Dina Wilson outlines some of the impending changes to Bermuda's Companies Act.
In December 2002, the Bermuda Legislature passed a Bill entitled The Companies Amendment Act 2002 (the Amendment Act). This much anticipated Amendment Act is slated to become effective, upon the assent of the Governor of Bermuda, on 14 February 2003 and is a welcome update to the Companies Act 1981 (the Act).
Essentially, the Amendment Act is the fruit of proposals contained in the 2002 report of the Bermuda International Business Association (BIBA) Legislative Change Committee. It underscores the collaborative nature of regulation in Bermuda and affirms the forward-thinking direction and vision being taken by the Bermuda government towards maintaining the integrity of the international business sector. At the same time, it streamlines some of the current corporate practices and procedures, the overall result of which will be an even more efficient system for the operation and administration of companies in Bermuda.
Significant refinements have been made with regard to the requirements for the publication and filing of prospectuses. Prior to the Amendment Act, insurance and other companies were required to publish and file a prospectus signed by all of the directors or provisional directors of the company with the Registrar of Companies before certain share offerings could be made to the public. This often created very difficult timing issues for many listed Bermuda companies.
The Amendment Act has addressed these issues by including language to the effect that a prospectus can now also be filed "as soon as reasonably practical" after a share offer has been made.
The Amendment Act also provides that companies listed on an `appointed stock exchange' do not have to publish and file a prospectus at any time or in any circumstances where the rules of the appointed stock exchange do not require the company to do so; or where the rules of a competent regulatory authority exempt publication and filing of the prospectus. An exception to this second point is where the exemption from publication is given because the offer of shares is to persons resident outside the jurisdiction of the regulatory authority.
The Amendment Act clarifies the position of Sections 42 and 42A of the Act, which cover company share buybacks. These sections are now to be understood to mean that the specific manner of share redemption or repurchase does not have to be set out in the bye-laws themselves but can now be determined by methods permitted in the company byelaws.
Regarding the use of the share premium, previously under the Act share premium of a certain class of shares could be used in respect of that class only. Companies now have the option to apply the share premium in capital transactions of any class of shares, thus freeing premium once locked in one class of company shares.
New powers of investigation have been given to the Minister of Finance to assist `foreign regulatory authorities' pursuant to clause 16 of the Amendment Act, by the insertion of new clauses 272B to 272E. These clauses outline the powers of investigation bestowed upon the Minister and set out when it is appropriate for such powers to be used. The Minister's new powers are in addition to the powers of investigation already held by the Bermuda Monetary Authority (BMA) to assist a `foreign regulatory authority', pursuant to section 51A of the Insurance Act 1978.
Under the Amendment Act, the Minister has the authority to assist a foreign regulatory authority, which has requested assistance, in connection with enquiries being carried out by it in the performance of its regulatory functions. The inclusion of this amendment is of no surprise to the Bermuda international business community as the Bermuda government has always been prepared to assist with issues of `transparency' when it has deemed that a request from a foreign regulatory authority is a valid one.
Carrying on business
Section 129 of the Act has also been amended to allow exempted companies1 to carry on certain business in Bermuda without the need to first obtain the prior consent of the Minister. An exempted company can now to act as manager or agent for, or as consultant or advisor to, any exempted or permit company with which it is affiliated, whether or not that affiliated company is incorporated in Bermuda. This section is also amended to provide that an exempted company can also act as manager or agent for, or consultant or advisor to, an exempted partnership or overseas partnership in which the exempted company is a partner, without the need to first obtain the prior consent of the Minister. Companies are also no longer required to have a manager, agent, consultant or advisor `object' (legal power) in their memorandum in order to carry on such business.
Regarding financial statements to be laid before meetings, the updating of section 84 of the Act reflects the reality that some companies prefer the terminology, "a change in financial position" for the period of the financial statements, as opposed to, "cash flows for the period". The Amendment Act now leaves it up to the company to use whichever statement it prefers.
Also, the laws of many jurisdictions permit listed companies to distribute summary financial statements to their shareholders. The Amendment Act has now introduced similar provisions into Bermuda law with a newly inserted 87A provision that allows companies listed on an "appointed stock exchange" to send summarised financials, although a member remains able to demand a copy of the full financial statements. This amendment will clearly benefit listed insurance holding companies with many members.
The time period for sending such financial statements and other documents to members prior to a general meeting has been shortened from seven to five days. This is consistent with the notice period required for the calling of a general meeting under Bermuda law. This places a greater onus on the company to ensure a timely dissemination of financials to members.
The information to be maintained in the company share register pursuant to Section 65 of the Act has been simplified. The Amendment Act now requires the following information to be contained on the share register:
l the amount paid or agreed to be paid on shares not fully paid; and
l the date a person was entered as a shareholder on the register of a company that does not maintain a branch register.
It is no longer a requirement to include the date a person ceases to be a member, and a company no longer has to maintain one year's history of past shareholders. The share register, thus simplified, should now contain requisite `snapshot' information of current shareholders of the company at any given date.
The amendments outlined are but a few of the positive changes due to come into effect this year. They are regarded as a progressive attempt by the Bermuda government and business community to maintain a facilitative and appropriately regulated business environment.
1 Exempted companies are companies that are exempted from the 60/40 Bermudian ownership rule. This carried with it a prohibition from engaging in `domestic business' in Bermuda.
This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.
By Dina Wilson
Dina Wilson is an associate in the corporate department of law firm Conyers Dill & Pearman in Bermuda.