BERMUDA
COMPANIES AMENDMENT ACT 2002

Valentine’s Day, February 14, 2003, will likely be recorded in history as one of the most important days in the development of Bermuda company law.

Bermuda pioneered international business many decades ago at a time when life all over the world was a lot simpler. For the most part, there were no notions of securities or financial services regulation, or at least what existed was very simplistic. In order to have some means of control over international business, it was decided way back when to impose an oversight of the constitution of each and every company. Over time, this was reduced to a requirement that there be regulatory consent to the terms of each company’s memorandum of association. Bermuda became obsessed with objects clauses and the incorporation process suffered. In a modern, sophisticated financial world, this quaint, but antiquated, mechanism was not only cumbersome, but ineffective.

Over the past several years, therefore, the Bermuda government has introduced a suite of financial regulatory statutes designed to replace regulation by objects clauses. The Companies Amendment Act 2002 (the “Amendment Act”) comes into force on 14th February, 2003 and abolishes the requirement that consent be obtained for the objects and powers of a company. Companies can now be formed for any purpose although there is a list of (a) "restricted" activities which require permission (such as licensed financial services activities (including banking, trust business, insurance business, mutual funds, investment business, etc) and a handful of cash–handling and similar services) and (b) "prohibited" activities (such as trading in armaments, gambling, etc).

The change is welcomed by the industry and should significantly improve speed, efficiency and service in the Bermuda market place. The process of incorporation should henceforth be divorced from the shareholder clearance process. Existing clients of Bermuda engaging in new transactions should see the greatest benefit where it should be possible to incorporate a new company within a day.

In keeping with the Bermuda government's practice of regularly reviewing company and other international business legislation to ensure that they are kept up to date, the Amendment Act makes a number of other changes summarized below.

Prospectuses Certain offerings of shares by Bermuda companies require the publishing and filing of a prospectus. Up to now, the prospectus had to be filed prior to the offer. In order to accommodate the mechanics and procedures of various stock exchanges outside of Bermuda, the Amendment Act enables the filing to be made slightly later, particularly "as soon as reasonably practicable after publication".

Share Premium Premium arising on the issue of shares must generally be credited to a statutory account known as the share premium account. That account may be used by a company in certain capital transactions, including a bonus issue of the same class of shares. The Amendment Act has now removed the restriction that the premium must be applied only in share transactions of the same class so that it can be used in capital transactions of any class of share.

Redemptions and Repurchases of Shares The Amendment Act clarifies the basis upon which a company may set terms and conditions for the redemption and/or repurchase of its own shares.

Share Registers Companies are required to maintain a share register and include therein certain particulars of each shareholding, including the date on which a person ceased to be a shareholder for a year thereafter. While the idea of making one year's history a matter of public record was not out of keeping with the requirement in some jurisdictions, it was considered to serve very little purpose. Further, because some countries did not require one year's history, there were practical problems for those Bermuda companies listed on stock exchanges in those countries. The Amendment Act has done away with the requirement for one year's history of past shareholders. The share register will, therefore, now simply contain a "snapshot" of the shareholdings on any given date.

Summary of Financial Statements 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 although a member remains able to demand a copy of the full financial statements.

Gateways In order to meet its commitments given as a part of the Overseas Territories Review, Bermuda introduced into the Companies Act provisions whereby regulatory related information can be shared with overseas regulators.

Conyers Dill & Pearman supports, and is actively involved in, the process of keeping under constant review financial services legislation. We would be pleased to hear of clients’ issues of concern or suggestions of areas where enhancements could be made.

John CR Collis

John Collis is a Partner and head of the Corporate Department at Conyers Dill & Pearman.
jccollis@cdp.bm

Conyers Dill & Pearman, the international offshore law firm, advises on the jurisdictions of Bermuda, the British Virgin Islands and the Cayman Islands.