeure taking place – the force majeure must have been a present event preventing performance;
3. Is the force majeure event explicitly spelt out in the provision – or does it fall within a broad category – if the force majeure is stated in a “catch all” phrase it will be a battle to demonstrate that the act was not foreseeable at the time of creating the contract and therefore incapable of being relied on as falling within the provision.

Note that if one wishes to assert the force majeure clause the onus is on the asserting party to prove that the act relied on is truly a force majeure.  Courts will generally interpret force majeure clauses very narrowly. Therefore it is important to prove (1) that the foreseeability of the event was absolutely impossible and (2) of course did not exist at the time of entering into the contract and (3) that the event did indeed create a circumstance where the contract could not be performed.

Is it possible for COVID-19 to be invoked as a force majeure?

1.  If one is able to prove that the pandemic is an Act of God – then this could be used as a starting point. Act of God has been described using words such as “unexpected, unforeseeable, grave and unusual”.  To prove that the COVID-19 is unforeseeable one need ask the question, has the world seen anything like this before?  Yes, it has. A further question should be asked, was it expected to have occurred again and in this fashion? It could be asserted that no, this is unexpected. These are fundamental questions that must be answered.

2. Has COVID-19 made it impossible to fulfil the terms of the contract?  In many circumstances this will be and is true.

If COVID-19 is not easy to prove to be an Act of God, parties to a contract can assert that the repercussions of the virus has made it impossible to perform the contract and thereby the contract has been frustrated.  Frustration is itself characteristically very difficult and the courts in the case of Davies Contractors v Fareham Urban UDC [1956] A.C. 696, stated that the doctrine must be kept within very narrow limits.  The Courts must look at the terms of the contract and determine exactly what the parties agreed. Then the Courts look at what is said to be the frustrating event and determined whether what has occurred made performance of the contract, not merely difficult or more onerous, but substantially different from what was contemplated by the parties.  

In Conclusion

For businesses it is important to review the details of existing contracts now.  Determine the scope of the force majeure clause in the business’ contracts to determine whether there are notice periods or other alternatives to invoking a force majeure clause.  It is also necessary before invoking the clause to determine first the implications of doing so.

Please note this is not to be construed as legal advice. All cases are unique to some degree and should be reviewed by an attorney before being acted upon. Please contact us via email at [email protected] if you are seeking legal guidance concerning the above information. The author is an experienced Commercial Attorney who is dedicated toward providing pragmatic legal advice that is clear and easy to follow.