Insolvency – Bermuda: Law and Practice – Insolvency / Bankruptcy / Restructuring



1.1 Market trends and changes

Bermuda’s restructuring market has remained extremely active over the past 12 months, largely due to tightening credit markets and still unstable economic conditions resulting from the COVID-19 crisis.

There has been a notable increase in creditor-led petitions seeking immediate liquidation orders, particularly outside of Asia. Creditors appeared more willing to seek rapid corporate liquidation, appearing less willing to engage in lengthy restructuring negotiations. Examples of such cases include two Hong Kong-listed companies, Trinity Limited and Victory City International Holding Limited, both of which were liquidated following petitions from major international financial institutions.

The number of company-induced restructuring petitions also remained stable. Bermuda has a “light” interim liquidation jurisdiction, which functionally mirrors the Chapter 11 regime in the United States and the UK’s Schedule B1 debtor-in-performance equivalent. “Light” appointments allow the board of directors and management of a company to remain in place, under the supervision of independent and professional liquidators, to allow a company to restructure its liabilities and regain its solvency. The typical course of events is that a company incorporated in Bermuda will apply to Bermuda court for a “light” appointment order and then have that order recognized in the jurisdiction in which it operates and / or its registration status. . This is particularly important for companies operating in jurisdictions such as Hong Kong, where no equivalent restructuring regime is available.

Restructuring activity in the Bermuda market is expected to remain high throughout 2022, as listed companies take advantage of the flexibility of the “light” interim liquidation regime and financial institutions seek early liquidations.


2.1 Overview of laws and statutory regimes

Bermuda’s corporate insolvency regime is governed by Part XIII of the Companies Act 1981 (the Act) and the Companies (Liquidation) Rules 1982 (the Rules).

The Bankruptcy Act 1989, the Employment Act 2000, the Segregated Account Companies Act 2000 and the Insurance Act 1978 are other sources of law that have an impact on financial restructurings, reorganizations and insolvencies.

Part XIII of the Act and the Rules are based on the Companies Act 1948 (UK) and the Companies (Liquidation) Rules 1949 (UK).

Part XIII of the Act applies to all local and exempt companies incorporated in Bermuda, as well as non-resident insurance companies and licensing companies (with the exception of the voluntary liquidation provisions of members). Restructuring is governed by Part VII of the Act.

The Bermuda Supreme Court (the Court) is the court of first instance in Bermuda. In 2006, the Court created a Chamber of Commercial Court, whose competence includes the hearing of cases arising from the law, and therefore proceedings relating to restructuring / insolvency.

Her Majesty’s Privy Council remains Bermuda’s highest court of appeal and its decisions are binding on the courts of Bermuda (to the extent that such decisions are not inconsistent with Bermuda’s statutory provisions).

2.2 Types of voluntary and involuntary restructuring, reorganizations, insolvency and receivership

The main types of procedures available in Bermuda are:

  • voluntary liquidation of members;
  • voluntary liquidation of creditors;
  • judicial provisional liquidation;
  • judicial liquidation;
  • arrangement plans; and
  • sequestration.

2.3 Obligation to initiate formal insolvency proceedings

While there is no strict legal obligation for a company to initiate formal insolvency proceedings when it is insolvent or in the insolvency zone, insolvent transactions that harm the interests of employees, creditors and shareholders will put the directors of the company at risk of defaulting on their fiduciary duties. In fulfilling these obligations, directors must therefore determine whether it is appropriate to initiate formal insolvency or restructuring proceedings.

The exception to this general rule is that if, at any time during a process of voluntary liquidation of the partners, the liquidator is of the opinion that the company will not be able to pay all of its debts in the deadline indicated in the statutory declarations of the directors, he is obliged to convene a meeting of creditors and to file before the meeting a statement of the assets and liabilities of the company, under penalty of being liable to a fine. Usually, the process of voluntary liquidation of members will then turn into a voluntary liquidation of creditors.

2.4 Start of involuntary proceedings

Compulsory liquidation commences in Bermuda upon presentation of an application to the Court. This can be done by a creditor (including prospective or potential creditors), a contributor (provided they hold the shares for at least six months) or the company itself. If the company is a Bermuda insurance company, the Bermuda Monetary Authority (BMA) may also seek liquidation of the company, in cases where the insurer has failed to fulfill certain legal obligations or is insolvent.

2.5 Insolvency condition

Insolvency is not required to initiate voluntary or involuntary proceedings. A voluntary procedure is initiated by resolution of the shareholders, generally on the recommendation of the board of directors.

An involuntary proceeding (bringing a claim) can be based on a number of non-insolvency grounds, including the following:

  • when the company has not started its activities within one year of its incorporation or has suspended its activities for a whole year;
  • when the company is engaged in a restricted or prohibited activity as prohibited under Articles 4A and 4B of the law; Where
  • where it is fair and equitable to wind up the business.

However, when an application for the liquidation of a business is based on insolvency, the claimant must be able to demonstrate that the business is unable to pay its debts.

Under section 162 of the law, a business is deemed unable to pay its debts in the following circumstances:

  • if a creditor to whom the company is indebted for a sum greater than 500 BMD has served a legal demand for payment and the company has not paid the sum requested or guaranteed for it within 21 days of service;
  • if the execution of a court decision on the company is rendered unsatisfied; Where
  • if it is proven to the satisfaction of the court that the company is unable to pay its debts. In making this decision, the Court will take into account contingent and prospective liabilities and consider cash flow and balance sheet insolvency tests.

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Originally posted by Chambers and Partners 2021 Global Practice Guide

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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