1.1 What are the main trends/significant developments in the lending markets in your jurisdiction?
There were no changes to Bermuda's Companies Act 1981 (Companies Act) during 2018 affecting the rights of secured parties or Bermuda's reputation as a leading creditor-friendly jurisdiction.
In the aviation finance sector, effective 1 January 2018, the Cape Town Convention and the related Protocol (Convention) came into force pursuant to the Bermuda International Interests in Mobile Equipment (Cape Town Convention) Act 2016. This ensures Bermuda continues to be at the forefront of, and an attractive jurisdiction for, aviation leasing and refinancing transactions.
In 2018, Bermuda also passed two significant statutes that enhanced its position as a world-leading fintech jurisdiction. The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (ICO Act), for initial coin offerings, came into force in July 2018 and the Digital Asset Business Act 2018 (DABA), for entities carrying on digital asset business from within Bermuda, came into force in October 2018. The ICO Act regulates a company's offering of digital assets such as digital coins and tokens, while the DABA regulates private sales of, and persons engaged in the business of, virtual currencies (including operating electronic exchanges and providing custodial wallet services). Substantial growth in the fintech sector is expected during 2019, which should result in increased activity in the secured lending market.
Bermuda has now implemented a system of land title registration and changes of ownership and/or lending transactions trigger compulsory first registration of the land in question.
1.2 What are some significant lending transactions that have taken place in your jurisdiction in recent years?
The most significant lending transactions that have taken place in 2018 were in financed holding and joint venture structures, which utilised a variety of secured lending arrangements.
One such significant lending transaction in the aviation sector during 2018 was the refinancing of Aircastle Limited (NYSE: AYR), including an increase of its revolving credit facility to USD 800 million, involving a syndicate of lenders including Citibank, Goldman Sachs Bank, J.P. Morgan Chase Bank and Royal Bank of Canada, as joint lead arrangers.
A substantial lending transaction in the oil and gas sector saw Wakefield Quin advising lenders in Seadrill Limited's successful completion of its USD 10 billion comprehensive group restructuring plan following Seadrill's chapter 11 plan of reorganisation.
We continue to see an increase in the use of Bermuda special purpose vehicles in the mining, oil and gas, property development, aviation and shipping sectors.
2.1 Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?
A company may guarantee borrowings of members of its corporate group provided the company has capacity to provide such guarantees and there is a sufficient corporate benefit to the company, which may be in the form of a benefit to the company group.
2.2 Are there enforceability or other concerns (such as director liability) if only a disproportionately small (or no) benefit to the guaranteeing/securing company can be shown?
In these circumstances, there is a risk that the directors are not adequately discharging their fiduciary duties or statutory directors' duties to act honesty and in good faith with a view to the best interests of the company.
In considering whether to approve such a guarantee, the directors would need to satisfy themselves that a sufficient direct, indirect or group commercial benefit exists. If the company is insolvent, the directors may be liable for wrongful trading and there is a risk that the guarantee may be void on the grounds that it amounted to a fraudulent preference.
2.3 Is lack of corporate power an issue?
The constitutional documents of the guarantor company should be reviewed to ensure the company has capacity to give the contemplated guarantee. A company's memorandum of association may not set out an express power to give guarantees; however, in most cases, the company's objects would typically be sufficiently broad to permit the entry into guarantees that are ancillary to the business of the company.
2.4 Are any governmental or other consents or filings, or other formalities (such as shareholder approval), required?
In most cases, no such consents or filings are required unless the company undertakes regulated activity, such as insurance, in which case consent may be required from the Bermuda Monetary Authority (BMA).
Guarantees of loans to directors (and other persons related to directors) are generally prohibited without the consent of members holding 90% of the company's voting rights and if such member consent is not obtained, the directors authorising the entering into of the guarantee shall be jointly and severally liable to indemnify the company against any loss arising. Member consent to directors' loans or guarantees can be obtained to mitigate concerns of corporate benefit and breach of fiduciary obligation.
Guarantees are often executed as a deed to avoid disputes concerning due consideration.
2.5 Are net worth, solvency or similar limitations imposed on the amount of a guarantee?
No statutory limitations are imposed; however, directors should consider the solvency of the company and ensure that any guarantee to be granted is in the best interests of the company.
2.6 Are there any exchange control or similar obstacles to enforcement of a guarantee?
There are no exchange control restrictions that would act as an obstacle to the enforcement of a guarantee against a company; however, non-Bermuda exchange control and any applicable international sanctions should be reviewed and considered.
3. COLLATERAL SECURITY
3.1 What types of collateral are available to secure lending obligations?
Both tangible and intangible assets of a company are available to secure lending obligations.
3.2 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
In lending transactions, companies typically grant general security agreements, such as debentures, to secure underlying obligations. Where shares of a Bermuda company form part of the asset security, it is usual for a Bermuda law-governed share charge to be used. Specific regimes apply for security over Bermuda land, ships, aircraft and aircraft engines registered in Bermuda.
3.3 Can collateral security be taken over real property (land), plant, machinery and equipment? Briefly, what is the procedure?
Security over real property in Bermuda is typically granted by way of legal or equitable mortgage and by way of fixed charge or chattel mortgage over plant, machinery and equipment.
Different rules apply depending on whether the company is a local or an exempted company. Exempted companies may hold land in Bermuda but only to the extent that the land (a) is designated commercial real estate and used for the company's business purpose, or (b) is residential real estate that will be used to accommodate employees of the company and is generally available to be acquired by non-Bermudians. Land holding permissions are required for both freehold and long leasehold acquisitions and the applicant will need to show both a bona fide business need and a benefit to Bermuda (most often the creation of local jobs). Local companies may hold land in Bermuda if specifically permitted under the company's constitutional documents, the Minister of Finance has provided its consent and the company requires the land to carry out its business.
Local and exempted companies may enter into land leases for business purposes for up to 50 years. They may also lease residential premises in the company's name for up to 21 years with Ministerial permission.
A legal mortgage traditionally transferred title to the land to the mortgagee subject to the requirement that the title be transferred to the mortgagor upon satisfaction of the underlying secured obligations. The grant of a mortgage or charge triggers compulsory first registration of the land and both the deed and the title documents must be lodged with the Land Title Registry Office. Once the land is registered the mortgage will be automatically converted to a registered charge on the land. This system replaces registration of the mortgage in the Book of Mortgages. The electronic title register will then replace the title deeds (as evidence of ownership), but most lenders continue to take possession of the title deeds in case there are later challenges to the title. Priority is based on the date the application for first registration is made. Legal mortgages must be executed as a deed whereas equitable charges may be signed under hand. Equitable charges are likely to be phased out as more and more real property is registered. Both mortgages and charges attract stamp duty, generally at the rate of 0.5% of the principal sum secured.
There are special rules that apply if an overseas or exempted company wishes to hold a mortgage over Bermuda land, including obtaining the prior consent of the Ministers of Finance and Immigration. If the mortgage is to be enforced, any land obtained by an overseas or exempted company must be sold within five years to either a person or entity having Bermudian status or another licensed party.
In relation to a fixed charge over plant, machinery and equipment, registration is not necessary in Bermuda to perfect the security interest created. However, to ensure the priority in Bermuda of the charge, the charge must be registered at the Registrar of Companies (ROC) and upon registration, to the extent that Bermuda law governs the priority of a charge, such charge will have priority in Bermuda over any unregistered charges and over any subsequently registered charge.
3.4 Can collateral security be taken over receivables? Briefly, what is the procedure? Are debtors required to be notified of the security?
Collateral security can be granted over receivables by way of assignment or fixed or floating charge. Assignments can be legal or equitable. Legal assignments must be in writing, signed by the assignor and unconditional and written notice must be provided to the debtor. An equitable assignment will result if any of these requirements are not satisfied.
Under a legal assignment, the assignee can sue in its own name and the debtor can only discharge its obligations as instructed by the assignee.
Although not legally required to perfect the security interest, assignments and charges over receivables should be registered with the ROC to ensure priority.
3.5 Can collateral security be taken over cash deposited in bank accounts? Briefly, what is the procedure?
Companies may grant security over cash in its bank accounts which is typically effected by way of a fixed or floating charge. The amount of control that the chargee will have over the account will determine whether a charge is fixed or floating.
Serving notice on a bank will ensure a chargee's priority in relation to subsequent assignees provided the chargee has no knowledge of an earlier assignment. Service of notice on a bank will perfect the security granted by the chargor regardless of whether or not the bank provides an acknowledgement.
Bermuda banks typically require chargees and chargors to enter into a deposit account control agreement to regulate the administration of the account, including restricting withdrawals unless permitted by the chargee and the banks' agreement not to exercise set-off rights.
Although not legally required to perfect the security interest, charges over accounts should be registered with the ROC to ensure priority.
3.6 Can collateral security be taken over shares in companies incorporated in your jurisdiction? Are the shares in certificated form? Can such security validly be granted under a New York or English law governed document? Briefly, what is the procedure?
Security over shares of Bermuda companies is typically granted by way of a share charge. Legal mortgages are uncommon, although share charges usually provide the chargee with the right to create a legal mortgage upon the occurrence of certain events. It is recommended that chargors also be required to deliver certain ancillary documents to strengthen their security, including executed but undated share transfer forms, irrevocable voting proxies and undertakings.
Bermuda companies cannot issue bearer shares. Share certificates do not need to be issued unless required under the company's bye-laws or requested by a shareholder; if issued, share certificates are generally a deliverable under a charge over shares of a Bermuda company.
For efficacy of enforcement, it is recommended that share charges be governed by Bermuda law. However, it is possible for New York or English law to govern the charge if required by the underlying transaction documents.
Bermuda exchange control regulations generally require the consent of the BMA prior to any disposition of shares of a Bermuda company, which would include the creation of a security interest. The BMA has granted a blanket consent where the chargee is a licensed bank or lending institution in certain appointed jurisdictions and the BMA is provided with written notification.
Although not legally required to perfect the security interest, share charges should be registered with the ROC to ensure priority.
3.7 Can security be taken over inventory? Briefly, what is the procedure?
Security is typically taken over inventory by means of a floating charge, due to the fluctuating nature of inventory.
Although not legally required to perfect the security interest, a floating charge should be registered with the ROC to ensure priority.
3.8 Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility (see below for questions relating to the giving of guarantees and financial assistance)?
There should be no issues in any of these situations, provided there is a demonstrable corporate benefit to the company (which may be in the form of a benefit to the company group, if applicable) and the company is solvent.
3.9 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets?
Stamp duty rarely applies to documents that are executed by Bermuda companies engaged in international business. However, legal mortgages on Bermuda real estate do attract stamp duty at different rates depending on the amount of the sum secured.
With limited exceptions, stamp duty is payable on most documents executed by local Bermuda companies.
A fee of between $380 and $665 will be payable for registering a charge at the ROC, depending on the value secured. There is also a $95 fee for registering a satisfaction of a charge at the ROC.
A fee of between $100 and $1,300 is payable to the Land Title Registry Office on the first registration of real property. Thereafter, a fee of between $50 and $400 is levied to register a charge against a registered title.
3.10 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?
Security arrangements can be registered in Bermuda on a same-day basis. Certain prescribed forms need to be filed; however, Bermuda counsel can attend to these requirements.
If a chargee is taking security over shares in a Bermuda company and the chargee is not a licensed bank or lending institution and is not known to the BMA, the BMA may require a few working days to provide its consent to the granting of the charge for exchange control purposes.
3.11 Are any regulatory or similar consents required with respect to the creation of security?
Generally, other than for BMA consent that may be required for exchange control purposes, no regulatory or similar consent is typically required for companies to grant security over their assets.
3.12 If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?
3.13 Are there particular documentary or execution requirements (notarisation, execution under power of attorney, counterparts, deeds)?
Secured parties will want to receive copies of authorisation board resolutions to ensure corporate formalities have been followed and issues regarding corporate benefit have been considered.
Special rules apply for deeds, including that the deed be in writing, that it was intended to be executed as a deed and that the deed was validly executed as a deed in accordance with the company's bye-laws.
In most cases, powers of attorney must be executed as a deed.
4. FINANCIAL ASSISTANCE
4.1 Are there prohibitions or restrictions on the ability of a company to guarantee and/or give security to support borrowings incurred to finance or refinance the direct or indirect acquisition of: (a) shares of the company; (b) shares of any company which directly or indirectly owns shares in the company; or (c) shares in a sister subsidiary?
There is no general prohibition or restriction on financial assistance, but loans to directors or security in favour of director loans (or loans to persons connected to a director) are restricted.
(a) Shares of the company
Without the consent of the members of the company holding shares with 90% of the voting rights, it is unlawful for a company to make a loan, enter into a guarantee or provide security in connection with a loan to a director (or to certain persons connected with a director) except in certain limited circumstances.
(b) Shares of any company which directly or indirectly owns shares in the company
See question 4.1 above.
(c) Shares in a sister subsidiary
See question 4.1 above.
5. SYNDICATED LENDING/AGENCY/TRUSTEE/TRANSFERS
5.1 Will your jurisdiction recognise the role of an agent or trustee and allow the agent or trustee (rather than each lender acting separately) to enforce the loan documentation and collateral security and to apply the proceeds from the collateral to the claims of all the lenders?
A Bermuda court would recognise the role of a security agent or trustee and allow the agent or trustee to enforce the loan documentation and collateral security and to apply the proceeds from the collateral to the claims of all the lenders pursuant to the terms of the intercreditor, loan and security documentation.
5.2 If an agent or trustee is not recognised in your jurisdiction, is an alternative mechanism available to achieve the effect referred to above which would allow one party to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?
Agency and trustee relationships are well established in Bermuda.
5.3 Assume a loan is made to a company organised under the laws of your jurisdiction and guaranteed by a guarantor organised under the laws of your jurisdiction. If such loan is transferred by Lender A to Lender B, are there any special requirements necessary to make the loan and guarantee enforceable by Lender B?
There are no special requirements to make the loan and guarantee enforceable by Lender B so long as the transfer or novation procedures are complied with pursuant to the terms of the loan documentation.
6. WITHHOLDING, STAMP AND OTHER TAXES; NOTARIAL AND OTHER COSTS
6.1 Are there any requirements to deduct or withhold tax from (a) interest payable on loans made to domestic or foreign lenders, or (b) the proceeds of a claim under a guarantee or the proceeds of enforcing security?
Bermuda has no income, corporate, withholding or capital gains tax and no estate duty or inheritance tax. No such taxes or duty are payable to any authority in Bermuda whether on loan interest or proceeds of claim.
6.2 What tax incentives or other incentives are provided preferentially to foreign lenders? What taxes apply to foreign lenders with respect to their loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
There are no tax incentives. Foreign lenders will not be deemed to be resident, domiciled or carrying on business in Bermuda by reason only of the execution, performance and/or enforcement of the loan and security documents.
6.3 Will any income of a foreign lender become taxable in your jurisdiction solely because of a loan to, or guarantee and/or grant of, security from a company in your jurisdiction?
No income of a foreign lender will become taxable in Bermuda solely because of a loan to or guarantee and/or grant of security from a Bermuda company.
6.4 Will there be any other significant costs which would be incurred by foreign lenders in the grant of such loan/guarantee/security, such as notarial fees, etc.?
Generally, no. Neither notarisation nor registration is necessary to perfect a security interest, but registration with the ROC (for which fees are payable, see question 3.9 above) confers priority ranking over subsequent registered security interests.
6.5 Are there any adverse consequences for a company that is a borrower (such as under thin capitalisation principles) if some or all of the lenders are organised under the laws of a jurisdiction other than your own? Please disregard withholding tax concerns for purposes of this question.
7. JUDICIAL ENFORCEMENT
7.1 Will the courts in your jurisdiction recognise a governing law in a contract that is the law of another jurisdiction (a "foreign governing law")? Will courts in your jurisdiction enforce a contract that has a foreign governing law?
In proceedings to enforce the obligations of a Bermuda company, Bermuda courts generally would give effect to the choice of foreign law as the governing law of the contract, provided that: (i) the point is specifically pleaded; (ii) the choice of law is valid and binding under foreign law; and (iii) recognition would not be contrary to public policy as that term is understood under Bermuda law. Where the foreign governing law is the laws of England and Wales, Bermuda courts are well-practised in enforcing such contracts. Not only are English court judgments automatically enforceable in certain circumstances (see question 7.2 below), but Bermuda courts regularly refer to persuasive English case law, and the ultimate court of appeal in Bermuda is the UK Privy Council.
7.2 Will the courts in your jurisdiction recognise and enforce a judgment given against a company in New York courts or English courts (a "foreign judgment") without re-examination of the merits of the case?
A final and conclusive judgment in the New York courts against a Bermuda company, based on a contract under which a sum of money is payable (not being in respect of multiple damages, or a fine, penalty, tax or other charge of similar nature) (a Money Claim), may be enforced in Bermuda under the common law doctrine of obligation for the debt evidenced by the New York court judgment. When considering whether a New York court judgment should be recognised and enforced, such proceeding would likely be successful provided that (a) the New York court was competent to hear the action in accordance with private international law principles as applied in Bermuda, and (b) the judgment is not contrary to public policy in Bermuda, has not been obtained by fraud, or in proceedings contrary to natural justice and is not based on an error in Bermuda law.
A final and conclusive judgment in the superior courts of England against a Bermuda company, based on a Money Claim would, on registration in accordance with the Judgments (Reciprocal Enforcement) Act 1958, be enforceable in Bermuda without the necessity of any retrial of issues or any re-examination of underlying claims, provided that the judgment: (a) is final and conclusive (notwithstanding that any appeal may be pending against it or it may be still subject to an appeal in England); (b) has not been given on an appeal from a court in England which is not a superior court in England; and (c) is duly registered in the Supreme Court of Bermuda.
Additionally, a foreign judgment against a Bermuda company may form the basis of a statutory demand, even if the judgment has not been registered as a judgment under Bermuda law, provided that the jurisdiction of the foreign court is not disputed on genuine grounds. Non-payment of the statutory demand would be sufficient for the secured creditor to seek commencement of liquidation proceedings.
Where a foreign judgment is expressed in a currency other than Bermuda dollars, the registration will involve the conversion of the judgment debt into Bermuda dollars on the basis of the exchange rate prevailing at the date of the judgment. The current policy of the BMA is to permit payment in the original judgment currency.
7.3 Assuming a company is in payment default under a loan agreement or a guarantee agreement and has no legal defence to payment, approximately how long would it take for a foreign lender to (a) assuming the answer to question 7.1 is yes, file a suit against the company in a court in your jurisdiction, obtain a judgment, and enforce the judgment against the assets of the company, and (b) assuming the answer to question 7.2 is yes, enforce a foreign judgment in a court in your jurisdiction against the assets of the company?
Bermuda maintains a separate Commercial Court division of its Supreme Court, with judges experienced in commercial matters.
A commercial claim is commenced by issuing a writ of summons in the Registry of the Supreme Court, endorsed with a statement of claim and the relief sought. A Bermuda company respondent generally has 14 days to submit and file a response or contest the jurisdiction of the Bermuda court. It is possible for a suit to be filed and judgment obtained within a few weeks.
If jurisdiction is contested or the respondent disputes the matters which form the statement of claim, the appellant is entitled to respond and proceedings can be prolonged in a similar fashion as they may be in other common law jurisdictions.
If satisfied that a foreign judgment fulfils the requirements for registration, a Bermuda court will register the judgment as a matter of course. However, actual enforcement cannot proceed until the expiry of the judgment debtor's allotted time for challenging registration or any challenge has been determined. Foreign lenders may request summary judgments, interim judgments, costs awards and injunctions, such as Mareva and interlocutory injunctions, which can be obtained on a "same day" basis to prevent dispersal of assets.
7.4 With respect to enforcing collateral security, are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction, or (b) regulatory consents?
There are no significant enforcement restrictions under Bermuda law. Most foreign judgment creditors seek the appointment of a receiver, to assist with gathering and realising the assets of a defaulting debtor and speed up the process, or seek to liquidate the defaulting debtor and engage liquidators to undertake collateral realisation.
Additionally, it may be possible to obtain a Bermuda writ of sequestration to have sequestrators appointed to take charge of all the defendant's assets until the defendant complies with the judgment.
There are restrictions in Bermuda regarding the ownership of land and real estate (see question 3.3 above) and shares of a Bermuda company (see question 3.6 above), which may require prior authorisation from Bermuda authorities.
7.5 Do restrictions apply to foreign lenders in the event of (a) filing suit against a company in your jurisdiction, or (b) foreclosure on collateral security?
There are no specific restrictions applicable to foreign lenders in the event of filing suit against a Bermuda company or otherwise applicable to foreclosure on collateral security. However, most foreign lenders prefer to appoint receivers or provisional liquidators to assist with the realisation of assets or foreclosure of collateral security.
7.6 Do the bankruptcy, reorganisation or similar laws in your jurisdiction provide for any kind of moratorium on enforcement of lender claims? If so, does the moratorium apply to the enforcement of collateral security?
After the presentation of a winding-up petition, the Bermuda company or any of its creditors may apply to the Bermuda court for a stay of proceedings.
No moratoriums apply to the enforcement of collateral security, as secured parties generally operate outside of Bermuda's bankruptcy regime.
7.7 Will the courts in your jurisdiction recognise and enforce an arbitral award given against the company without re-examination of the merits?
Bermuda is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and recognises awards made under arbitration agreements in a foreign jurisdiction that is also party to the New York Convention. If a foreign arbitral award is given against a defaulting debtor company as a result of arbitration in a "convention" jurisdiction, Bermuda's International Conciliation and Arbitration Act 1993 (ICCA) provides that the award may be enforced in Bermuda either by action or, with leave from the court, in the same way as a judgment or order to the same effect. The enforcing party must make an application for leave (with or without notice) under section 48 of the ICAA, regardless of the jurisdiction in which the award was made and (where leave is given) judgment can be entered in terms of the award, without re-examination of its merits.
On an ex parte application where leave has been granted to enforce the award, the order will not allow enforcement until the other party has 14 days to respond and bring an application to set the award aside. The 14-day response period is increased in certain circumstances.
8. BANKRUPTCY PROCEEDINGS
8.1 How does a bankruptcy proceeding in respect of a company affect the ability of a lender to enforce its rights as a secured party over the collateral security?
Bankruptcy proceedings against a Bermuda company may affect the ability of a lender to enforce its rights as underlying transactions may be attacked. See question 8.2 below.
8.2 Are there any preference periods, clawback rights or other preferential creditors' rights (e.g., tax debts, employees' claims) with respect to the security?
Any conveyance or other disposition of property made by or against a Bermuda company within six months prior to the commencement of its winding up will be invalid if it was made with the intent to fraudulently prefer one or more of such company's creditors at a time that the company was unable to pay its debts as they became due.
Under the fraudulent conveyance provisions of the Conveyancing Act 1983, a creditor may seek to set aside a disposition of property (including the creation of a security interest) if the disposition was made in circumstances where the transferor's dominant purpose was to put the property beyond the reach of a person (or class of persons) who is making, or may make, a claim against the transferor and the disposition was at an undervalue. Such a claim can only be made by an "eligible creditor", which is a person who: (i) is owed a debt by the transferor within two years after the disposition; (ii) on the date of the disposition is owed a contingent liability by the transferor, where the contingency giving rise to the obligation has occurred; or (iii) on the date of the action to set aside the disposition, is owed an obligation arising from a cause of action which occurred prior to or within two years after the date of the transfer.
In relation to floating charges, where a Bermuda company is being wound up, a floating charge on the undertaking or property of the Bermuda company created within 12 months of the commencement of the winding up will, unless it is proved that such Bermuda company immediately after the creation of the charge was solvent, be invalid, except to the amount of any cash paid to such Bermuda company at the time of or subsequently to the creation of, and in consideration for, the charge, together with interest on that amount at the statutory rate.
Certain debts are preferred by statute but only over (i) claims of unsecured creditors, and (ii) claims of secured creditors who are holders of floating charges. In a winding up of a Bermuda company, debts secured by fixed charges retain first priority, followed by: (a) all taxes owing to the Bermuda government and rates owing to a municipality; (b) all wages or salary (up to a maximum of BD$2,500 in respect of any one claimant) of any employee for services rendered to the company during the four months before the winding up; (c) all accrued holiday remuneration payable to any employee on termination of his employment before or following the winding up; (d) certain amounts due by the company as employer of any persons under the Contributory Pensions Act 1970 or any contract of insurance; (e) certain amounts due in respect of any liability for compensation under the Workmen's Compensation Act 1965, being amounts which have accrued before the winding up; (f) secured creditors under floating charges; and (g) unsecured creditors.
8.3 Are there any entities that are excluded from bankruptcy proceedings and, if so, what is the applicable legislation?
Generally, the winding-up and insolvency provisions in the Companies Act apply to all Bermuda companies. Licensed Bermuda banks are governed by a separate insolvency regime under the Banking (Special Resolution Regime) Act 2016, which has been passed but has not yet been brought into effect.
8.4 Are there any processes other than court proceedings that are available to a creditor to seize the assets of a company in an enforcement?
The remedies available to a creditor would generally be set out in the loan and security documents and would include exercising the power of sale, taking possession of assets and appointing a receiver.
Creditors can also reorganise, or reach a compromise with, a Bermuda company under a scheme of arrangement, provided that the scheme is approved by the company and a supermajority of its creditors. Although a scheme will bind all creditors (or class of creditors), it must be sanctioned by the Bermuda court to be effective.
9 JURISDICTION AND WAIVER OF IMMUNITY
9.1 Is a party's submission to a foreign jurisdiction legally binding and enforceable under the laws of your jurisdiction?
The submission by a Bermuda company to the jurisdiction of a foreign court under a loan or security agreement would be recognised by a Bermuda court as a legal, valid and binding submission to the jurisdiction of the foreign court, provided that such submission is accepted by the foreign court and is legal, valid and binding under such foreign law.
9.2 Is a party's waiver of sovereign immunity legally binding and enforceable under the laws of your jurisdiction?
Yes, both private and public Bermuda companies can validly waive any claim of sovereign immunity.
10.1 What are the licensing and other eligibility requirements in your jurisdiction for lenders to a company in your jurisdiction, if any? Are these licensing and eligibility requirements different for a "foreign" lender (i.e. a lender that is not located in your jurisdiction)? In connection with any such requirements, is a distinction made under the laws of your jurisdiction between a lender that is a bank versus a lender that is a non-bank? If there are such requirements in your jurisdiction, what are the consequences for a lender that has not satisfied such requirements but has nonetheless made a loan to a company in your jurisdiction? What are the licensing and other eligibility requirements in your jurisdiction for an agent under a syndicated facility for lenders to a company in your jurisdiction?
Foreign lenders, and foreign agents and trustees under syndicated facilities, do not need to be licensed in Bermuda to undertake lending business with Bermuda companies, unless they are otherwise carrying on business within Bermuda.
10. OTHER MATTERS
11.1 Are there any other material considerations which should be taken into account by lenders when participating in financings in your jurisdiction?
The information included in this chapter cover the key issues to be considered in secured lending transactions in Bermuda. Specific advice should be sought from Bermuda counsel at the earliest opportunity to ensure security is effective and readily enforceable in Bermuda.
Originally published by International Comparative Legal Guide to Lending & Secured Finance 2019.
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.