Bermuda

Bermuda is a self-governing overseas territory of the UK and a member of the Commonwealth. Often mistakenly assumed to be situated in the Caribbean, the islands of Bermuda comprise around 28 square miles of land spread out over 130 islands and islets along the south ridge of an ancient volcano situated in the middle of the Sargasso Sea in the Atlantic Ocean.

Company law origins and development

Bermuda's regulatory and legal framework was originally founded on English common law principles and, although the UK retains authority over certain matters (including defense, security and other external affairs), the local democratically elected government has full responsibility for introducing and adopting new or amending legislation. Over time the power, autonomy and innovation of the Bermuda government has allowed for local legislation to be developed and improved to best suit the needs of the people of Bermuda as their economic focus has changed from exports to tourism and to international business.

Bermuda's legislation has been developed and influenced by local and international concerns, including international regulation and the demands and needs of a sophisticated and growing class of international business. In particular, Bermuda's company and commercial laws were dramatically updated by the introduction of the 'Companies Act 1981' (the 'Companies Act'), which originated as an adaption of the UK Companies Act 1948 as amended up to 1980. Since its introduction the Companies Act has been under consistent review by both government and industry to ensure that it is kept up to date with the latest innovations and practices of the international business environment.

Although many of the earlier amendments originated from changes being made to English law, over time changes have been more and more influenced by the developments of laws of other jurisdictions, including Canada, Australia and the US, and even more recently through self innovation and creativity in an increasingly competitive market for international business.

In contrast to Bermuda's consistent efforts to ensuring its regulatory and legal framework is attractive to international business, it has a reputation for keeping a welcome balance with the ever more present pressures of meeting and complying with internationally established and recognised legal and regulatory standards that have arisen from the increased international focus on developing a global approach to combating terrorism, money laundering and tax evasion.

As an example, Bermuda has recently proven to be one of the very few jurisdictions whose legal and regulatory framework already meets with internationally agreed standards for transparency and exchange of information for tax purposes following a recent review of Bermuda's framework by the OECD's Global Forum on Transparency and Exchange of Information.

Latest amendments

Following the latest review of the Bermuda Companies Act 1981 (the 'Companies Act') undertaken by the Legislative Change Committee of Business Bermuda and in collaboration with the Ministry of Business Development and Tourism, the Bermuda Legislature enacted the Companies Amendment (No.2) Act 2011 (the 'Amending Act'). The Amending Act is the latest drive to update and improve Bermuda's company law and introduced changes that provide for, amongst other benefits:

  • simplified management and operation of Bermuda companies;
  • the electronic transfer of securities of a company listed on an appointed stock exchange without the need for a written instrument or appointed agent; and
  • an enhanced choice of corporate structures for mergers and acquisitions aimed at making Bermuda a more attractive and competitive jurisdiction.

Simplified administration

With the growing use of corporate directors as an integral part of modern governance for many international and cross-jurisdictional corporate structures, the Amending Act has removed the need for directors of Bermuda companies to be individuals by extending the list of persons capable of being appointed as a director of a Bermuda company to include individuals, companies, partnerships and other associations of 'persons' whether incorporated or unincorporated. The Amending Act has also brought change to the minimum number of directors required to manage a Bermuda company by reducing the requirement from two individuals to one person. For companies that take advantage of either of these changes, it is expected that an increase in flexibility in convening meetings, transacting business and executing corporate documents will lead to an improvement in operational and administrative efficiency and a correlated reduction in operational costs. It should be noted that whilst these changes provide for an improvement in the efficiency of operations and management of Bermuda companies, they have not reduced the level and type of obligations and duties placed upon those persons acting in the capacity of director or officer of a company.

The Amending Act has also provided for a Bermuda company to dispense with holding annual general meetings for any one or more years by resolution of the members (this excludes the mandatory members' statutory meeting held upon incorporation). It should be noted that once dispensed, an annual general meeting will remain, during the first nine months of the applicable year, subject to the right of any member of the company to request that it be convened.

Transfers of securities

The registration of a transfer of securities of a Bermuda company was prohibited unless a proper instrument of transfer (ie a written instrument) was delivered to the company or, where the securities were listed or admitted to trading on an appointed stock exchange, such security is evidenced and transferred by an agent (an 'Appointed Agent') approved by the Minister of Finance for such purposes.

This process has now been simplified by the removal of the Companies Act provisions pertaining to Appointed Agents and the introduction of an exemption for all transfers of securities of Bermuda companies listed or admitted to trading on an appointed stock exchange from the requirement to deliver a written instrument of transfer.

Accordingly, all Bermuda companies with securities listed or admitted for trading, or those seeking to have securities listed or admitted for trading, on appointed stock exchanges will no longer need to ensure that they are using an Appointed Agent for the purposes of transferring shares in electronic form. Further, and to remove any doubt as to the intent of the Legislature, the Amending Act states that nothing in the Companies Act or any rule of law shall operate to prevent securities from being transferred in accordance with the rules or regulations of an appointed stock exchange on which they are listed or admitted for trading.

Business acquisitions

The Amending Act has introduced the familiar, but until now unavailable in Bermuda, concept of merger as a further alternative to the existing regime on amalgamation and other business acquisition models. Under Bermuda law an amalgamation provides for two or more existing companies to amalgamate into one company whereby the amalgamating companies neither cease to continue as before nor cease to exist, but instead continue with the other or others as a new combined and amalgamated company. All undertakings, assets and liabilities of the amalgamating companies vest in the amalgamated company without any one of the amalgamating companies being regarded as the 'surviving company'. This model of business combination has proven, and continues to prove, to be very effective (particularly from certain tax perspectives). However, Bermuda has not, until now, provided for the concept of a merger whereby two or more companies merge with one of the merging companies being recognised as the 'surviving company' and the others having been absorbed by that surviving company.

The new provisions have been introduced alongside and therefore follow to some degree the requirements for amalgamations. As with an amalgamation, Bermuda companies may now merge with one or more Bermuda or foreign companies or corporations, but different to an amalgamation, the undertakings, assets and liabilities of each merging company will vest in one of the merging companies as the 'surviving company'. The key difference is the right to designate which one of the merging companies will 'survive' and in effect absorb the other merging companies which will each cease to exist following the merger. Once complete, a merger can be followed by the ability to continue in Bermuda or discontinue in Bermuda and continue in a foreign jurisdiction, which is not dissimilar to what can be done with an amalgamated company.

This broadening of the range of business combinations provides both Bermuda and foreign companies looking to structure international and cross jurisdictional acquisitions, takeovers, mergers and amalgamations with the flexibility they so often need to enable them to use the most appropriate and effective structure in Bermuda based upon the consequential effects in another jurisdiction.

Of further benefit to many acquisition and restructuring transactions, the Amending Act has abolished the prohibition on financial assistance. Bermuda companies were previously prohibited from providing any form of financial assistance in relation to the purchase or acquisition of shares in itself, subject to a number of exceptions. This change has removed the costly and time consuming effort that was often experienced prior to the Amending Act when assessing whether or not a company was providing financial assistance.

In relation to other methods of acquisition of Bermuda companies, the Companies Act permits a person that holds at least ninety-five per cent (95%) of the shares or class of shares in a company to compulsorily purchase the remainder of the shares or class of shares in that company. Shares acquired under these provisions will only be registered by the company upon delivery of a written instrument of transfer, which becomes an issue where the shares being acquired are held by untraceable or uncooperative shareholders. The Amending Act resolves this issue by granting the party acquiring the shares the right to deliver to the company an instrument of transfer executed by a person appointed by the purchaser for and on behalf of the untraceable or uncooperative shareholder together with the consideration being paid for the shares. This amendment was adapted from a tried and tested technique of another section of the Companies Act which means that there should be very little, if any, issues surrounding its interpretation and application in Bermuda.

Conclusion

Bermuda continues to actively strive to keep an even balance between the commercial needs of international business and the increasingly complex transactions with which they operate whilst maintaining respect for and compliance with internationally recognized regulatory and legal standards. The Amending Act continues the evolution of Bermuda's regulatory and legal environment and reflects Bermuda's commitment to maintaining a modern, intuitive and practical approach to its company law, particularly in relation to the needs and preferences of international business and the professional advisors transacting at a global level, without losing touch with international standards.

Far from being torn between the need to maintain a flexible regulatory and legal framework to attract and retain international business and the demands of the international political communities onshore to adhere to the stringent requirements of international cooperation and diplomacy, Bermuda has continued to lead the way in bolstering the reputation and value of international financial centres in the global financial markets and has continued to gain strength and popularity as a respected, stable and reliable jurisdiction within and through which legally sound international business will continue to thrive.

Originally published in Financial Regulation International.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.