As with other offshore jurisdictions, the regulators in Anguilla are becoming increasingly aware of the need to balance international expectations for good corporate governance with the requirements of maintaining corporate flexibility, which is synonymous with Anguillian commercial vehicles.

The Anguillian Financial Services Commission has veered away from the British approach to corporate governance as advocated by the Cadbury and Greenbury committees and the Sarbanes-Oxley model of the US, preferring instead to allow shareholders to determine their own appropriate governance measures within a legislative framework. For a jurisdiction such as Anguilla, this approach has to be preferred, allowing the necessary flexibility so important to offshore corporate vehicles, while adhering to a set of statutory provisions that are now familiar to the offshore market.

Anguilla is a British overseas territory in the eastern Caribbean. It is a politically and economically stable, zero-tax offshore jurisdiction and over the past few years is increasingly being seen as an alternative to other offshore jurisdictions in the region, especially those tainted by the recent off-balance-sheet scandals.

The two most popular Anguillian vehicles used in international corporate and financing transactions are the international business company (IBC) and the limited liability company (LLC) incorporated under the International Business Companies Act (the IBC Act) and the Limited Liability Company Act (LLC Act), respectively.

A comparison of both statutes and their approach to corporate governance might prove useful to those unfamiliar with Anguillian IBCs and LLCs; as will be seen, maintaining flexibility on the part of members to set necessary corporate governance standards is crucial to both company types.

International Business Companies Act

Appointment and removal of directors

The first directors of an IBC are typically appointed by that IBC's incorporators (subscribers), thereafter the directors are appointed by a shareholders' resolution for such period as the shareholders determine. Unless otherwise restricted by an IBC's constitutional documents, its articles of incorporation and bylaws (together, the bylaws), directors are permitted to make appointments to the board of directors for such term as those directors' determine; there is no statutory requirement for directors to retire at an annual meeting of shareholders or by rotation. Directors may be either individuals or companies and there is no prerequisite for a director to hold shares in an IBC before or during their appointment.

Non-executive directors may be appointed to the board at the discretion of the directors or shareholders, but there is no requirement to do so. A director may appoint an alternate director if that director is going to be absent from a meeting.

A director may be removed from office by a resolution of directors or a resolution of shareholders. They can also resign their office. There is a growing tendency for provision to be made in an IBC's bylaws (if that IBC is the acquisition vehicle) to allow for a particular class of shareholder to remove their appointed director - this is common particularly in private equity transactions.

Number of directors

The bylaws typically fix the number of directors that may be appointed to the board of an IBC; sole directors are permitted under the IBC Act. The number of directors can of course be changed as necessary, by amending the appropriate provision in the bylaws.

Powers of directors

There is no comprehensive list of a director's powers, instead the IBC Act states directors have those management powers not reserved to shareholders either in the IBC Act or in the bylaws.

Directors' emoluments

Subject to the bylaws, the directors may determine their own emoluments in relation to services rendered to the IBC in whatever capacity.

Directors' duties

Each director appointed will owe certain duties to the IBC at common law and more specific duties under the IBC Act.

At common law a director will owe two general duties to the IBC and in certain cases to its shareholders and creditors:

• fiduciary duties; and
• a duty of skill and care.

A director's fiduciary duties can be further expanded to include:

• to act in good faith;
• not to exceed the powers of a director;
• not to make a personal profit;
• disclosure of any conflict of interest; and
• a duty of confidence.

The duty of skill and care required from a director has been commented upon at length under English case law, which has set down the standard of care required from a director as that of the ordinary reasonable man. This is the same test under Anguillian law. A director need not exercise a greater degree of skill in performing their duties than may reasonably be expected from a person in their particular circumstances but they must act honestly and in the best interests of the IBC.

Under the IBC Act, a director owes three duties:

1. a duty to disclose any conflict of interest;
2. a duty to act honestly and in good faith with a view of the best interests of the IBC. A director also must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; and
3. a duty in relation to the internal management of the IBC. This includes statutory provisions to maintain certain registers of the IBC and to keep minutes of meetings of the directors and minutes of meetings of shareholders of the IBC.

Officers

The directors may, by resolution, appoint any person to be an officer or agent of an IBC. Officers have the powers and authority as set out in the bylaws or in the resolution authorizing their appointment. Nothing in the IBC Act prevents a director from also being an officer of that IBC.

Inspection of books and records

A shareholder of an IBC may inspect the books and records of an IBC on giving written notice and is entitled to make copies of the bylaws, share register and such other records, minutes and consents as may be required.

The IBC may refuse to make any book or record available to a shareholder and, in such circumstances and after a certain period of time, a court may impose judicially a right of inspection on the part of the shareholder.

There is no statutory requirement for interim or final financial accounts or other financial statements of an IBC to be audited or publicly filed in Anguilla. Typically such accounts are prepared on the basis of the practice of the market or markets in which the IBC operates. In debt financing transactions, an Anguillian borrower will usually be under an obligation to deliver accounting information periodically throughout the life of the facilities.

Shareholders' meetings

Subject to the bylaws, an IBC's directors may convene a meeting of shareholders on giving the required notice. The inadvertent failure of directors to give notice of a meeting to a shareholder, or the fact that a shareholder has not received the notice, does not invalidate the meeting.

There is no requirement for meetings of shareholders to occur periodically or at least once a year, nor are accounts or other financial statements required to be laid before a meeting of shareholders for adoption as is required in some other common-law jurisdictions. Typically, shareholders meetings are convened to amend the bylaws (although bylaws are frequently drafted to allow for directors to make any necessary amendments without the need to obtain shareholder consent) and to approve big transactions, which the IBC may be involved from time to time.

Disposition of assets

Unusually for an offshore jurisdiction, shareholder approval is required where more than 50% of an IBC's assets are to be disposed of outside the usual or regular course of an IBC's business. Directors' consent is also required in such circumstances. Consent from shareholders is not required, however, if assets are transferred as the result of the operation of a mortgage, charge or other encumbrance.

Limited Liability Company Act

Limited liability companies are peculiar to Anguilla, although the LLC Act is similar to legislation in force in the US. The LLC Act provides for parties to the foundation documents, the articles of formation and the LLC agreement (together, the LLC agreement), that is, the members and managers, to agree among themselves what corporate governance benchmarks are to apply and to what extent. That said, the LLC Act prescribes certain minimum standards that are mandatory.

Appointment of managers and admission of members

A LLC need not have a manager but, where one is appointed, the LLC agreement will govern that appointment. The provisions of the LLC agreement will also determine the manner in which a member will be admitted and exit the LLC. This allows each LLC to be specifically tailored to a transaction and allows generally for a LLC to adapt to any given scenario.

As with directors under the IBC Act, there are no provisions preventing a bankrupt or disqualified director being admitted as a manager of a LLC. It is thought, though, that this has more to do with a lack of adequate corporate insolvency legislation in Anguilla as opposed to any gaps in the IBC Act and LLC Act.

Powers and duties of managers

Subject to the LLC agreement, the management of an LLC vests with its members in proportion to their share in the profits of the LLC, regardless of whether or not a member may have transferred their economic unit in the LLC. Management may also vest with the management itself subject to the provisions of the LLC agreement.

Members' rights

By their nature, members' rights in LLCs are proportionate and vary from time to time depending on the size of that member's economic interest. A member's rights also depend on what member class that member belongs to, as described in the LLC agreement. As such, it is difficult to determine what general rights or otherwise a LLC member might have at any given time, depending in essence on the terms of the LLC agreement.

The LLC Act does give each member of an LLC a right, subject to reasonable standards (including standards governing what information and documents are to be furnished at what time and location and at whose expense) as may be specified in the LLC agreement, to obtain from the LLC from time to time upon request:

• information regarding the status of the business and financial condition of the LLC;
• a current list of the name and last-known business or mailing address of each member, holder of an economic interest and manager;
• a copy of the LLC agreement and all subsequent amendments to it, together with executed copies of any written powers of attorney pursuant to which the agreement and any articles may have been executed;
• information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each member and that each member has agreed to contribute in the future, and the date on which each became a member; and
• such other information regarding the affairs of the LLC as is just and reasonable.

Inspection of books and records

A manager of a LLC is not permitted to keep confidential from the members any information, trade secrets or other information of the LLC, although a manager has a right to examine the information that members have a right to examine as set out above.

A manager is also entitled under the LLC Act to rely in good faith upon the records of the LLC and upon such information, opinions, reports and statements made available to the LLC.

Flexibility is a virtue

The greatest virtue of Anguillian IBCs and LLCs is undoubtedly their flexibility, that is, their ability to adapt to whatever governance standards are required for any given transaction. As shown above, bylaws in the case of an IBC and the LLC agreement in the case of a LLC are easily amended, and are often tailored to each transaction setting out the necessary corporate governance standards on each occasion.

Time will tell whether more onerous corporate governance requirements will be introduced in Anguilla, however, the Anguillian Financial Services Commission has no immediate plans to upset the apple cart quite yet, on what have proved to be two very successful and flexible offshore corporate vehicles.

Author biography

Martin Welsh Harney Westwood & Riegels Martin Welsh is an associate practicing Anguilla law and British Virgin Islands law from Harney Westwood & Riegels' Anguilla office. He has over seven years' experience both representing banks and corporate clients across a number of jurisdictions, working on high- to medium-value corporate and international financing transactions both in the City of London and in the eastern Caribbean. Martin is admitted as a solicitor in Scotland, British Virgin Islands and Anguilla