Insolvency: Bermuda

Introduction

Bermuda is an overseas territory of the United Kingdom, and its legal system is based on English common law, which comprises statute and case law. Decisions of the English courts are not binding on a Bermuda court, but they are highly persuasive. Generally speaking, the decisions of the Privy Council are, however, binding on the Bermuda courts unless they are based on a reference from a jurisdiction with significantly different statutory provisions. The Privy Council is Bermuda’s highest appellate court and sits in London.

Bermuda is considered a creditor1friendly jurisdiction by virtue of the fact that there is no statutory debtor in possession mechanism to prevent enforcement of security in insolvency proceedings, and this has been traditionally the case, with the Companies Act 98S9 modernising and enhancing the restructuring and insolvency framework.

Secured creditors are generally free to enforce their security against debtors outside of an insolvency process, including a liquidation. Unsecured creditors can seek a compulsory liquidation of the relevant debtor company, and its assets can be applied in satisfaction of debts.

At the heart of Bermuda insolvency law is the pari passu treatment of unsecured creditors; that is, where a company has insufficient assets to satisfy its debts to unsecured creditors, each unsecured creditor would receive an equal distribution on a rateable basis according to the quantum of their claim.^[1]

Another key element of the Bermuda insolvency landscape is the willingness of the Bermuda court to work in tandem with, and to lend assistance to, foreign courts and Bermuda companies having interests in other jurisdictions where there is a substantial international creditor or asset base.

Insolvency law, policy and procedure

Statutory framework and substantive law

Bermuda’s insolvency law statutory framework consists of statute and common law. The principal statutory provisions governing corporate insolvency and restructuring are contained in Part XIII of the Companies Act 1982 (Companies Act) and are supported by the Companies (Winding-Up) Rules 1982 (Companies Winding-Up Rules). The Companies Act is based on the UK Companies Act 1948 and the (Bermuda) Companies Winding-Up Rules are based on the UK Companies (Winding-Up) Rules 1949.

The Companies Act allows for certain transactions executed by companies prior to entering into insolvency proceedings to be challenged, and, in some cases, be set aside:

1. Fraudulent preference: a transaction by a company with a view to giving a creditor preference over other creditors will be void if entered into within the period of six months ending on the presentation of a petition for the winding up of the company.
2. Fraudulent conveyance: a transaction by a company, entered into at an undervalue, with the dominant purpose of putting property beyond the reach of a person or class of persons who is making (or may make) a claim against the company, may be challenged and declared void if entered into up to eight years after the transaction.
3. Invalid floating charge: a floating charge granted by a company with the period of 12 months ending on the presentation of a petition for the winding up of the company will be void, except to the amount of any cash paid to the company subsequently or at the time of creation of the charge in consideration for its creation, unless it is proved that the company was solvent immediately after the charge’s creation.
4. Invalid dispositions: any disposition of a company’s property after (1) the presentation of a petition or (2) adoption of a shareholders’ resolution for the
   winding up of a company, if the company is subsequently ordered to be wound up by the court, is void unless the court orders otherwise.

Policy

A petitioner who can prove that a debt is unpaid and that a company is insolvent is entitled to a winding1up order ex debito justitiae. However, rather than making a winding-up order immediately upon hearing the petition, the Bermuda court often appoints provisional liquidators on a 0light touch0 basis whose primary focus is to assist the company to explore the merits of a restructuring plan. The appointment of provisional liquidators triggers an automatic stay, which prevents any enforcement action, or the commencement or continuation of legal proceedings against the Company.

A provisional liquidator is an officer of the court (typically an insolvency practitioner or accountant) appointed for a limited purpose with clearly defined powers (‘light touch powers’), which may be used where there is a prospect of ‘rescuing’ an insolvent company through restructuring without the displacement of all of the board’s executive functions. Restructurings are often achieved through a scheme of arrangement. In a light-touch provisional liquidation, a company may continue its business operations as usual, pending the implementation of a restructuring plan. Through the appointment of provisional liquidators with light touch powers and the court0s broad discretion to determine the allocation of powers and responsibilities between provisional liquidators and company directors, the court continues to create lifelines for a healthy recovery of distressed companies and for the protection of creditor interests.

Insolvency procedures

Local restructuring procedures

The principal rescue procedure in Bermuda is provisional liquidation. As indicated above, provisional liquidation is a flexible procedure where, as an alternative to making a winding-up order, joint provisional liquidators (often referred to as JPLs) can be appointed for restructuring purposes with powers granted by the court that are tailored to meet the company’s situation.

Provisional liquidation provides additional strategic advantages that are particularly valuable in complex restructurings involving multiple international jurisdictions and stakeholders. By participating in provisional liquidation, creditors may benefit from court-sanctioned mechanisms that facilitate negotiations with other classes of creditors, thereby achieving broader consensus and reducing litigation risk. Court supervision also assures stakeholders that transactions conducted during provisional liquidation are transparent, equitable and subject to judicial oversight, mitigating the risk of subsequent challenges.

The provisional liquidation process allows for the possibility of debtor-in-possession financing arrangements or other restructuring funding solutions. Such financing solutions, approved by the court and monitored by provisional liquidators, can provide immediate liquidity to support ongoing operations during the restructuring process. This financial flexibility is typically unavailable in straightforward security enforcement scenarios, potentially leading to deterioration of asset value during enforcement.

The ‘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 few statutory requirements to be satisfied before a provisional liquidator is appointed save for that a sole liquidator must reside in Bermuda Wand in the case of joint liquidators, at least one must be resident) and their credentials must be accepted by the court. The function 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.

Provisional liquidation is often seen as a preliminary step to achieving a restructuring by way of a scheme of arrangement. 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.

Provisional liquidators may therefore cause a company in provisional liquidation to propose a scheme of arrangement. A scheme of arrangement is a court-supervised restructuring or reorganisation procedure, provided for in Sections 99 and 100 of the Companies Act 1981. A proposed scheme must represent a compromise or arrangement between the company and its creditors or members, or any class thereof.

Scheme proceedings are commenced by applying to the Bermuda courts for directions to convene meetings with the various classes of creditors who will be affected by the scheme’s proposals. Once the meetings have been held and the statutory voting thresholds have been met, a further application is made to the court to sanction the scheme.

Classes of creditors are determined by the requirement for a class to be confined to those persons whose rights (as affected by the proposed scheme) are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.

For a scheme to be presented to the Bermuda courts for sanction, a majority in number representing 75 per cent in value of the creditors or members present and voting either in person or by proxy at each creditors’ or members’ class meeting, as the case may be, must approve the scheme.

There is no cross-class cram down in Bermuda. To the extent that any single class of affected creditors or members fails to approve the scheme of arrangement by the requisite majorities, the scheme will fail in its totality.

A scheme of arrangement is not, however, the only means by which restructuring transactions can be effected. Provisional liquidators may use their powers, or powers exercisable with the sanction of the court, to enter into a transaction without a scheme. This may be a more appropriate course of action where, for instance, all counterparties to a transaction and all stakeholders with an economic interest in the company consent to the transaction. Under these circumstances, there is no need for a scheme to bind dissenting members of any class. An example of such a transaction is the recent cross-border debt restructuring of Afiniti Limited (discussed further in this chapter).

Subject to the court’s or committee of inspection’s sanction, expenses incurred by the liquidator in carrying on the business will be paid out of the assets of the company as expenses of the liquidation in priority to other unsecured creditors.

Local insolvency procedures

The insolvency procedures available under Bermuda law are as follows.

Liquidation under the supervision of the court (also known as compulsory liquidation)

Typically, a creditor seeking to place a debtor into an insolvent winding up in Bermuda will present a petition to the court seeking relief on the grounds that that company is unable to pay its debts; or that it is just and equitable for the company to be wound up. Once appointed, the liquidator must obtain the sanction of the court or the committee of inspection before taking certain actions. Upon the final distribution of the assets to the creditors or the members, the liquidator must obtain an order from the court for its release and for the dissolution of the company.

Provisional liquidation on a ‘full powers’ basis

In circumstances where it is shown to be necessary and in the interest of creditors or the public, a provisional liquidator may be appointed on an ex parte basis to take control of and safeguard the assets. A court typically appoints a provisional liquidator on a full powers basis where there are serious regulatory concerns, a suspicion of fraud or cogent evidence demonstrating a likelihood that the directors may dispose of assets if tipped off about an impending winding-up petition. This form of provisional liquidation is known as provisional liquidation on a ‘full powers’ basis, contrasted with provisional liquidation on a ‘light-touch’ basis as explained above.

A debtor can continue to trade during insolvency proceedings. However, this should be with the court’s blessing as, unless the court orders otherwise, if a company is wound up, any disposition of the company’s property after the date on which the winding-up petition was presented (to commence the insolvency or rescue proceedings) is void.

The timeline for completion of the insolvency proceedings varies and will largely depend on the complexity of the proceedings; for example, the extent of the company’s assets and liabilities, the creditor profile and any ongoing litigation or regulatory matters.

Starting proceedings

Statutory winding-up proceedings can be commenced by any one or more of the following:

1. the company itself;

2. creditors, including any contingent or prospective creditors. However, the court will not give a hearing to a winding-up petition presented by a contingent or prospective
creditor until:

• security for costs has been given; and
• a prima facie case for winding up has been established;

3. contributories, subject to certain restrictions; and

4. regulators (if applicable).

The process for commencing winding1up proceedings is by filing a winding-up petition with the supreme Court of Bermuda, supported by a standard form affidavit verifying the contents of the petition.

Once the court fixes a date for the hearing of the petition, the petition must be served on the company at its registered office. Before the hearing of the petition, the petitioner must obtain a certificate of compliance from the Registrar of the Supreme Court certifying that the petition is ready for hearing because it has been properly filed, served and advertised in an appointed newspaper.

How may concerned parties oppose or obtain a stay of insolvency proceedings?

Those intending to appear at the hearing of a winding1up petition, including those who wish to oppose the petition, are required to provide advance written notice to the petitioner within a prescribed time frame, failing which they require special leave of the court to appear at the hearing.

On hearing a winding-up petition, the court may grant, dismiss or adjourn the petition, or make any other order it thinks fit. It is unlikely that the court would grant a stay of winding-up proceedings, save in exceptional circumstances. However, the court regularly adjourns winding-up petitions. It is now well established that adjournments can be granted to facilitate a proposed restructuring by provisional liquidators who may be appointed under section 170 of the Companies Act 1981. This is where the court is satisfied that a restructuring will produce a better result than a winding-up for creditors. As stated by Kawaley CO in Z-OBEE Holdings Ltd: this provision has for almost 20 years been construed as empowering this court to appoint a provisional liquidator with powers limited to implementing a restructuring rather than displacing the management altogether pending a winding up of the respondent company.^[2]

Benefits of this approach include:

1. the stay of proceedings against the company triggered by the appointment of provisional liquidators; and
2. independent oversight of the restructuring by court officers focused on protecting creditor interests.

Control of insolvency proceedings

The court orders the winding up of the company by one or more liquidators when it grants a winding-up petition. Liquidators are officers of the court and, accordingly, under the supervision of the court. They are commonly appointed from accountancy firms. The Official Receiver, a public officer, acts as a liquidator when nobody else is appointed. Following the making of a winding-up order, the court’s role is primarily supervisory. Liquidators can return to court for directions regarding any particular matter arising in the winding up and they require approval of either the court or committee of inspection before exercising certain of their statutory powers; for example, deciding to bring or defend legal proceedings on behalf of the company.

In directing insolvency proceedings, the court will be guided by the main purpose of its winding-up jurisdiction, namely protecting the best interests of the general body of unsecured creditors.

In circumstances where a company is insolvent or is likely to become insolvent, the directors’ duty to act in the best interests of the company will include a duty to have regard to the interests of the company’s creditors (Creditor Duty). There is no bright line test as to when, and to what extent, the Creditor Duty is triggered; the less the likelihood of the company escaping an insolvent winding up, the greater the degree to which the directors’ duties are owed to the company’s creditors and, if insolvent liquidation becomes inevitable,
the creditors’ interests are predominant.

According to the recent UK judgment delivered in Hunt v. Singh,^[3] it appears that some form of knowledge of a company’s insolvency (actual or constructive) by the directors is necessary to engage the Creditor Duty, even where the company is actually insolvent at the relevant time. Furthermore, where a company is faced with a claim to a current liability, such that its solvency is dependent on successfully challenging that claim, then the Creditor Duty is triggered if the directors ‘know or ought to know that there is at least a real prospect of the challenge failing’. Knowledge of a real risk that a company’s challenge to the claim may fail, therefore, equates to knowledge that it is the creditors that are potentially currently being affected by the directors’ actions and decisions.

When the court winds up a company and appoints liquidators, the board of directors becomes functus officio. This should be distinguished from the situation when the court adjourns the winding-up petition and appoints provisional liquidators to facilitate a restructuring (as discussed above). In the latter case, the court may, in appropriate circumstances, reserve powers of management to the existing board for the purpose of implementing a restructuring and give the provisional liquidators light-touch powers to monitor the board. For example, it is necessary to keep the directors in place when a company is subject to proceedings under Chapter 11 of the US Bankruptcy Code and parallel proceedings in Bermuda, because Chapter 11 requires a debtor-in-possession, meaning the directors.

Special regimes

The Companies Act 1981 is applicable to the insolvencies or restructurings of all corporate entities in Bermuda, save to the extent that its provisions are amended by other legislation that applies to specific types of corporate entities, including the Insurance Act 1978 (for licensed insurance companies), the Segregated Accounts Companies Act 2000 (for licensed segregated accounts companies) and, once in force, the Banking (Special Resolution Regime) Act 2016 (for licensed banks).

Under the Insurance Act 1978, there are a number of alterations to insolvency law that apply to an insolvent insurer, including provisions allowing for contracts to be reduced in amount in the case of insolvency and requiring a liquidator to carry on the long-term business of an insurer with a view to its being transferred as a going concern to another insurer.

The Segregated Accounts Companies Act 2000 allows for the appointment of a receiver over the assets and liabilities of an insolvent segregated account; the court will direct the receiver to manage the segregated account for the purposes of the management, sale, rehabilitation, run-off or termination of its business, or distribution of assets.

There are no special insolvency rules relating to corporate groups. To achieve practical efficiency, insolvencies of a group of companies may occur at the same time. Where this occurs, each company within the group is treated separately and is subject to separate legal proceedings. Assets of the companies within the group are not pooled for distribution, unless a scheme of arrangement has been approved or another consensual arrangement between the group and its creditors.

Cross-border issues

Forum shopping

The Bermuda court does not have jurisdiction to wind up an overseas company, save for under certain statutory exceptions: PricewaterhouseCoopers v. Saad Investments Company Limited.^[4] Accordingly, it is generally not possible to obtain an ancillary winding-up order from the Bermuda court in respect of a company domiciled outside of Bermuda. Thus, forum shopping in Bermuda is not possible or relevant.

Willingness to assist foreign courts

If the main insolvency proceedings are in Bermuda, liquidators appointed by the Bermuda court may commence ancillary insolvency proceedings in other jurisdictions that permit ancillary proceedings, such as Hong Kong and England. The Bermuda court is willing to assist foreign courts where it has the common law power to do so. However, that power cannot be used to grant relief to a foreign liquidator in circumstances where the court in the country where the liquidation is taking place could not have granted such relief: Singularis Holdings Limited v. PricewaterhouseCoopers^[5] (the Bermuda court could not order production of information to a liquidator appointed in Cayman when no equivalent order could have been made by the Cayman court).

There have been relatively few Bermuda judgments considering the scope of assistance that might be given in support of foreign proceedings.

Recognition of judgments

Under the Reciprocal Judgements Act 1958 (Reciprocal Judgements Act), a judgment of a superior court in the United Kingdom or other designated common law jurisdiction may be registered as a judgment in the Bermuda court to the extent the foreign judgment is: final and conclusive as between the parties; and is for a fixed sum of money (not being in respect of taxes or in respect of fines or penalties).

Under Bermuda’s common law, the Bermuda court may, subject to certain requirements, recognise judgments from foreign jurisdictions not otherwise qualifying for registration under the Reciprocal Judgments Act for a liquidated sum by way of summary judgment.

Bermuda has not adopted the UNCITRAL Model Law on Cross-Border Insolvency on Recognition and Enforcement of Insolvency-Related Judgments and is not currently considering its adoption. Foreign liquidators may apply for recognition in Bermuda pursuant to Bermuda’s common law and the principles of comity.

Insolvency metrics

Bermuda’s economy has demonstrated notable growth and resilience. During the first quarter of 2024, Bermuda’s economy grew by an estimated 7.1per cent, adjusted for inflation, signifying strong expansion compared to the same period in the previous year. This economic growth resulted from increased household expenditure and a rise in the export of goods and services^[6]. Additionally, Bermuda’s unemployment rate stood at 1.6 per cent in May 2024, a decrease from the rate of 2.8 per cent reported in November 2023.^[7]

There is no information publicly available on companies restructuring their debts or defaulting. Bermuda typically sees between 15 and 30 winding-up petitions per year, of which, around a third convert into an order for the winding up of the company or the appointment of JPLs. These numbers have proven reasonably steady over recent years. There have, however, been an increasing number of cases in which JPLs have been sought and appointed as a response to regulatory defaults.

Plenary insolvency proceedings

Chishti v. Afiniti Ltd

This was a recent example of a company successfully availing of a restructuring plan through the use of ‘light touch’ provisional liquidation.^[8]

In this case, the JPLs of Afiniti Limited (the ‘Company’), the Bermuda holding company of the technology company Afiniti Inc, sought sanctions from the Bermuda Supreme Court under sections 175 (1) (e) and 175 (2) (a) of the Bermuda Companies Act 98S9 to exercise their powers of compromise, or as applicable, sale to implement a restructuring transaction (the ‘Transaction’) whereby effectively the whole of the assets and undertaking of the Company were to be transferred and􀁋or sold to a new company ultimately owned and controlled by the secured lenders.

The evidence showed that the Company was profoundly insolvent on a balance sheet basis, on the brink of cash flow insolvency and would collapse if a restructuring were not achieved before the Company’s cash resources ran out.

The JPL’s application for sanction was supported by the Company, acting by its directors whose management function continued under the ‘light touch’ provisional liquidation, and by its secured creditors. The application was opposed by Afiniti’s founder and purported contingent creditor, Mr Chishti on the basis that (1) the Company and the JPLs should try to achieve a sale to a third party instead of entering into the transaction and (2) the court should conduct a trial on the issue as to whether the terms of the transaction were based on a proper understanding of the Company’s business and on a Valuation Report, which he viewed as technically wrong. Mr Chishti also opposed the grant of the sanctions to the JPLs on the same grounds on which he sought the adjournment. He sought either an adjournment for a valuation trial or a refusal of the relief applied for, which he said could not be granted without a further testing of the valuation, following disclosure and cross-examination (to a great or lesser extent, depending on the test to be applied).

In November 2024, the Bermuda Supreme Court rejected Mr Chishti’s submissions and granted the sanction order. The Court held that the test for sanction in a ‘type 1 case’ concerning the power of compromise was focused on what was in the best interests of creditors as a whole, and that the test for sanction in a ‘type 2 case’ concerning the power of sale was focused on the JPLs’ genuine and rational belief that proper value had been obtained.

Moelis conducted an extensive fund-raising process that explored a broad range of financing solutions. No equity Finance was raised, and one refinancing offer had been received for part of the secured debt, the remainder to be subordinated. Against this backdrop, the court was satisfied that the JPLs could rely on the valuation report, and that none of the criticisms of the valuation report advanced by Mr Chishti were persuasive. The court found that the JPLs had reasonable grounds for believing that the Transaction would be in the best interests of the creditors and the Company, including its employees, and on that basis considered that both the type 1 and type 2 tests were met.

On21 March 2025, the Supreme Court refused Mr Chishti’s application for leave to appeal the sanction order to the Court of Appeal of Bermuda. Ultimately, the court was not satisfied that Mr Chishti’s challenges to the court’s decision had no realistic prospect of success.

This case provides useful guidance as to the extent to which the Bermuda Court will weigh up the objections of a disgruntled creditor against the obvious and discernible benefits to both the Company and its creditors as a whole.

Ancillary insolvency proceedings

The Bermuda court does not have jurisdiction to wind up foreign companies, and thus, Bermuda is not an ‘ancillary jurisdiction’ in a true sense. There were no reported cases in the past 12 months involving the Bermuda court assisting, or being called upon to assist, foreign liquidators.

Outlook and conclusions

Bermuda continues to demonstrate its ability to be a reliable and stable restructuring destination. The jurisdiction continues to maintain a sophisticated and diligent approach to corporate structure and regulation. It continues to offer flexible and innovative cross-border restructuring options for distressed multinational companies while keeping creditor interests as a top priority. In 2024, there was an increase in debt restructuring activity, both in and out of court, demonstrating creditors’ confidence in Bermuda as a restructuring destination.

There are proposals to create a new restructuring process involving the appointment of a ‘court-appointed restructuring officer’. While there would be considerable overlap between the roles of a court-appointed restructuring officer and provisional liquidator, there would be a greater focus on restructuring, clear criteria for appointment and a focus on prompt reporting on the feasibility of a restructuring proposal.

There are also proposals to reduce the threshold for approval of a scheme of arrangement from 75 per cent of each class to 66 per cent of each class.

The time frame for the introduction of these reforms is, at present, uncertain.

Endnotes

1. Certain unsecured claims, however, have preferential status.
2. Z-OBEE Holdings Ltd [2017] Bda LR 19.
3. [2023] EWHC 1784.
4. PricewaterhouseCoopers v. Saad Investments Company Limited [2014] UKPC 35.
5. Singularis Holdings Limited v. PricewaterhouseCoopers [2014] UKPC 36.
6. Quarterly Gross Domestic Product Q1 – 2024 report
   https://www.gov.bm/quarterly-gross-domestic-product.
7. May 2024 Labour force Survey Report (pages 10 and 11).
8. [2025] SC (Bda) 33 civ.

First published in Lexology In-Depth: Insolvency, September 2025