By Stephen Speiser, Esq.
May 2024
In 2009, the Nevis Island Assembly enacted the Nevis Limited Liability Company Ordinance, which opened the door to the convenient formation of offshore business entities in a tax-friendly and asset-protective Caribbean jurisdiction. A major rewrite of the legislation in 2017 did not make any substantive changes, disappointing many who advocated for the adoption of Series LLCs and for other more asset-protective measures.
In late 2022, the Nevis Island Assembly decided to revisit the Nevis LLC Ordinance and implement a modest set of amendments. (A copy of the legislation is in our Asset Protection Library and may be viewed here.) The revisions may be broken into two broad categories: (1) Restoration of LLCs whose registrations have lapsed (usually for non-payment of government fees), and (2) Mergers and bulk asset sales. It is this second category of changes that we wish to discuss.
New Section 72A provides that a “roll-up” style merger of a 90%+ owned subsidiary Nevis LLC and its parent Nevis LLC may be conducted by the managers without having to seek member approval (so far, so good). New Section 72D, however, grants dissenters rights to any member who does not vote in favor of a merger, and the broad sweep of this section appears to make it applicable to “roll-up” mergers. This is where things start to get sticky. Why create voting rights which may be at variance with the express terms of the operating agreement? No explanation is given.
Similarly, New Section 72B applies this same rule to mergers between a Nevis LLC and its foreign subsidiary LLC, or a foreign LLC and its Nevis subsidiary LLC. While Section 72B speaks of mergers generally, paragraph (5) of the statute implies that Section 72B should only apply to “roll-up” style mergers between a parent LLC and its 90%+ owned subsidiary. Again, it appears that new Section 72D would confer dissenters rights upon any member who does not vote in favor of the “roll-up” merger.
The new legislation even applies to asset sales. Under New Section 72C, a Nevis LLC must obtain the consent of its members before engaging in a sale of all, or substantially all, its assets. This particular statute is poorly worded, requiring that consent be obtained among all classes of interest that are entitled to vote (and imposes a 2/3 majority vote requirement!).
The statute does not appear to contemplate that many, if not most, LLCs are manager-managed, and members generally do not have a right to vote unless such voting rights are specifically provided for in the operating agreement. If an LLC operating agreement does not afford a right to vote on a sale of all the assets of the LLC, why would Nevis law seek to override a private contract and entitle the members to vote on the matter? One hopes that the statute may be construed to not grant a right of consent where the LLC is strictly manager-managed, but the express terms used throughout the statute suggest otherwise.
We do not know what motivated the Nevis Island Assembly to enact these revisions while ignoring the need to update fundamental components of the Nevis LLC Ordinance to keep pace with other offshore jurisdictions. While such merger statutes are commonly associated with corporate entities, LLCs are frequently used in order to dispel with the need for corporate formalities and shareholder votes. In a manager-managed LLC, the authority of a manager to authorize a merger or asset sale is usually designated in the operating agreement. There is no need for government intervention in what should be a private contractual matter.
The amendments further pose a potential conflict with existing sections of the Nevis LLC Ordinance. For example, in a liquidation, the managers are normally authorized to sell all the assets of the LLC; the new statute appears to require that the members consent before such a sale may occur, even if the liquidation has already been approved and an asset sale necessary to wind down the business. LLC managers need to know that they can negotiate a sale of all the assets of the business in order to capture going concern value. Forcing the matter to a member vote when not required under the operating agreement creates needless uncertainty and imposes transaction costs.
In a perfect world, the Nevis Island Assembly would rescind this legislation and instead seek public comment before enacting provisions of this nature. In the meantime, we continue to admire the forward-looking LLC legislation in jurisdictions such as Belize.
For a Confidential Consultation
Click Here to Schedule a Complimentary Call
