Offshore legal opinions on corporate and finance transactions

By Peter Vas, Loeb Smith Attorneys
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Offshore lawyers routinely issue legal opinions with respect to British Virgin Islands (BVI) and Cayman Islands companies in the context of corporate and finance transactions. These opinions are principally intended to provide the relevant addressees with a degree of comfort as to the enforceability of the opinion documents, and to identify any legal risks that they should evaluate.

There are certain relatively common issues that arise with respect to legal opinions in the context of corporate and finance transactions from a BVI and Cayman Islands law perspective. This article examines four such issues.

Addressing a legal opinion to a non-client

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Peter Vas
Partner
Loeb Smith Attorneys

There is an inherent risk of a conflict of interest in issuing an opinion to an addressee that is not a client of the relevant offshore law firm in an ongoing transaction.

For example, if an opinion extends to the legal effect of a document, this might result in having to identify deficiencies or risks affecting the addressee, which are not in the interests of the firm’s own clients.

That being said, there are certain circumstances where it may be permissible to issue a legal opinion to a non-client. For example:

  • It might be market practice to do so. In a fund financing transaction, it is relatively common for fund counsel to issue an opinion to the lender as it will be more familiar with the relevant limited partnership agreement and any side letters; and
  • An opinion may be limited to matters such as due incorporation and due execution, and may be unlikely to cause any conflicts of interest.

Therefore, offshore legal counsel will need to make a determination based on the specific circumstances and the likelihood of a conflict in each case.

Backdating a legal opinion

Offshore law firms are often asked whether a legal opinion may be backdated. Usually, there are no illicit intentions behind the request, and its purpose is to try to align the date of the opinion with signing or completion.

However, the general rule is that backdating a legal opinion is impermissible, and may comprise an offence and professional misconduct.

The following practical advice may be considered in this situation:

  • While it may not be possible to backdate a legal opinion, an opinion may be expressed to take effect as of the date of signing or completion (as relevant);
  • It may be practicable to issue an opinion into escrow ahead of signing. This mechanic is particularly useful in a cross-border transaction involving counsel in multiple jurisdictions; and
  • To the extent that a legal opinion has already been issued, and needs to be reissued, it may be cost-effective to issue a bring-down opinion, which reaffirms the conclusions set out in the original opinion.

Outstanding constitutional documents or statutory registers

The consequences of not providing offshore legal counsel with constitutional documents and/or statutory registers will ultimately depend on which documents are outstanding, whether they are a matter of public record, and the risk appetite of the addressee of the opinion.

For example, if the register of charges of a BVI company, which is the target of an acquisition, has not been provided, that might not be acceptable to a potential buyer who is seeking opinion comfort to ascertain whether that company has created any charges. On the other hand, if a BVI company is acting as a guarantor in an unsecured financing, the lender may not have any objections if offshore legal counsel is not provided with the register of charges, as this will not typically be relevant to the opinions to be issued to that lender.

Due authorisation opinion with respect to documents that have not been expressly authorised

From time to time, the board resolutions passed by a BVI company, or a Cayman Islands company, may not expressly approve a document entered into by it. Offshore legal counsel may therefore not be prepared to issue a due authorisation opinion with respect to that document. One solution to this problem is to pass new resolutions, or to amend the existing resolutions. However, this may not be practicable.

Most resolutions include a general authorisation, and offshore law firms will usually be able to issue a due authorisation opinion if the relevant document falls within the scope of that provision, or within one of the classes of documents referred to within it. If the document is expressly referenced in another document (either by name or class), which has been expressly approved by the resolutions, that is also likely to be sufficient. It is therefore important to ensure that resolutions have a well-drafted general authorisation provision.

Peter Vas is a partner at Loeb Smith Attorneys in Hong Kong

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LOEB SMITH ATTORNEYS
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www.loebsmith.com

Contact details:
T: +852 5225 4920
E: peter.vas@loebsmith.com