Registration of security granted by a Bermuda exempted company

Following execution of the security document(s), the secured party will want to ensure that particulars of the security are filed with the Registrar of Companies in Bermuda (the "Registrar"). Each Bermuda company providing the security and the secured party (and any other person interested in such security) has the option of making an application to register the security in the register of charges held by the Registrar. If the security is duly registered with the Registrar it will, in respect of the secured assets, have priority over any security interests which are not registered or which are subsequently registered in the register of charges in respect of those assets. Registration of the security in this manner also provides constructive notice of the existence of the security to third parties. The security provider should deliver a copy of the certificate of registration of charge and the stamped particulars issued by the Registrar to the secured party once the filing has been made (unless the secured party is themselves making the application). The register of charges maintained by the Registrar is a publicly searchable register. Unlike other jurisdictions, such as the British Virgin Islands and the Cayman Islands, Bermuda exempted companies are not required to maintain a private register of charges.

There are no statutory time limits for registration of the security with the Registrar (as there are for example in England and Wales, Hong Kong or Australia), although it is prudent for a secured party to ensure security is registered with the Registrar as soon as possible so that the secured party can take advantage of the priority afforded by registration and protect themselves against competing security interests.

When a filing is made with the Registrar, in addition to the particulars of charge, there is a requirement to file either an original or certified copy of the security document (which is included on the publicly available register of charges. The security documents would not be liable to stamp duty in Bermuda but note that that a fee is payable to the Registrar in respect of the security filing

Note that other registration requirements may need to be addressed depending on the nature of the transaction (for example, if a Bermuda registered ship or aircraft is involved).

Security over shares in a Bermuda exempted company

In addition, often the shares of a Bermuda exempted company will be charged or mortgaged as security for a related party's loan (or other) obligations. Where this occurs, as long as the security provider is a company and is not incorporated in Bermuda, it is possible to file the particulars of the security with the Registrar on the basis that it constitutes a charge over "Bermuda property". The filing will be made in the name of the foreign security provider, but with reference made to the Bermuda company whose shares are being charged or mortgaged. All the above requirements as stated for registration of security granted by a Bermuda exempted company will also be applicable and the register of charges over Bermuda property maintained by the Registrar is publicly searchable.

The transfer of shares in a Bermuda exempted company is subject to the approval of the Bermuda Monetary Authority (the "BMA"). This has an impact in relation to security over shares in a Bermuda exempted company, as a secured party will require prior permission of the BMA to transfer any charged or mortgaged shares in a Bermuda exempted company in the event of enforcement of the security. The BMA has given general permission for the granting of any charge or mortgage over securities of Bermuda exempted companies (and for the transfer of any such securities upon enforcement of such charge) to a licenced bank or other licenced lending institution in certain approved jurisdictions (a non-exhaustive list includes the USA, Canada, all EU countries, Australia, Hong Kong, Singapore and Japan). However, the BMA needs to be notified in writing prior to or as soon as practicable after the enforcement of the security. If the BMA is not notified of such enforcement, the BMA may exclude the charge or mortgage from the general permission. It would be prudent for secured parties to ensure that the Bermuda exempted company subject to any share security notify the BMA at the earliest possible opportunity after the share security has been entered into, to avoid any unnecessary delay in or exclusion from the benefits of such permission enforcement.

Amending the bye-laws of a Bermuda exempted company

Depending on the bye-laws, a party taking security over shares in a Bermuda exempted company may wish to require the company to amend its constitutional documents (for instance, to remove any provisions allowing the directors of the company to refuse or delay a transfer of shares in the company in circumstances where security is being enforced by a secured party). If parties agree, a shareholder resolution can be passed in accordance with the bye-laws, whereupon the changes are immediately effective.

Registration of security granted by a Bermuda partnership

Bermuda is unique in that it is possible for a Bermuda partnership to elect to have a "legal personality" from its partners and such a partnership is able to hold assets and grant security in its own name. As a result, secured parties are able to file the particulars of any security created by such a Bermuda partnership with the Registrar in the same way as for a Bermuda company (and as outlined in the sections above). While the regulations for making such a filing are dealt with pursuant to the Partnership Act 1902 (as amended), the requirements for making an application to register security created by a Bermuda partnership (with legal personality) and the consequences of making such filing are similar to the procedures for Bermuda exempted companies.

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.