Authored by directors Janice Gutteridge, Kathleen Moniz and Matthew Watson of Cox Hallett Wilkinson Limited
Bermuda is a leading jurisdiction for numerous international business sectors and is also recognised for its adherence to international standards and regulatory frameworks. Bermuda continues to be a leading home to the insurance and reinsurance sectors and is experiencing an increase in fintech and investment business licensed entities, cross-border investment and wealth planning. The Government of Bermuda is committed to enacting progressive legislation to enhance and support Bermuda’s position as an international business hub.
Bermuda was able to successfully rise to the challenge presented by the Covid-19 pandemic, during which the business community and courts efficiently transitioned to working remotely to ensure business continuity during the quarantine periods. After an initial lockdown period, the island quickly entered into a successful phased reopening adhering to strict Covid-19 regulations.
In this overview, we identify some of the key legislative amendments that have been enacted and provide an update of the judicial trends.
A. Corporate & Commercial
In collaboration with the fintech industry, the Digital Asset Business Act 2018 was amended by the Digital Asset Business Amendment Act 2020, which came into force on 11 December 2020. The principal amendments include the introduction of a new testing licence, which will have an initial duration of 12 months or less (the “Class T Licence”), and clarifying the definitions of “Digital Asset Exchange” and “Digital Asset Derivative Exchange”. The Class T Licence allows Bermuda’s regulatory infrastructure to support and nurture all stages of innovation in the evolving digital asset business sector. The purpose of the Class T Licence facilitates the testing and piloting of a business model, product or service in the fintech space.
Incorporated Segregated Accounts Companies
The Incorporated Segregated Accounts Companies Act 2019 (the “ISAC Act”) came into force on 15 January 2020. It introduces a new corporate vehicle, the Incorporated Segregated Accounts Company (“ISAC”), which allows for the creation by a company of segregated accounts, or cells, with separate legal statuses. The ISAC Act operates under the provisions of the Segregated Accounts Companies Act 2000 to ring-fence the assets of each individual cell from the creditors of other cells and allow for the winding-up of individual cells without affecting any of the other cells.
The first ISAC and ISA were incorporated in the fall of 2020 and were registered as Special Purpose Insurers. It is anticipated that the ISAC structure will be advantageous to a number of industry sectors, such as insurance, reinsurance, rent-a-captives, life insurance, ILS, fund structures and family office structures, as each cell will be able to function independently within the same ISAC, obtaining separate tax elections or credit ratings whilst minimising operating costs.
Bermuda’s commitment to revolutionising and streamlining its international business sector is reflected by the passing of The Companies and Partnerships Electronic Registry Amendment Act 2020 (the “Electronic Registry Act”), which mandates that all documentation required to be filed with, or issued by, the Registrar of Companies is to be filed or issued by means of an electronic record.
Another significant change brought about by the Electronic Registry Act is the insertion of a new subsection to Part III of the Companies Act 1981, providing for prospectuses and public offers not to apply to exempted companies. As such, exempted companies offering shares to the public will no longer have to file a prospectus with the Registrar of Companies.
The new electronic registration system will also make company information filed at the Registrar of Companies available online to members of the public.
Amendments to the Regulation of Trust Business
The Trusts (Regulation of Trust Business) Amendment Act 2019 (the “Trust Amendment Act”) came into force on 31 December 2019 and enhances the regulatory framework for trust businesses in Bermuda. Under the Trust Amendment Act, trustees carrying on trust business in Bermuda must be regulated by the Bermuda Monetary Authority unless otherwise exempted, and must now abide by the trust business Code of Practice and the Statement of Principles issued pursuant to the Trusts (Regulation of Trust Business) Act 2001.
Key amendments to the Trusts (Special Provisions) Act 1989 (“TSPA”) serve to modernise its “firewall” provisions and ensure greater certainty that trust assets will be protected and utilised for the intended purposes. By specifying the circumstances under which any foreign law shall be excluded from application to a Bermuda trust, no foreign law shall apply to the determination of any question concerning the validity, construction, effects or administration of a Bermuda trust, unless foreign land is concerned, or if foreign law has been chosen to apply to any severable aspect of a Bermuda trust.
Additionally the TSPA allows for illegitimate children to be excluded from the specified class of a trust where the settlor expressly opts to exclude illegitimate children in the trust instrument. However, in the absence of such express language, the Children’s Act 1998 will continue to apply and the reference to children in a trust instrument shall be deemed to include both legitimate and illegitimate children.
C. Judicial Updates and Trends
Bermuda law is often a preferred choice of governing law for dispute resolution, specifically for trusts, commercial litigation and cross-border insolvencies.
Trust & Estate Litigation
Bermuda continues to experience a healthy volume of trust and estate litigation, particularly as settlors and senior family members pass away and newer generations seek to gain greater influence and wealth. In addition, the confidence in Bermuda’s trust legislation is seeing new Bermuda trusts being created or the restructuring of existing trusts to ensure flexibility for future generations.
Insolvency & Restructuring
There has also been a noticeable rise in insolvency and restructuring matters. There have been a number of Bermuda companies listed on the Hong Kong Exchange experiencing financial distress arising out of the political environment and economic conditions caused by the pandemic, often resulting in a “soft-touch” provisional liquidation for the purposes of safeguarding assets from the clutches of related parties and to facilitate restructuring from a “white knight”. Other Bermuda companies operating globally have utilised US Chapter 11 together with parallel Bermuda proceedings as an efficient means to restructure. A number of Bermuda life insurance companies have entered provisional liquidation arising out of the questionable investment of policyholders’ premiums, related party transactions and asset values diminishing in economic uncertainty. Such collapses will test the strength of Bermuda’s specialist segregated account structures and the ability of regulators and liquidators to protect innocent policyholders and facilitate a return on their premiums.
The Bermuda Courts
The Bermuda courts have reacted to the pandemic, facilitating the hearing of listed cases by fully electronic means at both first instance and appellate levels. The Supreme Court of Bermuda has welcomed a third full-time commercial court judge, Justice Mr. Larry Mussenden, to complement Chief Justice Mr. Narinder Hargun and Justice Mrs. Shade Subair Williams. The addition of a third experienced full-time judge will only serve to enhance timely access to justice, particularly where the increasingly cross-border and complex circumstances often require timely court intervention. In addition, Bermuda continues to be represented by an incredibly experienced Court of Appeal led by Sir Christopher Clarke, with a final appeal to the Judicial Committee of the Privy Council in London.
Bermuda stands ready amidst the global and economic challenges to serve the international and local community with first-class service and open arms – even if it’s six feet apart or by virtual means.