Charges over shares are usually accompanied by a suite of documents designed to facilitate enforcement, including (i) a signed, undated transfer of the shares into the name of the lender, and (ii) where attainable, a signed, undated resolution of the directors of the company resolving to approve the share transfer on presentation by the lender and to enter the name of the lender in its register of members in place of the borrower. These documents allow the lender to become the legal owner of the shares as part of enforcing its security against a defaulting borrower. Upon a default by the borrower, the lender simply dates the documents and presents them to the directors of the company in which the shares are held.

But what if the directors who signed the undated resolution are no longer the directors when the lender comes to enforce its security? Does a resolution by ex-directors have any effect? Will this result in a thwarted enforcement process, unless the current directors are willing to pass a new resolution to the same effect?

These issues were examined by the Cayman Islands Grand Court in the recent decision of Zhongzhi Capital (HK) Company Ltd and Anor v Geopay Holding Ltd and Geoswift Holding Ltd. Zhongzhi had lent money to Geoswift and taken security over shares held by Geoswift in Geopay. Geoswift defaulted, and Zhongzhi sought to enforce the security it had been given under the usual suite of documents. Geopay declined to give effect to the transfer, so Zhongzhi sought an order under s.46 Companies Law for rectification of the register of members, by entering its name in place of the borrower.

The issue was the validity of the written resolution approving the transfer of the shares to Zhongzhi. The sole director of Geopay who signed the resolution was no longer a director by the time Zhongzhi came to date and present it. The court rejected the challenge to the resolution on the ground that a director’s resolution did not need to be dated to be effective, unless the company’s articles so required (it was not required in this instance). The articles also required the Geopay directors to promptly approve a share transfer pursuant to the enforcement of security.

Accordingly, the court ordered the rectification of Geopay’s register of members by entry of Zhongzhi as holder of the charged shares. This is an important decision which clarifies the share charge enforcement process and is consistent with Cayman’s creditor friendly ethos.

This blog post was written by Moesha Ramsay-Howell, a member of our articled clerk programme.