Bermuda: The Companies Amendment (No. 2) Act 2011 - "Unlocking The Entrepreneurial Zeal Which Rests At The Very Core Of The Bermudian Success Story"

The Companies Amendment (No. 2) Act 2011 (the "Amendment Act") became operative on 18 December 2011 having received assent from His Excellency Sir Richard Gozney KCMG, CVO, Governor of Bermuda. Business Development Minister Wayne Furbert, addressing the House of Assembly, stated that "The purpose of the bill [the Amendment Act] 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". This article briefly looks at the core changes introduced by the Amendment Act and questions whether it achieves its above mentioned purpose.

Without question, the Amendment Act represents the first significant amendment to the Companies Act 1981 (the "Act") since 2006 and is a result of a comprehensive review of the Act undertaken by both the public and private sectors. It encompasses improvements inspired by the experience of those who work with the Act on a day to day basis whilst also adopting recent amendments to comparative legal systems onshore, which together, it is hoped, will enhance Bermuda's edge on rival offshore jurisdictions such as the British Virgin Islands and Cayman. So what are the most important amendments that have been introduced?

SIMPLIFIED ADMINISTRATION

With the growing use of corporate directors as an integral part of modern governance in international and cross jurisdictional corporate structures, the Amendment Act has removed the need for directors of Bermuda companies to be natural persons by expanding the definition of a director to include individuals, companies, partnerships and other associations of "persons" whether incorporated or unincorporated. It has also brought change to the minimum number of directors required to manage a Bermuda company from two individuals to one person. The Amendment Act further allows companies to dispense with holding AGMs for any number of years by resolution of the shareholders. Each of these amendments has increased the flexibility in convening meetings, executing documents and general transacting of business which will result in improved operational and administrative efficiency and ultimately a reduction in related costs.

TRANSFERS OF SECURITIES

The Amendment Act has also simplified the requirements that permit 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 (an "Appointed Agent") approved by the Minister of Finance. The Amendment Act has abolished the requirement for an Appointed Agent and introduced an exemption from the need to deliver a written instrument for all transfers of securities listed or admitted to trading on an appointed stock exchange. The Act has been further amended to state that nothing in the 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 to trading. This amendment ensures that the requirements of the Act do not add to or interfere with the rules and regulations governing the transfer of securities listed on appointed stock exchanges.

BUSINESS ACQUISITIONS

The Amendment Act has introduced the familiar, but until now unavailable, 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 and one of the merging companies is recognised as the 'surviving company' with the others having been absorbed by that surviving company. 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 the one 'surviving company'. Expanding the range of business combinations available provides Bermuda and foreign companies with increased flexibility in terms of structuring international and cross jurisdictional acquisitions, takeovers, mergers and amalgamations.

The Amendment 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 itself, subject to a number of exceptions. This change has removed the costly and time-consuming effort that was often experienced when assessing whether or not a company was providing financial assistance. This will be a further benefit to many transactions involving the acquisition or restructuring of Bermuda companies in that the question of financial assistance need not even be considered.

Finally the squeeze-out provisions for those looking to compulsorily acquire a Bermuda company have been enhanced. The Act already allowed a person that holds at least 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. 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.

In conclusion, it is fair to say that the engine has been stoked. The Amendment Act has made significant changes to the Act, bringing in measured and tangibly beneficial amendments whilst retaining Bermuda's reputation as a jurisdiction which prioritises the highest standards of corporate governance. These changes are a good example of how seriously Bermuda takes the matter of being as attractive as possible to international business in a global marketplace which is quick to change and 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 very core of Bermuda's success and is an imperative component in assisting to propel Bermuda forward.

• The Amendment Act has removed the need for directors of Bermuda companies to be natural persons by expanding the definition of a director to include individuals, companies, partnerships and other associations of "persons" whether incorporated or unincorporated.
• The Amendment Act has also simplified the requirements that permit the electronic transfer of securities. " The Amendment Act has introduced the familiar, but until now unavailable, concept of merger as a further alternative to the existing regime on amalgamation and other business acquisition models.
• The Amendment Act has made significant changes to the Act, bringing in measured and tangibly beneficial amendments whilst retaining Bermuda's reputation as a jurisdiction which prioritises the highest standards of corporate governance.

Originally published in Nexus February 2012.

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