Restructuring is a term that covers a wide range of activity. It can cover everything from minor alterations of debt repayment schedules to wholesale group structure changes. An organisation may be motivated to explore restructuring for a wide variety of reasons, such as a desire to increase the efficiency of its business, to give effect to a merger or acquisition, or to tackle financial distress.
Solvent restructuring can be given effect in Bermuda by way of a scheme of arrangement. A scheme of arrangement is a compromise or agreement between a company and its shareholders or creditors. A scheme of arrangement allows a company to effect vast changes, without having to secure unanimous consent of all parties involved. A scheme of arrangement will be aimed at either shareholders or creditor. Whether creditors or shareholders are invited to vote on a scheme, it is necessary that the scheme is approved by a majority of 75% in value and a majority in number of those voting.
Schemes have proven themselves an efficient means of effecting solvent restructurings in Bermuda on many occasions and the Court is familiar with purely domestic schemes and schemes that are linked to restructuring efforts in other jurisdictions, in particular the UK, the US, Hong Kong and Singapore.
In the case of a company in financial distress, a scheme of arrangement is also available as, for instance, a tool to bind dissenting creditors to a debt restructuring plan. In the case of a company in financial distress, it is the practice of the Court to appoint provisional liquidators to supervise the implementation of any scheme.
Provisional liquidation in Bermuda is a distinctive, flexible regime that operates to support companies in support of a restructuring.
This ‘light-touch’ provisional liquidation operates in a similar manner to Chapter 11 in the US or administration in the UK but with even greater flexibility. There are no formal statutory requirements to be satisfied before a provisional liquidator is appointed nor are there any formal requirements to be a provisional liquidator, although in practice provisional liquidators are almost exclusively trained in accounting. A provisional liquidator is appointed, usually by the company or creditors, to supervise the company’s restructuring whilst acting as the Court’s eyes and ears and looking out for the creditors’ interests.
The functions and roles of a provisional liquidator are set out in the order appointing the provisional liquidators, which can be tailored to suit the particular situation without statutory constraints. The appointment can have cross-border effect, even in jurisdictions without ‘light-touch’ insolvency procedures. As a ‘debtor in possession’ procedure, companies can maintain operations during provisional liquidation and enjoy the benefit of the stay against proceedings. Creditors can have confidence that the activities of a company in provisional liquidation will be supervised by the provisional liquidator, acting as an officer of the court.
The provisional liquidators draw on their expertise to work with the company to develop restructuring proposals. Crucially, a provisional liquidator can liaise with and advise the creditors of the company candidly on the merits and viability of restructuring proposals. Creditors can rely on the advice of provisional liquidators in the knowledge that they have a duty to advance the creditors’ interests above all else as independent officers of the Court.
There is an enormous amount of expertise in the corporate restructuring space in Bermuda. Bermudian restructuring experts frequently take on appointments both with and without onshore provisional liquidators acting in support. Since November 2020, at least one provisional liquidator must be resident in Bermuda on any given matter. This ensures that provisional liquidators are familiar with local practices and legal requirements. The aforementioned processes will be familiar to all lawyers practicing in insolvency and restructuring on the Island and this familiarity helps to reduce costs and increase confidence in outcomes.
Of course, Bermuda’s largest industry is insurance and reinsurance. There are special rules that apply in restructurings that amount to a material change in an (re)insurer’s business or that have the effect of transferring long-term insurance business between legal entities. Again, the Court and Bermuda Monetary Authority (BMA) have settled practices in relation to these matters and, while things can take a little longer, corporate entities can have confidence that with the assistance of experienced Bermudian practitioners, they will be able to achieve their corporate objectives.
One final process that is used in support of some restructurings is a members’ voluntary liquidation. Often there will be a company left behind after a restructuring that needs to be wound up without a court-supervised insolvency process. This is where voluntary liquidation can be useful. The costs of a members’ voluntary liquidation can be surprisingly affordable, even for a company in wind down. A members’ voluntary liquidation can also be achieved briskly, with companies going from the start of the process to liquidation in as little as three months.
All of these processes, when taken together, offer a wide range of options for organisations considering the solutions available to them in support of restructuring. The flexibility of these options is a significant benefit for organisations contemplating restructuring. There may however be some benefit to those considering Bermuda as a restructuring destination if some of the practices that have developed over the last few years were formalised by way of legislation, to entrench these positive features and make outcomes even more predictable. We anticipate that restructuring in Bermuda will continue to be a growth industry, particularly as businesses consider their long-term operational needs in the post-pandemic world.