Introduction
Simplified administration
Transfer of securities
Business acquisitions
Comment
On December 18 2011 the Companies Amendment (No 2) Act became operative upon assent from the governor of Bermuda. Business Development Minister Wayne Furbert, addressing the House of Assembly, stated that:
"The purpose of the bill is to amend the Companies Act to assist further unlocking the entrepreneurial zeal which rests at the very core of the Bermudian success story and shall be the engine which propels her exciting future."
The act represents the first significant amendment to the Companies Act 1981 since 2006, and is the result of a comprehensive review undertaken by both public and private sectors. It includes improvements inspired by the experience of those who work with the Companies Act on a day-to-day basis, while also adopting amendments comparable to those recently passed by onshore legal systems. It is hoped that these changes will enhance Bermuda's edge over rival offshore jurisdictions, such as the British Virgin Islands and the Cayman Islands. This update briefly looks at the core changes introduced by the new act.
With the growing use of corporate directors as an integral part of modern governance in international and cross-jurisdictional corporate structures, the act has removed the need for directors of Bermuda companies to be natural persons by expanding the definition of 'director' to include individuals, companies, partnerships and other associations of "persons", whether incorporated or unincorporated. The minimum number of directors required to manage a Bermuda company has also been changed from two individuals to one. The act further allows companies – upon a resolution of the shareholders – to dispense with annual general meetings. These amendments have increased companies' flexibility in convening meetings, executing documents and transacting business in general, which will in turn result in improved operational and administrative efficiency and ultimately a reduction in related costs.
The act has simplified the requirements for the electronic transfer of securities. The registration of a transfer of securities was formerly prohibited unless a proper instrument of transfer was delivered to the company or, in the case of securities listed or admitted to trading on an appointed stock exchange, the security was to be transferred by an agent approved by the minister of finance. The act has abolished the requirement for an appointed agent and introduces an exemption from the requirement to deliver a written instrument for all transfers of securities listed or admitted to trading on an appointed stock exchange. The Companies Act has been further amended to state that nothing in it or any other law will prevent securities from being transferred in accordance with the rules or regulations of an appointed stock exchange on which they are listed or admitted to trading. This amendment ensures that the requirements of the Companies Act do not add to or interfere with the rules and regulations governing the transfer of securities listed on appointed stock exchanges.
The act has introduced the familiar (but previously unavailable) concept of mergers as an 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 very effective (particularly from certain tax perspectives). However, until now Bermuda has not provided for the concept of a merger whereby two or more companies merge and one of the merging companies is recognised as the surviving company with the others absorbed by the surviving company. Bermuda companies may now merge with one or more Bermuda or foreign companies or corporations, but unlike in an amalgamation, the undertakings, assets and liabilities of each merging company will vest in the one surviving company. Expanding the range of available business combinations provides Bermuda and foreign companies with increased flexibility in terms of structuring international and cross-jurisdictional acquisitions, takeovers, mergers and amalgamations.
The act has also abolished in its entirety 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 themselves, subject to a number of exceptions. This change has removed the costly and time-consuming effort that was often experienced when assessing whether a company was providing financial assistance. This change will be a benefit to many transactions involving the acquisition or restructuring of Bermuda companies, in that the question of financial assistance need not be considered.
Finally, the squeeze-out provisions for those looking to acquire a Bermuda company have been enhanced. The Companies Act already allowed a person that holds at least 95% of the shares or class of shares in a company to purchase the remainder of the shares or class of shares in that company. Such person now has the right to deliver to the company an instrument of transfer executed by a person appointed by the purchaser for and on behalf of untraceable or uncooperative shareholders, together with the consideration being paid for the shares. Such amendments provide additional certainty and security for those seeking to acquire a Bermuda company by way of compulsory acquisition.
The act has made significant changes to the Companies Act, bringing in measured and tangibly beneficial amendments while retaining Bermuda's reputation as a jurisdiction which prioritises the highest standards of corporate governance. These changes are a good example of how serious Bermuda is about maximising its appeal to international business in an ever-changing global marketplace where the competition looks to seize any advantage that it can. Bermuda will need to continue to make improvements to the act, resulting in more frequent amendments to company legislation, if it wants to maintain this positive momentum. Minister Furbert is right: the act is at the core of Bermuda's success and is an imperative component in propelling Bermuda forward.
For further information on this topic please contact Steven Rees Davies or Clive Langley at Appleby by telephone (+1 441 295 2244), fax (+1 441 292 8666) or email ([email protected] or [email protected]).