Bermuda: Acquisitions Effected By Mergers, Amalgamations And Schemes Of Arrangements

Last Updated: 14 December 2015
Article by Matthew Ebbs-Brewer and Gary Harris
Most Read Contributor in Bermuda, September 2018

Bermuda is known as a first class centre for international business. This past year has seen a great deal of merger and acquisition activity for Bermuda headquartered (and often listed on an international stock exchange) companies in the (re)insurance space with their involvement in a series of significant business combinations and acquisitions. This has provided an opportunity to explore the ways in which such transactions can be effected by considering recent market trends to highlight matters that are commonly of interest or concern to clients and onshore counsel. These principles are equally applicable irrespective of one's involvement in the (re)insurance sector.

The body of Bermuda's law on companies, including the provisions through which business combinations and acquisitions of the same are effected, is contained in the Companies Act 1981, as amended (Companies Act). The Companies Act based many of its provisions on the Companies Act 1948 of the United Kingdom and so, English lawyers and those from other common law jurisdictions tend to feel a welcome familiarity with the way in which Bermuda's company law is applied. However, there are some differences and additions, including the provisions that form the focus of this article, which were imported from Canada and allow for the merger or amalgamation of Bermuda companies. Transactions may also be structured by way of a scheme of arrangement which is, as a matter of law, a compromise or arrangement between a company and either its creditors or its members.

Transactions that have taken place in the market have included both those where the fundamental commercial principle is that one group wishes to acquire or "take over" another group and those which are intended to be more of a consolidation of two existing players or a "merger of equals".

Whilst the commercial principles of a transaction may be readily identifiable and distinguishable, Bermuda company law is not prescriptive as to how that commercial reality is to be effected. The parties to an acquisition may wish to structure their transaction by way of a direct share purchase or a "merger". Context is likely to dictate which method is preferred in a given set of circumstances. By way of example, a share purchase may be preferred where this is resistance from a board to engage in a negotiation with a potential suitor. In contrast, a merger may be preferred where the respective boards are keen to agree to the terms upon which two existing groups will be brought together.

The term "merger" tends to be used as a catch phrase for combinations but, under Bermuda law, whilst they can take place under the merger provisions of the Companies Act, they may also be undertaken pursuant to the amalgamation provisions. The processes to complete either are similar and they share many common provisions in the Companies Act, however, as a technical matter they are quite different.

A merger between two (or more) Bermuda companies is typically effected pursuant to section 104H of the Companies Act and, upon completion, the undertaking, property and liabilities of each is vested in one of those companies which remains as the "surviving company" whilst the remaining company or companies cease to exist. The merger provisions are a relatively new addition to Bermuda law and introduced in large part due to a call to be able to effect US style combinations.

An amalgamation between two (or more) Bermuda companies is instead typically effected pursuant to section 104 of the Companies Act and, upon completion, each of the companies become one "amalgamated company" and the undertaking, property and liabilities of each becomes the property of the amalgamated company. A useful way of envisaging an amalgamation is to view the existing companies as tributaries which flow into and continue as a single river. In this form of combination, each company continues to exist rather than there being a lone "survivor".

For our part in Bermuda we tend, although there may be certain instances as addressed more fully below where there may be a preference, to be indifferent, from a purely legal perspective, as to whether a transaction should be structured as a merger or an amalgamation under the Companies Act. From a commercial perspective, we have seen a desire to proceed with an amalgamation when seeking to structure a business combination as a "merger amongst equals", given that neither company is deemed to be the survivor. Conversely, in a situation where one party is for all intents and purposes seeking to acquire the other, a merger may be the preferred choice. Onshore counsel may also have a preference for the resultant company to be a sole survivor or an amalgamated entity so as to be in-line with the treatment available and expected by shareholders familiar with their local tax rules. Whilst not definitive, and there may be variations, we have seen a trend for US transactions preferring to proceed by way of merger whilst common law jurisdictions such as Canada electing to proceed by way of amalgamation.

In order to effect a merger or an amalgamation, the terms of the transaction must be approved by the shareholders of the company. In practice, there are often two agreements in the context of an amalgamation or merger. The first is a more fulsome transaction agreement, often subject to the law of the parties' onshore counsel or the jurisdiction in which the company is listed, which sets out the terms upon which the entire transaction is to be completed and includes comprehensive warranties, indemnities, conditions precedent, deal protection mechanisms and such other terms commonly included in business combinations and acquisitions the often called "Agreement and Plan of Merger/Amalgamation" (in the case of US transactions) or "Implementation Agreement" (in the case of English law transactions and, in either case, referred to in this article as the "main agreement"). In conjunction, there is a statutory agreement which sets out that which is required to be approved by the shareholders under the Companies Act – the so-called "statutory merger/amalgamation agreement" (again, as the case may be and referred to in this article as the statutory agreement).

In terms of process, the main agreement is the document that is the subject of intense negotiation, which is not surprising given its content. Many of the sensitive terms will be discussed in future articles in this series.

The statutory agreement includes those provisions which are required under the Companies Act and which will, in practice, have largely been agreed upon and set out in the main agreement.

Once the form of the main agreement is agreed, the boards of each party typically convene to approve the transaction and resolve in due course to obtain the approval of the shareholders. The main agreement is then executed by the parties with shareholder approvals being obtained subsequently but before the execution of the statutory merger agreement and the related submission to register the combination with the Registrar of Companies in Bermuda. The considerations that the board must take into account when seeking to obtain the approval of the shareholders will also be considered in future parts of this series.

Given the need to obtain shareholder approval, the bye-laws (which regulate the administration of a Bermuda company) must be considered in order to understand the applicable thresholds that must be passed. The requisite approval under the Companies Act is the affirmative vote of 75% of those voting at the meeting, the quorum for which is two persons at least holding or representing by proxy more than one-third of the issued shares of the company. Importantly, holders of shares that otherwise do not carry the right to vote are entitled to vote upon the transaction. Failure to appreciate this point at the outset can cause confusion when drafting the provisions of the main agreement when dealing with the procurement of shareholder meetings. A separate class vote may be required where the terms of the transaction would result in a variation of rights of one or more classes of shareholders.

The statutory threshold of 75% can be a high threshold and it may in certain circumstances prove difficult to solicit responses from retail investors or preferred shareholders. It is often seen as an advantage in order to secure the completion of a transaction if one specifies a lower threshold in the relevant company's bye-laws (often 50%). This is often so as not to thwart a potential merger or at least avoid making a potential suitor less willing to commit time and resources to a deal which it considers approval will be difficult to obtain (unless of course such an appearance is actually desired in the context of deal protection mechanisms which will be discussed later in the series). At this point, it is worth noting that as the merger provisions were inserted a number of years after those providing for amalgamations, bye-laws of older companies may only include a lower voting threshold in respect of the latter. This would therefore be an instance where a Bermuda law justification would exist for electing to proceed by way of amalgamation over a merger. It may be possible to provide for a lower threshold in conjunction with seeking approval for a given transaction.

When seeking the approval of the shareholders, notice convening the meeting of such shareholders must be given not less than five days before the date of the meeting (subject to consent to short notice) and must include a statement of what the directors of a company have determined the fair value of their shareholders shares to be. Shareholders have a right, if they do not vote in favour of the merger, to apply to the Bermuda courts to have them appraise the value of their shares. It should be noted that these appraisal rights do not carry the ability to prevent the transaction and if the parties decide to proceed they would simply be required to pay the difference, if any, at a later date should it be determined that a dissenting shareholder had indeed received less than fair value for their shares. It is open to the parties to delay proceeding with the merger until the value of the shares has been appraised or even abandon the transaction. It may also be the case that the main agreement includes provisions that provide for such abandonment in the event that there are a number of dissenting shareholders over a given threshold.

Having decided to proceed and once the certificate of merger or amalgamation, as the case may be, has been obtained from the Registrar of Companies, the parties will have completed the legal requirements to effect the combination under Bermuda law are then free to move forward as they seek to realise the commercial objectives of entering into the transaction in the first place. However, as this series of articles is intended to show, there are a number of practical considerations that must be taken into account in order to cement the completion of a transaction.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Matthew Ebbs-Brewer
Gary Harris
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions