The formation and operation of mutual funds in Bermuda is governed by the Companies Act 1981which also controls the marketing of shares through its prospectus requirements.
"The Companies Amendment Act 1996" (the "Bill") was recently passed in Bermuda and includes a number of changes affecting mutual fund companies. The Bill is the result of a great deal of hard work on the part of the Companies Act Committee of the Bermuda International Business Association. This Committee represents the interests of third party administrators, local practitioners and other interested parties.
It is the intention that these changes further enhance Bermuda's regulatory environment and make it easier to do business in Bermuda.
Some of these changes are as follows:
COMPANY DIRECTORSHIPS AND GOVERNANCE
It was a requirement in the past to have a minimum of two directors ordinarily resident in Bermuda. As a result of the Bill, every exempted company is required to have either a quorum of resident directors (i.e. maintaining the status quo), or a resident secretary and a resident director, or a resident secretary and a resident representative.
Where the shares of a company are listed on an appointed stock exchange, it need only have a resident representative. It must be noted, however, that the secretary of the company cannot also act as the director or as the resident representative. Where the secretary or resident representative is appointed in place of a director, that party must be an individual.
The resident representative can attend, speak at meetings and receive minutes of the meetings of directors and shareholders of the company and, upon giving notice to the company, receive notice of any meeting of directors or members and act as the company's agent in Bermuda for service of process.
The resident representative also has a duty to report to the Registrar of Companies, any material breaches by the company of provisions of the Companies Act or regulations made thereunder or of any issue or transfer of shares of a company affected in contravention of any other statute regulating the issue or transfer of shares.
EXCEPTION TO PROHIBITION OF FINANCIAL ASSISTANCE
Previously, the Companies Act included a provision historically intended to protect the capital of a company. The provision adversely impacted on general corporate commercial transactions which were otherwise considered to be appropriate. The Bill introduces an overriding exception to the prohibition, indicating that financial assistance will no longer be prohibited in circumstances where the company will remain solvent after the provision of any such assistance.
AMALGAMATIONS OUT OF BERMUDA
The Companies Act contained a provision enabling companies to continue into and out of Bermuda, as well as to amalgamate out of Bermuda. The Bill contains safeguards to ensure the interests of creditors and shareholders are protected following an amalgamation with a company in another jurisdiction.
AUDITORS & OFFICERS' RESPONSIBILITY
The Bill proposes to limit the liability of officers and the auditor of a company so that, except in cases of fraud or dishonesty, they would only share in the reimbursement of a plaintiff to the extent that their conduct contributed to the damages sustained. The Bill goes on to define the duty of an auditor, in respect of his or her audit, as being owed to the company itself and other persons expressly authorized to rely upon the audit.
DIRECTORS & OFFICERS' LIABILITY
The Bill provides that directors and officers may be indemnified in respect of their actions except to the extent that such actions constitute "fraud or dishonesty".
WINDING UP PROVISIONS
In 1994, the concept of companies without perpetual existence was introduced, but there was some difficulty with a winding up provision. The Amendment Act has now clarified the mechanics applicable to these companies.
This is the fifth successive year that the Minister of Finance has introduced a bill to amend the Companies Act 1981. This demonstrates the commitment to modernizing Bermuda's company law and how the Government and the private sector (lawyers, accountants and bankers) work together to meet the needs of the fund industry.
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.