Bermuda: Bermuda Minority Shareholder Protection And Appraisal Rights: Acquisitions, Takeovers And Squeeze-Outs

Last Updated: 17 April 2018
Article by Stephanie Sanderson

Shareholders of companies that are the subject of a takeover, amalgamation or merger have certain intrinsic rights in the event that they dissent. Generally, dissenting shareholders have a right to have the 'fair value' of their shares assessed by the Courts and a right to have their shares purchased at a 'fair value'. This article aims to provide general information on various shareholder appraisal rights under Bermuda law.

Part 1 – Statutory Overview

Court-Approved Scheme of Arrangement (Section 99)

A Section 99 scheme of arrangement (compromise or arrangement) must be approved by a majority in number representing 75% in value of the shareholders (or class of shareholders) present and voting either in person or by proxy at the requisite general meeting to approve the scheme. Following shareholder approval, the scheme must be sanctioned by the Court and if it is sanctioned then it is binding on all of the shareholders (or class(es) of shareholders).

Whilst the Bermuda Companies Act 1981 (Companies Act) does not provide express dissenting shareholder or appraisal rights, those affected by the scheme are entitled to appear and raise objections at the hearing of the petition for the Court order which the Court takes into account. The Court will only sanction a scheme if it is reasonable, and will be concerned to see that the shareholders approving the scheme are fairly representative of the class or body of affected shareholders. The Court has wide discretionary powers and, for example, an order can be made by the Court in relation to those who dissent from the scheme, or if the Court is not satisfied then it can refuse to sanction the scheme altogether. It is important to note that the sanctioning of a scheme is not a rubber stamping exercise.

A copy of the Court order sanctioning the scheme must be lodged with the Bermuda Registrar of Companies and the scheme will become effective and binding on all of the shareholders, resulting in the acquisition of the target company's shares.

Section 102 Compulsory Acquisition/Squeeze-out (10%)

Under Section 102 of the Companies Act, if an offer to acquire shares (or any class of shares) of a company is approved by the holders of 90% in value of the shares (which are the subject of the offer) within four months of the offer then the acquirer can, within two months of the date of the approval, compulsorily acquire the shares of dissenting shareholders by giving notice to such shareholders of the compulsory acquisition of their shares. A 'dissenting shareholder' in the context of a squeeze-out includes a shareholder who has not assented to the scheme or contract for acquisition of shares or any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with any such scheme or contract.

A dissenting shareholder has one month from the date on which the compulsory acquisition notice was given in order to make an application to the Court, which has power to make such orders as it thinks fit, to order to the contrary. Dissenting shareholders do not have express appraisal rights under Section 102.

If no application to the Court is made, then on the expiry of one month from the date on which the compulsory acquisition notice was given, the acquirer becomes entitled to acquire the subject shares (on the same terms as those offered to the shareholders who accepted the offer).

Dissenting shareholders also have the right under Section 102 to serve a notice on the acquirer requiring it to acquire their shares on the terms of the earlier offer, or on such terms as may be agreed or as the Court (on the application of either the acquirer or the dissenting shareholder) thinks fit to order. This right must be exercised within 3 months from the giving of notice by the acquirer that the 90% threshold has been reached.

Section 103 Alternative Squeeze-out (5%)

Section 103 of the Companies Act allows for the holders of not less than 95% of the shares (or any class of shares) in a company to give notice of the intention to acquire their shares to the remaining shareholders (or class of shareholders), on the terms set out in the notice. The purchaser must offer the same terms to all shareholders in respect of shares to be acquired.

Any shareholder who receives an offer notice under Section 103 has the right to apply to the Court to appraise the value of their shares within one month of receiving the offer. Within one month of the Court's appraisal, the purchaser is entitled to either acquire all the shares involved at the price fixed by the Court or choose to cancel the offer. There is no appeal process available in relation to the Court's appraisal decision.

If the Court has appraised any shares under Section 103 and the purchaser has, prior to the appraisal, acquired any shares, then if the price of the shares that was paid is less than that appraised by the Court the purchaser must either pay the difference to the shareholder(s) in the price paid and the price appraised, or cancel the offer, return the shares to the shareholder(s) and repay the shareholder(s) the purchase price. This must be done within one month of the Court appraising the value of the shares.

Merger or Amalgamation (Section 106)

The directors of each amalgamating or merging company must submit the amalgamation agreement or merger agreement for approval by the shareholders. A notice of a meeting of the shareholders must be sent to each shareholder of each amalgamating or merging company and include (or be accompanied by) a summary or copy of the agreement, state the fair value of shares and state that a dissenting shareholder is entitled to be paid the fair value of his shares.

Unless the bye-laws otherwise provide, the resolution of the shareholders approving the amalgamation or merger must be approved by a majority vote of 75% of those voting at the meeting and the quorum necessary for such meeting is two persons holding (or representing by proxy) more than one-third of the issued shares.

Any shareholder who did not vote in favour of the amalgamation or merger and who is not satisfied that they have been offered fair value for their shares can apply to the Court to appraise the fair value of their shares within one month of the issuance of the notice (of the shareholders' meeting).

The Companies Act provides that within one month of the Court appraising the fair value of any shares, the company is entitled either to pay to the dissenting shareholder an amount equal to the value of their shares as appraised by the Court, or to terminate the amalgamation or merger in accordance with the Companies Act. This determination is subject to the amalgamation agreement or merger agreement which may provide that at any time before the issue of a certificate of amalgamation or merger the agreement may be terminated by the directors of an amalgamating or merging company, notwithstanding approval of the agreement by the shareholders of all or any of the amalgamating or merging companies.

Where the Court has appraised any shares and the amalgamation or merger has proceeded prior to the appraisal then, within one month of the Court appraising the value of the shares, if the amount paid to the dissenting shareholder for their shares is less than the value appraised by the Court then the amalgamated or surviving company must pay the shareholder the difference between the amount paid and the value appraised by the Court.

There is no appeal process available in relation to the Court's appraisal decision under this Section. The costs of any application to the Court are in the discretion of the Court.

Part 2 – Case Law Developments

Although there is no statutory guidance on what should be considered by the Court when determining 'fair value', the question has been considered by common law and Bermuda has a developing body of case law which is helpful in understanding what the Court's role is in relation to the statutory protections described above and how 'fair value' is determined.

MFP-2000, LP v Viking Capital Limited and MISA Investments Limited [2014] Bda LR 6

In MFP-2000, LP v Viking Capital Limited and MISA Investments Limited, the Court was asked to determine whether, in relation to a Section 103 squeeze-out, the holders would be entitled to acquire the remaining 5% of the shares if they cease to hold the requisite statutory threshold of (not less than) 95% of the shares in the company before acquiring the remaining 5%. The Court confirmed that the sole object of statutory interpretation is to arrive at the legislative intention. In light of this it found that where Section 103 provides a mechanism whereby the holders of not less than 95% of the shares in the company can purchase the shares of the minority that means the holders of (not less than) 95% of the shares at the date when a Section 103 notice is given. The Court therefore confirmed that the majority need not retain their shares for the duration of time until the minority of shares have been acquired or, alternatively, the notice cancelled. The majority holders were found to be entitled to acquire the minority shareholding, even though they no longer satisfied the 95% threshold requirement.

MFP-2000 LP v Viking Capital Ltd and Misa Investments Ltd [2014] Bda LR 73

The Court of Appeal considered the previous judgment in this case (see summary above) and confirmed that the intention of the legislature was to enable holders of virtually all of the shares of a company responsible for the notice and acquisition mechanism to give full effect to it whilst ensuring the fair treatment of minority shareholders as to price. The Court of Appeal also confirmed that the Companies Act allows for the 95% majority holders at the time of the service of a Section 103 notice to rely on its provisions even if they have disposed of their majority shareholding before completion of the appraisal process. This was succinctly put by the Court of Appeal as follows "the structure and wording of section 103 oblige and entitle 95% majority holders who have served a section 103(1) notice to acquire the remaining minority holdings, whether or not they remain 95% majority holders at the time of any appraisal invoked by the minority holders". The Court of Appeal further agreed that the dominant purpose of Section 103 was the facilitation of corporate restructuring whilst also providing fair treatment of minority shareholders.

Mehta and MFP-2000 LP v Viking River Cruises Ltd and others [2014] Bda LR 99

In this case, the Plaintiffs (Nitin T Mehta and MFP-2000, LP) applied for summary judgment in respect of their claim for payment pro rata of a dividend which was declared. A dividend was declared by the company and a Section 103(1) notice was served on the Plaintiffs on the same day. Subsequently the company resolved to increase the dividend by approximately US$2M. The Plaintiffs argued that they were entitled to receive their pro rata share of the dividend and would remain entitled irrespective of whether their shares were purchased pursuant to the Section 103 mechanism. Section 103(3) was considered in the judgment and the Court highlighted the fact that Section 103(3) presents the majority shareholders with a choice - they can either elect to acquire the shares at the price fixed by the Court or, alternatively, cancel the notice given under Section 103(1). The Court confirmed that until that choice has been made, the majority shareholders' entitlement to the shares is only provisional. The Court was satisfied that the legislature did not intend that majority shareholders be entitled to dividends on shares declared before they make their election.

The Court found that entitlement to a dividend in relation to majority shareholders may "relate back" but that if that was the case it would relate back to the majority shareholder's election under Section 103(3) to acquire shares once appraised by the Court, rather than relating back to the date of service of the Section 103(1) notice. The application for summary judgment was successful and the Plaintiffs were found to be entitled to payment of their pro rata share of the dividend declared by the company.

Artha Master Fund, LLC v Dufry South America [2011] Bda LR 17

In Artha Master Fund, LLC v Dufry South America, Artha Master Fund, LLC declined to accept the assessment of the fair value of its shares presented to it for the purposes of a merger and amalgamation agreement and invoked its statutory right to seek the Court to appraise the fair value of its shares pursuant to Section 106(6) of the Companies Act. The case is helpful to the extent that the Court considered the scope of expert evidence in relation to the Court's role in determining 'fair value' pursuant to Section 106(6). The Court indicated that the scope of the expert evidence should be limited to the issue of the fair value of the shares to be contrasted with the fair value as presented by the company to the shareholder and that the role of the Court was to determine whether that appraisal is greater or not. The Court also indicated that although the Companies Act does not provide for an appeal mechanism, it would be "at a minimum strongly arguable" that any party to an appraisal action that contends that their fair trial rights have been contravened may seek redress under section 15 of the Constitution.

Golar LNG Limited v World Nordic SE [2011] Bda LR 9

In this case, Golar LNG sought an appraisal of its shares in BW Gas Limited under Section 103 of the Companies Act after World Nordic SE had acquired in excess of 95% of the shares and issued a notice of its intention to acquire the outstanding shares pursuant to Section 103. The Court considered the question as to the proper approach to valuation and it determined that when appraising the shares for 'fair value' the Court should have regard to the 'market value' when available, but also will have to have regard to "all the relevant information that is put before it". The Court went on to confirm that there is no prescriptive rule applicable to all cases and that "valuation is as much an art as a science". The question of burden of proof was also considered by the Court which determined that it is 'neutral' and that it was up to the Court to assess the value such that neither side bears a burden to establish the value which it is presenting, although if a party asserts a factual situation it must prove it.

The Court accepted that the company's quoted share price should be considered the principal method to assess the market value of the minority interest and accepted that the share price fell "within a reasonable range of values", but that a minority discount should apply to reflect 'fair value'.

The body of case law in Bermuda demonstrates that this is an evolving area of law which will be further established as shareholders continue to exercise their statutory rights and mergers and acquisitions become more popular.

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
Similar Articles
Relevancy Powered by MondaqAI
Conyers Dill & Pearman
 
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
 
Similar Articles
Relevancy Powered by MondaqAI
Conyers Dill & Pearman
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