Forms of Security

What are the most common forms of security granted over immovable and movable property? What formalities must the security documents, the secured creditor, or the debtor comply with? What is the effect of non-compliance with these formalities?

Immovable Property

Common forms of security and formalities. The following types of security are commonly granted over immovable property in Bermuda:

Fixed charge. This gives the chargee (creditor) the right to sell the charged property and use the proceeds to pay the debt in the event of default. The chargor’s ability to deal with the property is restricted.
Mortgages. A mortgage can be either:
- a legal mortgage, where legal ownership of an asset is transferred from the mortgagor to the mortgagee, subject to an express or implied condition requiring the mortgagee to transfer title back to the mortgagor when the obligation for which the security was created is discharged, and usually granting the mortgagee express powers of retention, sale, or foreclosure or the power to appoint a receiver; or
- an equitable mortgage, where beneficial ownership of an asset is transferred from the mortgagor to the mortgagee but the mortgagor retains legal title to the asset, either because that is the intention of the parties or because the formalities for the creation of a legal mortgage have not been complied with.

Mortgages over real property must be created by deed. Other security arrangements must be created in writing and, although not strictly necessary, are often created by deed as a matter of practice.

Any security interest created by a Bermuda company can be registered with the Bermuda Registrar of Companies. Registration is not necessary for security to take effect but the priority of competing securities is determined by the date of registration and, accordingly, any security should be registered promptly.

Effects of non-compliance. Non-compliance with the applicable formalities renders the security ineffective. However, an imperfect security document may still take effect between the parties.

Movable Property

Common forms of security and formalities. The following types of security are commonly granted over movable property in Bermuda:

Floating charge. The chargor can freely deal with the assets covered by the charge (which are usually identified by class and can include present and future property) until occurrence of a default event that causes the floating charge to attach to the charged assets.
Fixed charge. See above, Immovable Property.
Mortgages. See above, Immovable Property.

Registration is not necessary for security to take effect but the priority of competing securities is determined by the date of registration. Therefore, any security should be registered promptly.

Effects of non-compliance. Non-compliance with any applicable formalities renders the security ineffective. However, an imperfect security document may still take effect between the parties.

Creditor and Contributory Ranking

Where do creditors and contributories rank on a debtor’s insolvency?

On a company’s winding-up, its assets are used to meet its debts in accordance with the following order of priority:

Secured creditors. Liquidation of a company does not affect the power of any secured creditor (not including holders of uncrystallised floating charges) to realise or otherwise deal with their security. Therefore, a secured creditor can exercise any of the enforcement powers available to them under the security documents, such as possession, sale, or the appointment of a receiver. Secured creditors remain subject to the equity of redemption and must obtain the best price reasonably obtainable on the realisation of any assets. Fixed charges and other registrable forms of security have priority among themselves in the order that they are registered with the Bermuda Registrar of Companies.
Expenses of winding-up. These include fees and expenses incurred in realising the debtor’s assets, costs of the winding-up proceedings, and the liquidator’s remuneration.
Employees. Under the Employment Act 2000, certain claims of employees working for a company for more than 15 hours per week, wholly or mainly in Bermuda, have priority over other debts, including those of preferential and unsecured creditors. These are claims for:
- vacation accrued but not taken;
- wages earned but not paid; and
- severance allowance of up to 32 weeks’ wages.
Preferential creditors. After payment of the above creditors, the following debts are generally paid in priority to all other debts, ranking equally among themselves:
- taxes owed to the Bermuda Government;
- wages and salary, capped at BMD2,500 per employee;
- accrued holiday remuneration;
- amounts due in respect of pension contributions;
- amounts due in respect of any contributions payable under any contract of insurance in the company’s capacity as an employer; and
- workers’ compensation for injuries and occupational illnesses arising out of and in the course of a worker’s employment.
Floating charge holders. If the company’s assets available for payment of general creditors are insufficient to meet those liabilities, preferential creditors have priority over holders of uncrystallised floating charges and can be paid out of any property comprised in or subject to the floating charge.
Unsecured creditors. Any remaining assets can be used to pay the debts of unsecured creditors.
Members. Any sum due to a member, in their character as a member (by way of dividends, profits, or otherwise) is subordinated to any other debt.
Contributories. Any assets remaining after the payment of all creditors, including any debts due to members, can be distributed between contributories.

Unpaid Debts and Recovery

Can trade creditors use any mechanisms to secure unpaid debts? Are there any legal or practical limits on the operation of these mechanisms?

Certain trade creditors may enjoy a lien over some of the debtor’s property in their possession. There are otherwise no specific mechanisms available for trade creditors.

Can creditors invoke any procedures (other than the formal rescue or insolvency procedures described in Questions 6and 7) to recover their debt? Is there a mandatory set-off of mutual debts on insolvency?

A creditor can bring court proceeding to obtain a judgment for payment of the debt.

A judgment creditor can bring an application for execution of a judgment debt. Execution is available for domestic judgments, foreign judgments registered under the Judgment (Reciprocal Enforcement) Act 1958, foreign judgments enforceable under common law, and arbitral awards.

The following methods of execution may be available to a judgment creditor:

Writ of fieri facias. A writ of fieri facias, commonly known as fi fa, can be issued immediately on the expiry of any time set for compliance with a court judgment or order. The writ allows a court official to take control of the debtor’s assets. The process is relatively straightforward and involves issuing a writ directed to the Provost Marshal General (an officer of the court) to seize the debtor’s assets and auction them to satisfy the debt. On delivery of the sealed writ to the Provost Marshal, the property of the judgment debtor located in Bermuda is bound to the Provost Marshal for execution.
Writ of sequestration. When a judgment debtor fails to comply with a court order or judgment, the party seeking enforcement, with leave of the court, can apply to have a sequester appointed (usually a local accountancy professional) to seize the judgment debtor’s assets until the defendant complies with the order or judgment.
Garnishee order. It is also possible to obtain a garnishee order, under which a third party, most commonly a bank or employer, is directed to pay funds owed to the judgment debtor directly to the judgment creditor. This application is made ex parte and supported by affidavit. The supporting affidavit must:
- identify the judgment or order to be enforced;
- state the unpaid amount; and
- state that the judgment debtor is indebted to the judgment creditor.

A garnishee order cannot usually be obtained in relation to a joint debt or future debt owed to the judgment debtor, or where the court does not have jurisdiction (that is, where the debt is owed in another country).

Appointment of a receiver. The court has the power to appoint a receiver over the judgment debtor’s assets to assist in collecting these assets, if the court considers that it is “just and convenient” to do so. A court-appointed receiver is an officer of the court. The receiver’s fees and expenses take priority over any recovery and the appointment does not affect any property already subject to an existing security. This type of order is often sought as a last resort but may be effective where the assets are shares (where a dividend may be due) or where a company has specific valuable assets.
Freezing order. The court has the power to issue a freezing order in aid of execution of a final judgment. A freezing order can be issued where the court is satisfied that, without restrictions pending enforcement, there is a real risk that a judgment debtor will dispose of or dissipate its assets, rendering the judgment nugatory.
Committal. An application for committal may be appropriate where a judgment debtor refuses or fails to comply with a judgment or order. An applicant can seek an order to send the judgment debtor (if the debtor is an individual) to prison for non-payment. A court will not grant a committal order where the judgment debtor proves to the satisfaction of the court that they do not have the means to satisfy the judgment (section 2, Debtors Act 1973). In the case of breach of an injunction, the claimant can also commence contempt of court proceedings, which may lead to committal to prison, sequestration of assets, and imposition of a fine. When the judgment debtor is a company, it is possible to make an application against the company’s directors if the penal notice in the injunction expressly includes this possibility. Contempt of court proceedings are generally reserved for serious or persistent breach of court orders due to the draconian nature of the court’s remedies.

A foreign creditor’s ability to enforce rights over secured assets may be subject to the approval of the Bermuda Monetary Authority, depending on the nature of the secured asset and whether the debtor is a regulated entity. Any such approvals are generally granted promptly and exceptions apply to certain creditors (such as regulated lending institutions).

State Support

Is state support for distressed businesses available?

Limited formal support is available from the Bermuda Economic Development Council (BEDC), a public authority established in 1980 (formerly called the Bermuda Small Business Development Corporation). The BEDC is a joint venture between Bermuda’s banks and the government aimed at actively assisting in the development of a strong, well managed, and prosperous small business sector in Bermuda.

The BEDC offers a range of products and programmes split into two categories:

Financial products.
Licences and relief programmes.

These consist of grants, loans, or other forms of financial assistance to assist persons predominantly involved in small- to medium-sized business and entities in the economic empowerment zones (that is, designated geographical areas that offer tax incentives, reduced fees, and other business advantages to encourage economic development in underperforming regions of the island).

The debt consolidation micro-loan is a form of relief that specifically targets distressed businesses. Small and medium-sized enterprises (that is, businesses with up to BMD5 million in revenue, up to BMD2.5 million in payroll, up to 50 employees, or up to BMD2.5 million in net assets) can apply for a loan from the BEDC of up to BMD30,000 for the purpose of consolidating and reducing the cost of pre-existing debt.

Other state support is offered on an ad hoc basis (for example, the government provided support to the Fairmont Southampton hotel in response to the COVID-19 pandemic).

Rescue and Insolvency Procedures

What are the main rescue/reorganisation procedures in your jurisdiction?

Provisional Liquidation

Objective. The main rescue procedure in Bermuda is provisional liquidation. Provisional liquidation is a flexible procedure where, as an alternative to making a winding-up order, the court can appoint joint provisional liquidators for restructuring purposes, with powers that are tailored to meet the company’s circumstances.

Provisional liquidation operates in a similar manner to Chapter 11 in the US or administration in the UK but with even greater flexibility. The objective is to facilitate the restructuring of the company while providing protection from creditors.

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 can benefit from court-sanctioned mechanisms that facilitate negotiations with other classes of creditors, thereby achieving broader consensus and reducing the risk of litigation. Court supervision assures stakeholders that transactions conducted during provisional liquidation are transparent, equitable, and subject to judicial oversight, mitigating the risk of subsequent challenges.

Provisional liquidation also facilitates international co-ordination through recognition in foreign courts, enhancing legal certainty. Many jurisdictions recognise and co-operate with provisional liquidation proceedings in Bermuda, providing a stable platform for multinational restructurings. This international recognition is critical where the company’s assets, creditors, or operations span multiple jurisdictions, as it streamlines the process and reduces conflicts between court decisions.

Provisional liquidation is frequently used as a preliminary step to achieve a restructuring by way of a scheme of arrangement (see below, Scheme of Arrangement).

Initiation. In practice, proceedings are invariably commenced by companies themselves by the presentation of a petition for the winding-up of the company, with an application for the appointment of provisional liquidators and the adjournment of the winding-up petition.

A company’s directors may, under certain circumstances, conclude that their duty to have regard to the best interests of the company, having due regard to the interests of creditors, requires the presentation of winding-up petition. In these circumstances, directors do not commit an offence if they fail to present a petition but may commit an offence if, for example, they obtain credit on a misleading basis or cause the company to continue to trade in fraud of creditors.

Substantive tests. There are no formal statutory requirements to satisfy to appoint a provisional liquidator. The company must identify the statutory ground on which the company would, but for the appointment of provisional liquidators, be liable to be wound up. These grounds include that

The company is insolvent, on a cash-flow or balance sheet basis.
It is just and equitable that the company should be wound up.

Consent and approvals. Generally, a company’s directors have the power to present a petition for the winding-up of the company based on insolvency. The petition can be accompanied by an application for the appointment of provisional liquidators. If the company relies on another ground, the directors may conclude that shareholder authorisation is required if the basis for the presentation of the petition falls outside the board’s management powers.

Supervision and control. The function and role of provisional liquidators are set out in the court order appointing them. These can be tailored to suit the specific circumstances without statutory constraints. The appointment can have cross-border effect, even in jurisdictions without “light-touch” insolvency procedures.

Once appointed, the provisional liquidators are subject to the supervision of the court and typically provide periodic reports to the court on the status of the restructuring.

The provisional liquidators draw on their expertise to work with the company to develop restructuring proposals. A provisional liquidator can liaise with and advise creditors 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 can also use their powers, including powers exercisable with the sanction of the court, to enter into other types of transactions. This may be a more appropriate course of action where, for example, all counterparties to a transaction and all stakeholders with an economic interest in the company, consent to the transaction. In these circumstances, there is no need for a scheme to bind dissenting members of any class.

Provisional liquidation is a debtor-in-possession procedure, so that the debtor can maintain operations while enjoying the benefit of a stay against proceedings.

The provisional liquidation process allows for debtor-in-possession financing arrangements or other restructuring funding solutions. These 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.

Where it is 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 debtor’s assets. This form of provisional liquidation is known as provisional liquidation on a “full powers” basis, in contrast to provisional liquidation on a “light touch” basis. 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 showing a likelihood that the directors may dispose of assets if tipped off about an impending winding-up petition.

Protection from creditors. The appointment of provisional liquidators triggers an automatic stay of proceedings against the debtor, ensuring that the company cannot be sued in Bermuda. This provides protection from creditors during the procedure.

On the appointment of provisional liquidators, trading parties are entitled to terminate contracts with the debtor or rescind any licences, include intellectual property licences.

Length of procedure. On the appointment of provisional liquidators, it is common for the hearing of the winding-up petition to be adjourned from three to six months to allow the provisional liquidators to commence their review of the company’s affairs. If, at the conclusion of this period, the provisional liquidators advise the court that a restructuring is feasible, the petition can be further adjourned for a period sufficient to facilitate a restructuring transaction. This adjournment may be for a few months and several, successive, months-long adjournments may be granted in appropriate cases while restructuring efforts are ongoing. Generally, a provisional liquidation’s outcomes should be achievable within 12 to 24 months, but the court may allow longer if justified in the circumstances of the case.

Conclusion. Provisional liquidation often leads to a scheme of arrangement or another form of restructuring transaction. Once a restructuring transaction has concluded, the court can make an order releasing the provisional liquidators and dismissing the adjourned winding-up petition. In these circumstances, the company can continue trading. Alternatively, if, for example, the restructuring transaction has transferred assets and liabilities to another entity, the court can order that the company be wound up and appoint the provisional liquidators as liquidators of the company. Therefore, the effects of the conclusion of the provisional liquidation reflect the effect of any underlying restructuring transaction.

Scheme of Arrangement

Objective. A scheme of arrangement is a court-supervised restructuring or reorganisation procedure governed by sections 99 and 100 of the Companies Act 1981. A scheme of arrangement is a compromise between the company and its creditors or members, or any class thereof.

Initiation. Scheme proceedings are started by applying to the Bermuda courts for directions to convene meetings with the various classes of creditors or shareholders who will be affected by the scheme’s proposals. An application to convene meetings can be made by a company, a creditor, a shareholder, or a liquidator (in the case of a company being wound up).

Consent and approvals. To be presented to the Bermuda courts for sanction, a scheme of arrangement must be approved by a majority in number representing 75% in value of the creditors or members present and voting either in person or by proxy at each creditors’ or members’ class meeting. There is no cross-class cram down in Bermuda. If any single class of affected creditors or members does not approve the scheme by the requisite majorities, the scheme fails entirely.

A class of creditors must only include 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.

Once the meetings have been held and the statutory voting thresholds are met, a further application is made to the court to sanction the scheme.

The court supervises the scheme process.

Protection from creditors. It is the usual practice in Bermuda for an insolvent company wishing to promote a scheme of arrangement to appoint provisional liquidators to supervise, manage, or otherwise facilitate the implementation of the scheme. This practice has become so commonplace that the court is unlikely to permit an application to convene scheme meetings by an insolvent company unless provisional liquidators are appointed. On appointing provisional liquidators, the company can benefit from an automatic stay of proceedings. However, trading parties can terminate contracts and rescind licences if the company is in breach of its obligations.

Length of procedure. Once a company has developed a scheme, it applies to the court for permission to convene meetings. A hearing may be listed within a week or so of that application, although two to four weeks is more common. If the court grants permission to convene meetings, the court order sets the required notice of the meetings to scheme creditors or contributories. The length of the notice depends on the evidence put before the court but is typically two to six weeks. Once the meetings have taken place, a sanction hearing may be listed as soon as the next business day after the meetings. At the hearing, the court considers the results of the meetings and, if thought fit, sanctions the scheme. A scheme becomes effective, at the earliest, once the court has given its sanction and the scheme has been submitted to the Registrar of Companies for registration.

Conclusion. Once the scheme has been sanctioned and filed, it comes into effect and bind all scheme creditors and contributories in accordance with its terms. This may result in the company continuing trading or may lead to the liquidation of the entity, in which case any non-scheme creditors’ or contributories’ rights are determined in accordance with the general provisions applicable to liquidation under the Companies Act 1981.

What are the main insolvency procedures in your jurisdiction?

Liquidation

Objective. The objective of liquidation proceedings in Bermuda is to collect, realise, and distribute the assets of an insolvent company to its creditors in accordance with the statutory order of priority (see Question 2), ultimately leading to the dissolution of the company.

Initiation. In Bermuda, an unsecured creditor seeking to liquidate a debtor company typically applies to the court for a winding-up order, claiming either the company’s inability to pay its debts or that it is just and equitable to wind up the company. The winding-up process can be initiated by any one or more of the following:

The company itself.
Creditors, including any contingent or prospective creditors.
Contributories, subject to certain restrictions.
The Bermuda Monetary Authority (or applicable regulator) in the case of a regulated entity.

The court will not hear 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.

While there are no specific legal obligations for Bermuda companies to commence formal insolvency proceedings or to do so within specified timeframes, once a company is insolvent, the directors should consider whether the company should commence its own winding-up if this would be in the best interests of the creditors.

To start proceedings, a winding-up petition must be filed with the Supreme Court, supported by an affidavit. While it is common to attach proof of the debt, it is not required. After the court sets a hearing date, the petition must be served on the company’s registered office. Before the hearing, the petitioner must file a certificate of compliance, confirming the petition has been properly filed, served, and advertised.

Anyone wishing to appear at the hearing of the petition must notify the petitioner by 4pm on the day before the hearing of the petition, failing which they must seek court approval to appear. At the hearing of the petition, the court can grant, dismiss, or adjourn the petition, or make another suitable order. If unopposed, a winding-up order can be issued at the first hearing. If opposed, the court usually adjourns the petition to allow the parties time to prepare for a contested hearing.

The court can also adjourn a winding-up petition to facilitate a proposed restructuring by the company with the assistance of a court-appointed insolvency practitioner known as a provisional liquidator (see Question 6, Provisional Liquidation).

Substantive tests. A company can be compulsorily wound up by the court in any of the following circumstances:

The company has resolved that the company be wound up by the court.
There is default in holding the company’s statutory meeting.
The company does not commence its business within a year of its incorporation or suspends its business for a whole year.
The company carries on any restricted business activity.
The company engages in a prohibited business activity.
The company is unable to pay its debts.
The company’s ministerial consents were obtained as a result of a material misstatement in the application for consent.
The court is of the opinion that it is just and equitable that the company should be wound up.

(Section 161, Companies Act 1981.)

Supervision and control. Liquidators have a wide range of powers to ensure that the liquidation proceeds in an orderly fashion and in accordance with the statutory regime. The court-appointed liquidator or provisional liquidator controls the liquidation procedure and displaces the company’s board of directors on their appointment. The liquidator’s exercise of their powers is subject to the sanction, supervision, and control of the court, and, to a lesser extent, the committee of inspection (if one is appointed).

Protection from creditors. A winding-up order or the earlier appointment of a provisional liquidator triggers an automatic stay on the commencement or continuation of proceedings against the company without leave of the court (section 167(4), Companies Act 1981). A secured creditor is bound by the automatic stay, but if proceedings are necessary in Bermuda in order for it to enforce its security, the court is likely to grant leave. Although a stay does not have extraterritorial effect, if a creditor is subject to the jurisdiction of the Bermuda court and commences proceedings overseas, the liquidator can seek an injunction to prevent the creditor from continuing the proceedings.

There are no special procedural protections and rights for secured creditors in statutory insolvency, principally because they are entitled to enforce their security outside of insolvency proceedings.

Length of procedure. There is no fixed timeframe from initiation to conclusion. The court will expect the parties to deal with the process as expeditiously as possible.

Conclusion. After the making of a winding-up order, the liquidation proceedings conclude when the company is dissolved, or if the proceedings are permanently stayed, with the company being restored to operations.

Stakeholders’ Roles

Which stakeholders have the most significant role in the outcome of a restructuring or insolvency procedure? Can stakeholders or commercial/policy issues influence the outcome of the procedure?

Stakeholders

The views of creditors play a critical role in the progress of provisional liquidation proceedings. If a provisional liquidation fails, it is usually in favour of an insolvent liquidation of the company in question. Often, an order appointing provisional liquidators is coupled with an order adjourning a full winding-up petition. Therefore, if the creditors become dissatisfied with the progress of the provisional liquidation, the company is at risk of being wound up.

For example, in the Up Energy case, the petitioning creditor pursued its petition after the appointment of provisional liquidators and continued to seek a winding-up order as it was pessimistic about the prospects of successfully restructuring the company’s debt. The court considered the petition on a further occasion and was invited by the petitioning creditors to make unless orders to wind up the company unless sufficient progress was made in the restructuring. The court accepted that it had a wide discretion to adjourn the petition “for a good reason” and rejected the application as a majority of unsecured creditors were still in favour of pursuing a restructuring. (Re Up Energy Development Group Ltd [2018] Bda LR 100.) Creditor support decreased after the provisional liquidators found themselves ultimately unable to advance a scheme of arrangement capable of implementation. Up Energy was wound up in 2022, as there was no longer sufficient creditor support to obtain any further adjournment.

Re NewOcean Energy Holdings Limited [2021] CA (Bda) 16 Civ is now the leading case on disputes about the circumstances in which a creditor’s petition should be adjourned. The following key points of principle can be derived from the Court of Appeal’s judgment:

The interests of creditors are paramount, and the court will only disregard the views of the majority of creditors in exceptional cases.
The percentage of creditors opposed to or supporting the winding-up petition takes an even greater significance when the restructuring plan relied on in aid of an adjournment requires a 75% majority vote. When it is clearly unlikely that majority will be achieved, an adjournment should not be granted.
The absence of creditors opposed to the winding-up should be sufficient in most cases to justify an immediate winding-up.
The maintenance of a light-touch provisional liquidation (see Question 6, Provisional Liquidation) calls for complete transparency and co-operation from the company, and non-disclosure of material matters is a strong factor in favour of an immediate winding-up.

The Court of Appeal reaffirmed that the views of creditors take precedence over other considerations and made clear that those seeking to appoint provisional liquidators must co-operate with them. It is therefore essential in any provisional liquidation for the company, company officers and any petitioning creditor to carefully consider the views of creditors. Creditors’ meetings are not mandatory in a provisional liquidation but may prove a useful tool to update creditors and share views with them.

While the court can have regard to the interests of all creditors, it does not place much (if any) weight on the views of secured creditors where their security is sufficient to cover the debt owed to them. If the company’s financial situation is such that general unsecured creditors are out of the money (for example, because a class of creditors with greater priority are unlikely to be paid in full), the court may give greater weight to the views of the class of creditors with claims below the point at which value breaks. The reason for this is that these creditors with are the most commercially exposed to decisions made up to, or in the course of, liquidation. Generally, unsecured creditors are most likely to be exposed to these decisions and therefore have the most significant role on the outcome of liquidation proceedings.

Influence on Outcome of Procedure

See above, Stakeholders.

Where a regulated entity is the subject of a winding-up petition, the court may have regard to the views of that entity’s regulator on any proposed outcome. Otherwise, the courts generally have regard to the creditors’ wishes.

Liability

Can a director, partner, parent entity (domestic or foreign), or other party be held liable for an insolvent debtor’s debts?

Director

The court can order damages against any director or officer who:

Misapplies, retains, or otherwise becomes liable for any money or property of the company.
Commits any misfeasance or breach of trust.

A liquidator can also pursue claims for breach of duty against directors and officers. This may, indirectly, lead to directors and officers becoming liable to the company for sums applied for the benefit of an insolvent company’s debts.

However, it is common practice for Bermuda companies to indemnify directors and officers for their actions and omissions, which operates to prevent actions against a director or officers who enjoys such an indemnity, except in cases of fraud or dishonesty.

Partner

Each partner of an insolvent firm is jointly liable for the firm’s debts incurred while they were partner. Proceedings can be commenced against individual partners and enforcement of a judgment obtained against the partnership can be sought against individual partners.

Parent Entity (Domestic or Foreign)

Generally, parent companies are only liable for the unpaid amount of their shares in the subsidiary, unless another course of action is available. Under Bermuda law, the corporate veil can only be pierced in very limited circumstances, such as were a parent company or an individual has inserted a company into a structure to evade or frustrate a pre-existing legal obligation.

Other Party

Not applicable.

Setting Aside Transactions

Can an insolvent debtor’s pre-insolvency transactions be set aside? If so, who can challenge these transactions, when, and in what circumstances? Are third parties’ rights affected?

The following transactions can be set aside on the application of liquidators or, in certain circumstances, creditors:

Transactions by an insolvent company with a view of giving one creditor preference over other creditors. These are void if concluded within six months ending on the presentation of a petition for the winding-up of the company.
Transactions at an undervalue with the dominant purpose of putting property beyond the reach of a person or class of persons who are making (or may make) a claim against the company. These can be challenged and declared void if concluded up to eight years before the presentation of the winding-up petition.
Floating charges granted by a company within 12 months before the presentation of a petition for the winding-up of the company. These are void, except for 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 creation of the charge.
Any disposition of a company’s property after the presentation of a winding-up petition or 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. Any such disposition is void unless the court orders otherwise.

The rights of a third-party buyer in good faith for value, from a transferee who received property in a transaction that is subsequently declared void, are usually unaffected.

Carrying on Business During Insolvency

In what circumstances can a debtor continue to carry on business during rescue or insolvency proceedings? In particular, who has the authority to supervise or carry on the debtor’s business during the process and what restrictions apply?

A debtor can continue to trade during rescue and insolvency proceedings with the court’s approval. 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. See Question 6 and Question 7.

Additional Finance

Can a debtor that is subject to insolvency proceedings obtain additional finance both as a legal and as a practical matter (for example, debtor-in-possession financing or equivalent)? Is special priority given to the repayment of this finance?

Debtor-in-possession financing is available and can be afforded priority for repayment by court order.

Multinational Cases where there are no Applicable EU or International Frameworks

What are the rules that govern a local court’s recognition of concurrent foreign restructuring or insolvency procedures for a local debtor? Are there any international treaties or EU legislation governing this situation? What is the process for applying for local recognition where there are no applicable EU or international frameworks? What are the procedures for foreign creditors to submit claims in a local restructuring or insolvency process?

Recognition

Under the Reciprocal Judgements Act 1958 (Reciprocal Judgements Act), a judgment of a superior court in the UK or other designated common law jurisdiction can be registered as a judgment in the Bermuda court if that judgment is both:

Final and conclusive between the parties.
For a fixed sum of money (not being in respect of taxes, fines, or penalties).

Under Bermuda’s common law, the Bermuda court can, 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.

Foreign liquidators can apply for recognition of foreign rescue or liquidation decisions under Bermuda common law and the principle of comity.

Concurrent Proceedings

The Bermuda courts do not have jurisdiction to wind up an overseas company, subject to certain statutory exceptions (Pricewaterhouse Coopers v Saad Investments Company Limited [2014] UKPC 35). Therefore, it is generally not possible to obtain an ancillary winding-up order from the Bermuda court for a company domiciled outside Bermuda.

If the main insolvency proceedings are in Bermuda, liquidators appointed by the Bermuda court can 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 Pricewaterhouse Coopers [2014] UKPC 36). In this case, the Privy Council decided that the Bermuda court could not order the production of information to a liquidator appointed in the Cayman Islands when the Cayman court could not have made an equivalent order.

Since the judgments in Saad and Singularis, there have been relatively few Bermuda judgments considering the scope of assistance that can be given in support of foreign proceedings.

International Treaties

Bermuda has not adopted the UNCITRAL Model Law on Cross-Border Insolvency and is not currently considering its adoption. Bermuda is not currently a signatory to any international treaties relating to insolvency.

Procedures for Foreign Creditors

Foreign creditors can submit claims in Bermuda proceedings for debts owing to them, although any distribution received in foreign proceedings must be offset against any claim brought in the Bermuda courts.

First published in Practical Law, June 2025