current economic conditions
Bermuda is an international business hub and corporate domicile with considerable economic activity in the insurance, reinsurance and financial services sectors. Bermuda’s economy is therefore linked to the global economy. Businesses across the world are reckoning with the impact of the COVID-19 pandemic, and Bermuda, as a key location within many such entities’ corporate structures, has been active in responding to the challenges that arise. The Bermuda courts in particular have been engaged on a number of matters that involve reactions to post-pandemic conditions.
Bermuda is a British Overseas Territory with a legal system rooted in the common law of England and Wales. Notwithstanding its historic ties, Bermuda has developed a sophisticated body of precedent within the jurisdiction that is more closely tied to Bermuda’s particular characteristics.
Dispute Resolution activity is closely tied to Bermuda’s key sectors. 2022 saw a number of notable cases in these areas. There have been significant developments this year in the law relating to the segregation of accounts, a corporate structure used by Bermuda insurance and reinsurance companies to segregate accounts holding assets from one another and from the insurer’s general account. Litigation in 2022 saw the practical operation of these accounts scrutinised in light of the language.
In Bermuda, shareholders of merging or amalgamating companies have a right to seek an appraisal of the value of their shares from the court, in the event that they do not vote in favour of the merger or amalgamation because they do not consider they have been offered fair value by the company for their shares, which are being compulsorily acquired. The claim in such appraisal proceedings is for the difference in value between the amount assessed by the company as fair value at the time that it invites the shareholders to vote on the proposed merger or amalgamation and the amount assessed by the court as fair value. These cases engage significant issues relating to discovery and the formulation of expert evidence.
Bermuda is at the cutting edge of digital asset regulation with a liberal regulatory regime focused on the protection of client assets through segregation of assets, appropriate asset segregation and monitoring, and insurance of risks. We expect to see in future an increase in litigation relating to digital assets and Bermuda lawyers have been developing a working knowledge of the issues that digital assets present.
In 2022, Bermuda has also seen considerable activity in the fields of restructuring and insolvency. Many businesses have, in light of the prevailing economic conditions, been forced to consider options for restructuring their debt or winding-up.
Given the popularity of Bermuda as a destination for multinational groups holding companies and listing entities, it is unsurprising that Bermuda is also a key destination for restructuring efforts. The Bermuda Courts have adapted to this demand with a flexible suite of restructuring options, including the hallmark of Bermuda insolvent, corporate restructuring: light touch provisional liquidation. Light touch provisional liquidation is a debtor-in-possession procedure where provisional liquidators are appointed with a suite of powers, usually tailored to the needs of the business looking to restructure. These powers usually involve supervision of the board and asset proposal, powers to negotiate with creditors and powers to develop and promote a restructuring scheme. Light touch provisional liquidations are, additionally, often ordered in support of foreign main proceedings, for instance UK administration or US Chapter 11 proceedings.
Solvent restructurings are often implemented by way of a scheme of arrangement, which allows for a flexible, court-sanctioned restructuring of corporate structures. The Bermuda court has developed a great deal of experience assessing schemes in an efficient and productive manner.
There has been an increase also in insolvent liquidations following the pandemic. This trend appears likely to continue into 2023 as it becomes clear that some businesses have not been able to weather the storm of the last few years. Many creditors have been accommodating and patient with debtors but that clemency is now reaching an end. Bermuda’s approach to insolvent liquidations is to appoint provisional liquidators initially, whose appointment is confirmed by creditors at the first meeting of creditors. Liquidators will investigate the affairs of the company, gather in assets and distribute those assets to the creditors in accordance with a statutory waterfall of priorities. Bermuda insolvent liquidations are typified by the close coordination between experienced liquidators and sophisticated creditors with a view to realising the best return for creditors possible.
Dispute resolution is still predominantly litigation-focused in Bermuda; however, we are seeing an increased use of arbitration clauses in Bermuda law-governed agreements and increased activity within the Bermuda branch of the Chartered Institute of Arbitrators. Certainly, the vast majority of Bermuda-based lawyers recognise and appreciate the merits of arbitration as a cost-effective and potentially quicker method of arbitration for resolving disputes. Many large organisations also see the benefits of keeping their disputes confidential, which cannot be achieved through the courts.
2022 saw a return to in-person hearings as the primary method by which the courts in Bermuda heard things. The return to in-person hearings happened quickly and has been welcomed by practitioners. Due to the relatively small and centralised legal community, in-person hearings are not the inconvenience for Bermuda practitioners as they might be in other jurisdictions.
There is no new legislation from Bermuda from 2022 that represents a significant change for clients either operating in or litigating in Bermuda.
We anticipate that 2023 will remain a busy time for the courts in Bermuda. The calendar for commercial litigation matters is already busy and, as companies continue to respond to the changes in the economy, we are seeing an increase in restructuring enquiries.
First Published in Chambers and Partners.
