This publication outlines the steps necessary under the Companies Act 1981 of Bermuda (the "Act") for Bermuda insurance companies to amalgamate and continue as a single Bermuda insurance company. A separate procedure exists under Bermuda law for the merger of Bermuda companies, whereby their undertaking, property and liabilities vest in a single surviving company. A publication on mergers is available upon request.
2. AMALGAMATION OF BERMUDA INSURANCE COMPANIES
2.1. Amalgamation Agreement
The Act requires that each company proposing to amalgamate must enter into an amalgamation agreement which sets out the terms and means of effecting the amalgamation. In addition, the Act specifies matters which must be dealt with in any such amalgamation agreement. Other matters not required by the Act may be included in the agreement, and indeed particular transactions may require additional issues be addressed in the amalgamation agreement.
2.2. Shareholder Approval
The directors of each Bermuda amalgamating company must submit the amalgamation agreement for approval to a general meeting of members of their respective amalgamating company. All shareholders, whether or not their shares have voting rights, are entitled to vote on whether to approve the amalgamation agreement. If the amalgamation agreement contains provisions which would constitute a variation of the rights of any class of shares of an amalgamating company, the holders of shares of that class are entitled to vote separately as a class on the approval of the amalgamation agreement. Unless the relevant company's bye-laws otherwise provide, the resolution of the shareholders or class must be approved by a majority vote of 75 per cent 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 or the class.
2.3. Shareholder Notice
The notice to the shareholders of the general meeting must be accompanied by a copy or summary of the amalgamation agreement and must state:
- the fair value of the shares as determined by each amalgamating company; and
- that a dissenting shareholder is entitled to be paid fair value for their shares.
A shareholder that did not vote in favour of the amalgamation and is not satisfied that he has been offered fair value for his shares, may apply to the court for an appraisal of the fair value of his shares within one month of the giving of the notice of meeting to shareholders.
2.4. Bermuda Monetary Authority Approval
In order to register the amalgamated company as an insurer under the Insurance Act, an application must be made to the Insurance Division of the Bermuda Monetary Authority (the "Insurance Division") to obtain their approval for the amalgamation. This application will be in the form of a cover letter setting out, inter alia, the following information:
- a brief description of the business currently conducted by each of the amalgamating companies;
- the reason why the companies are amalgamating; and
- confirmation of the type of insurance business that the amalgamated company will be undertaking.
The Insurance Division should also be provided with confirmation from the insurance manager/principal representative of each of the amalgamating companies stating that they are each currently in compliance under the Insurance Act and that the amalgamated company will be in compliance under the Insurance Act upon amalgamation. The latest management accounts of the amalgamating companies will also need to be provided and pro-forma financial projections will need to be produced for the amalgamated company so that the Insurance Division can readily gauge the financial strength of the amalgamated company.
Usually the process of obtaining the Insurance Division's approval takes two to three weeks. However, where an application is urgent, the time frame may be condensed and, in this connection, it has been our experience that the government authorities co-operate as much as possible to meet deadlines.
2.5. Statutory Declaration
A director or officer of each amalgamating company must sign a statutory declaration confirming that there are reasonable grounds for believing that:
- the relevant amalgamating company is, and the amalgamated company will be, able to pay its liabilities as they become due;
- the realisable value of the assets of the amalgamated company will not be less than the aggregate of its liabilities and issued share capital of all classes; and
- either that no creditor of the company will be prejudiced by the amalgamation or that all known creditors of the relevant amalgamating company have been given adequate notice of the amalgamation and no creditor has objected to the amalgamation except on frivolous or vexatious grounds. For this purpose, adequate notice is given if a written notice is sent to each known creditor having a claim against the company in excess of $1,000 and a notice of the intended amalgamation is published in a local newspaper informing creditors that they may object to the amalgamation within 30 days from the date of the notice.
2.6. Filing with Registrar of Companies
Once the shareholder resolutions approving the amalgamation of the companies have been adopted, a filing must be made with the Registrar of Companies (the "Registrar"), on the Registrar's online portal, to register the amalgamated company in order for the amalgamation to become effective. The filing must include the following supporting documents:
- a statement confirming that the amalgamating companies are to be registered as an amalgamated company pursuant to the amalgamation;
- a certified copy of the resolutions of the shareholders of each amalgamating company;
- the memorandum of association of the amalgamated company;
- the address of the registered office of the amalgamated company;
- the statutory declarations referred to above; and
- the required filing fee.
The Registrar will register the amalgamated company on or after the date of filing, as requested in the filing, and will issue a Certificate of Amalgamation indicating the date of registration.
3. INTRA-GROUP AMALGAMATIONS
An alternative "short form" method of amalgamation is available where the amalgamating companies are a Bermuda holding company and one or more wholly-owned Bermuda subsidiary companies, or two or more wholly-owned Bermuda subsidiaries of the same holding company. Companies amalgamating by this method need not enter into an amalgamation agreement or obtain shareholder approval. The amalgamation may be approved solely by a resolution of the directors of each amalgamating company. A director or officer of each such company will still have to sign the statutory declaration described above, and the filing for the registration of the amalgamated company is then made.
3.2. Amalgamation of Holding Company and Subsidiary
Where the amalgamating companies are a Bermuda holding company and one or more of its whollyowned Bermuda subsidiaries, the directors' resolutions of each amalgamating company must provide that:
- the shares of each amalgamating subsidiary company shall be cancelled without any repayment of capital in respect thereof;
- the memorandum of association and bye-laws of the amalgamated company shall be the same as those of the amalgamating holding company; and
- no securities shall be issued by the amalgamated company in connection with the amalgamation.
3.3. Amalgamation of Two or More Subsidiaries
Where the amalgamating companies are two or more wholly-owned Bermuda subsidiaries of the same holding company, the directors' resolutions of each amalgamating company must provide that:
- the shares of each amalgamating subsidiary company other than those of one of the amalgamating subsidiary companies shall be cancelled without any repayment of capital in respect thereof; and
- the memorandum of association and bye-laws of the amalgamated company shall be the same as those of the amalgamating subsidiary company whose shares are not cancelled.
In both scenarios of an intra-group amalgamation, the resolutions approving the amalgamation must also state whether or not the amalgamating companies elect to combine their respective authorised share capitals.
Where this short form method of amalgamation is available, consideration should still be given to preparing an amalgamation agreement and obtaining shareholder approval, as the time commitment and cost would not be greatly impacted.
4. CONSEQUENCES OF AMALGAMATION
On the date shown in the Certificate of Amalgamation:
- the amalgamation of the amalgamating companies and their continuance as one company will become effective;
- the property of each amalgamating company will become the property of the amalgamated company;
- the amalgamated company will continue to be liable for the obligations of each amalgamating company;
- an existing cause of action, claim or liability to prosecution will be unaffected;
- a civil, criminal or administrative action or proceeding pending by or against an amalgamating company may be continued to be prosecuted by or against the amalgamated company;
- a conviction against, or ruling, order or judgment in favour of or against, an amalgamating company may be enforced by or against the amalgamated company; and
- the Certificate of Amalgamation shall be deemed to be the Certificate of Incorporation of the amalgamated company, however, the date of incorporation of an amalgamating company is its original date of incorporation and its amalgamation with another company does not alter its original date of incorporation.
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.