Government and the Legislative Change Committee of Business Bermuda have collaborated in modernising the Island's company legislation in a move that is certain to enhance Bermuda's attractiveness as a premier international financial centre.
The Companies Amendment (No. 2) Act 2011 (the "Amending Act") is designed to harmonise and improve upon the Companies Act 1981 (the "Act"). The principal amendments include:
- Introduction of corporate directors
- Required minimum number of directors reduced to one
- Ability to opt-out of holding annual general meetings
- Share transfers permitted without a written instrument for certain listed companies
- Introduction of concept of merger as alternative to amalgamation
- Prohibition of financial assistance repealed
Prior to the introduction of the Amending Act, Bermuda law required the directors of Bermuda companies to be individuals. The Amending Act has introduced a more flexible approach to corporate governance by widening the scope of persons capable of being appointed as a director to include individuals, partnerships, companies and both incorporated and unincorporated associations. Having corporate directors in place can provide a level of continuity to the composition of boards of directors, free of individuals' resignations and retirements.
Formerly, Bermuda law also required the affairs of Bermuda companies to be managed by a minimum of two individuals. The Amending Act has simplified matters by allowing companies to appoint a sole director. Although not appropriate for all Bermuda companies, this amendment will reduce administrative costs, and increase business efficiency, for those who take advantage of these changes.
The Amending Act has also provided for the opportunity for Bermudian companies to dispense with the requirement to hold a shareholder(s) meeting at least once in every calendar year (known as the "annual general meeting"). The Amending Act allows companies to elect, by shareholder(s) resolution, to forego annual general meetings (other than the mandatory shareholders statutory meeting held upon incorporation) for a specified number of years, a calendar year, or indefinitely. This amendment is expected to improve business efficiency by reducing costs, both in time and money, associated with the convening, organisation and holding of such meetings.
Notwithstanding the foregoing, during an opt-out period, any shareholder may reassert their right by requiring that an annual general meeting be held in any particular year provided that notice is given to the company not later than three months prior to the end of the year to which the request relates.
Prior to the Amending Act, Bermuda law required the registration of a transfer of shares to be delivered to the company by written instrument -- or be evidenced and transferred by an appointed agent where such shares were listed or admitted to trading on an appointed stock exchange.
The appointed agent provisions were deemed by many to be unnecessary since the relevant securities were required to be listed on an appointed stock exchange to benefit from electronic trading in the first place. Accordingly, the Amending Act has removed the appointed agent requirements and simplified the exemption from using a written instrument for the transfer of shares in all cases where the securities to be traded are listed or admitted for trading on an appointed stock exchange. Under Bermuda law, there are a number of recognised legal mechanisms for acquiring or otherwise combining different companies, including amalgamation, takeover and scheme of arrangement. The Amending Act has provided an additional option by introducing to Bermuda company law the widely recognised concept of a merger, whereby one or more existing companies merge together. The result of a merger is that one of the companies is regarded as the "surviving company" while the remainder cease(s) to exist.
From a legal perspective, each of the merging companies vests their undertakings, assets and liabilities in the surviving company. The key benefit of broadening the available acquisition mechanisms is that many jurisdictions are familiar with the merger concept, which is potentially more beneficial than other available mechanisms from an onshore tax perspective.
The new legislation has also repealed a provision of the Act that prohibited a company, subject to certain exceptions, from giving financial assistance for the purchase of, or subscription for, shares in that company. This concept was predicated on the protection of shareholder's and creditor's interests which, when applicable, called for certain procedures - - including a test on insolvency -- to be followed before the assistance could be given.
The Amending Act has repealed these provisions in their entirety due to the legal uncertainty caused by the lack of a comprehensive definition of financial assistance, and the view that the interests of shareholders and creditors can be protected through other less burdensome measures.
The Amending Act is the most recent product of an ongoing comprehensive review of Bermuda's company law. It is reflective of the Bermuda government's unwavering commitment to facilitate productivity at home while maintaining the Island's reputation as a leading international financial centre abroad.
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