Insolvency 2023 Comparisons

Last Updated November 23, 2023

Contributed By ASW Law Limited

Law and Practice


ASW Law Limited (ASW) is a leading, specialist, corporate and commercial law firm based in Bermuda. The firm’s practice comprises three main departments: (i) corporate; (ii) dispute resolution; and (iii) restructuring and insolvency. ASW’s restructuring and insolvency department regularly provides Bermuda law advice and court representation to companies, directors, shareholders, investors, creditors, liquidators, regulators, and interested parties, in local and cross-border, contentious and non-contentious, insolvent and solvent, restructuring and insolvency matters.

While 2018 to 2020 saw a fairly steady number of Bermuda companies in liquidation, ranging from 896 in 2018 to 909 in 2020, in 2021 only 487 companies were in liquidation, falling to 396 in 2022 and further to 228 in 2023, as of 2 October 2023. One trend is that the number of creditors’ voluntary liquidations has increased, from zero in 2021 and 2022 to seven in 2023. These are usually rare.

The shipping, energy and real estate sectors in particular have seen an increase in insolvency action since the end of the pandemic.

The use of provisional liquidators appointed in winding-up proceedings with “light touch” powers, for the purposes of restructuring, continues to be popular. However, the Supreme Court of Bermuda (the “Court” or the “Bermuda Court”) has been performing greater scrutiny over these appointments, given a number of cases in which light touch provisional liquidators were appointed when there was no realistic prospect of a restructuring. The Hong Kong Court has been reluctant to provide recognition and assistance to light-touch provisional liquidators appointed in Bermuda for this reason. There have also been cases where the company’s management was allowed to remain in control, but then refused to co-operate with the light touch provisional liquidators. As a result, proposals have been made for a new court-appointed restructuring officer who may be appointed in winding-up proceedings only if there is a reasonable prospect of achieving a proposed restructuring.

The Bermuda Court’s increasingly creditor-friendly approach is reflected in recent judgments such as In the matter of US Holdings Ltd [2023] SC (Bda) 13 Civ in which it confirmed that a petition to commence winding-up proceedings with a view to appointing joint provisional liquidators (JPLs) with full powers in order to restructure a company does not amount to an abuse of process. The Bermuda Court has consistently recognised the importance of the interests of creditors and has granted them discretion in determining how the insolvency process will proceed, especially when supported by the majority of creditors, a position that was confirmed by the decision in HSBC v NewOcean Energy Holdings Limited [2022] CA (Bda) 16 Civ.

The Bermuda winding-up regime under the Companies Act 1981 (the “Companies Act”), Part XIII, applies to companies registered under the Act, companies limited by shares incorporated by private Act, mutual companies incorporated before 1 July 1983; and to non-resident insurance undertakings, and overseas companies operating in Bermuda under a permit (other than the provisions relating to members’ voluntary liquidations).

Part XIII sets out the statutory procedure for the winding-up (also referred to as liquidation) of both solvent and insolvent companies, and incorporates by reference and applies to companies certain provisions relating to the insolvency of individuals from the Bankruptcy Act 1989. There are further provisions in the Employment Act 2000 and the Contributory Pensions Act 1970. Procedural rules relating to company liquidation are in the Companies (Winding-up) Rules 1982, and the Rules of the Supreme Court 1985 apply generally to court proceedings including liquidations.

There are special provisions relating to the insolvency of companies in different sectors and categories – for example, the winding-up regime for limited liability companies is found in the Limited Liability Company Act 2016 (largely mirroring the provisions of the Companies Act); winding-up provisions which are additional to those in the Companies Act relating to (re)insurance companies are found in the Insurance Act 1978, while provisions relating to segregated accounts companies and incorporated segregated accounts companies are found in the Segregated Accounts Companies Act 2000 (the “SAC Act”) and Incorporated Segregated Accounts Companies Act 2019 (the “ISAC Act”), respectively. The Banking (Special Resolution Regime) Act 2016, applies to licensed banks although it remains only partially in force.

Reorganisations are dealt with in Sections 99 to 101 of the Companies Act 1981 Part VII.

The main types of winding-up proceedings in Bermuda are:

  • voluntary liquidation, of which there are two types: members’ voluntary liquidation (MVL) or creditors’ voluntary liquidation (CVL); and
  • compulsory liquidation, which is a winding-up by the Court;

The only form of statutory restructuring is a scheme of arrangement.

Receivers may be appointed by the Court or privately pursuant to rights under security agreements.

Voluntary Liquidations

Voluntary liquidation is an out-of-court process to wind up and dissolve companies under Sections 201-233 of the Companies Act. An MVL is commenced by the passing of a resolution of the members (ie, shareholders) that the company be voluntarily wound up and a named liquidator be appointed. If, in the five weeks preceding the passing of the resolution, the company’s directors, or a majority of them, each swear a statutory declaration confirming that the company is able to pay its debts in full within a period not exceeding 12 months from the commencement of the winding-up, the liquidation will be an MVL. If the declarations of solvency are not sworn, it will be a CVL.

When the liquidator is appointed, the powers of the directors and officers cease except so far as the company in general meeting or the liquidator sanctions the continuance of their powers.

MVLs are usually used for companies that have reached the end of their purpose and are typically commenced once all liabilities have been met and assets distributed. Once the winding-up is completed, the company is deemed to be dissolved on the date of the final general meeting of members. 

In a CVL, on the same day as the shareholders’ resolution is passed, or the day after, a meeting of creditors must be held where a full statement of the company’s affairs is presented with a list of creditors and an estimated amount of their claims. The creditors may also nominate a person to act as liquidator and if they nominate a different person to the shareholders, the creditors’ nomination shall prevail.

Compulsory Liquidations

A compulsory liquidation or winding-up by the Court is commenced by the presentation of a winding-up petition in Court seeking an order that the company be wound up by the Court and JPLs be appointed. There are various grounds on which a company may be wound up by the Court and where the company is insolvent. The most common ground is that it is unable to pay its debts (see 2.4 Commencing Involuntary Proceedings).

In a straightforward compulsory liquidation of an insolvent company, a provisional liquidator (or JPLs) is appointed upon the making of the winding-up order (or earlier at any time after presentation of the petition – for example to take control of the company to prevent dissipation of assets). The powers of the directors and officers cease upon the appointment of a provisional liquidator other than the residual power to cause the company to defend the winding-up proceedings. 

The main tool for implementing voluntary reorganisations for companies incorporated in Bermuda is a scheme of arrangement. A scheme of arrangement is available to both solvent and insolvent companies and gives a company the opportunity to enter into an arrangement or compromise for the purpose of restructuring its debts or equity without the unanimous consent of those who may potentially be affected by the restructuring.

A compulsory liquidation may also be commenced for restructuring purposes. In this case, a provisional liquidator will be appointed upon or soon after presentation of the petition with “light touch” powers of oversight of the board and management while the latter endeavour to propose and implement a restructuring, whether by way of a scheme of arrangement or foreign restructuring process such as a plan of reorganisation under Chapter 11 of the US Bankruptcy Code.

Reorganisations of solvent companies can also be achieved through amalgamations, as well as mergers and consolidations, under the Companies Act.

Companies are not obligated to initiate formal insolvency proceedings within defined timeframes, except in one instance. If a company is undergoing an MVL and the liquidator becomes of the opinion that the company will be unable to pay its debts in full within the timeframe stated in the statutory declarations, they are obliged to convene a creditors’ meeting and present a statement of the company’s assets and liabilities. Failure to comply will result in a fine for the liquidator. In this instance, the MVL will convert to a CVL.

Whilst there are no specific legal obligations for Bermuda companies to commence formal insolvency proceedings within specified timeframes, directors of Bermuda companies have fiduciary duties/obligations to act in the best interests of the company. When a company is solvent, the directors are required to have regard to the interests of the company’s shareholders when determining what is in the best interests of the company. Once the company is insolvent or in the zone of insolvency, in making that determination the directors are required to have regard to the interests of the company’s creditors instead. This switch is triggered when the director(s) knows or ought to know that the company is actually insolvent, the company’s insolvency is imminent, or an insolvent liquidation is probable.

In the Bermuda case of Re First Virginia Ltd (2003) it was held by the Court that once a Bermuda company is insolvent the director(s) of the company may cause the company to present its own winding-up petition, without the need to obtain approval of the shareholders in a general meeting, even if the bye-laws do not give director(s) that power. There is no power for directors to present a petition in Bermuda insolvency legislation.

Bermuda does not have the concept of wrongful trading. However, it does have the concept of fraudulent trading (the carrying on of the business of the company with intent to defraud creditors). Under Section 246 of the Companies Act, the Official Receiver, the liquidator or any creditor or contributory of the company may make an application to the Court for a declaration that any persons who were knowingly parties to fraudulent trading be held personally liable to pay such debts and other liabilities as the Court may determine. Fraudulent trading is also a criminal offence, punishable by imprisonment for up to two years and a fine.

Compulsory liquidations are commenced by the presentation of a petition to the Court. The persons who have standing to present a winding-up petition under the Companies Act are the company itself, creditors (including contingent and prospective creditors), contributories (being shareholders and certain former shareholders) and regulators.

A company may commence its own compulsory liquidation by the shareholders passing a resolution in general meeting that the company be wound up by the Court. If a company is insolvent, the directors of the company can cause it to present its own winding-up petition without the need for shareholder approval. 

The most common ground used by creditors when seeking a winding-up order is that the company is unable to pay its debts.

If a company is solvent, a shareholder may petition for the company to be wound up on the ground that it is just and equitable that the company be wound up – for example if the purpose for which the company was formed has failed.

If a company is insolvent, in order to successfully petition to wind it up, a shareholder will have to prove that they have a tangible interest in the liquidation in order to have standing to present a petition. If there is no prospect of there being a surplus for distribution to shareholders after all debts and the expenses of the liquidation are paid, a shareholder is unlikely to be allowed to proceed with a petition, unless it has partly paid or unpaid shares and has an interest in preventing the company from incurring further debt that could result in a greater call on shares in the liquidation. 

Additionally, under the Companies Act, the Registrar of Companies may present a petition on the ground that it is just and equitable that a company be wound up; and the Official Receiver (the Government official responsible for winding up) may present a petition against a company which is in voluntary liquidation. 

There are provisions in legislation regulating the financial services industry that give the Bermuda Monetary Authority, as regulator standing, to present a winding-up petition against regulated companies – for example, the Insurance Act 1978 and the Investment Funds Act 2006. The grounds for such a petition will be insolvency and/or that the company has breached certain provisions of the applicable legislation or that it is expedient in the public interest that the company be wound up.

There is no requirement that a company be insolvent to commence a voluntary liquidation. On the contrary, the MVL process is for companies that are solvent either based on their financials or because another party, usually the shareholder(s) or indirect holding company has provided an indemnity, undertaking or pledge in favour of the company in respect of its liabilities. Insolvency is not a prerequisite for the commencement of a CVL, but it is likely that the company is insolvent.

It will be necessary to prove that a company is insolvent in order to commence a compulsory liquidation based on the ground that the company is unable to pay its debts.

A company is deemed unable to pay its debts under Section 162 of the Companies Act if:

  • the company fails to discharge a debt or reach a settlement to the reasonable satisfaction of the creditor, within 21 days of being served with a demand for payment (a “statutory demand”);
  • execution of a judgment or order against the company is returned unsatisfied; or
  • the Court is satisfied that the company is unable to pay its debts, taking into account the contingent and prospective liabilities of the company

Therefore, either a cash flow or balance sheet test of insolvency can be used. The statutory demand can be used only if the debt that is the subject of the demand exceeds BMD500, is undisputed, and is currently due and payable. It is a very commonly used tool for establishing insolvency.

See 2.1 Overview of Laws and Statutory Regimes.

There does not appear to be any general preference for consensual, non-judicial, or other informal restructuring processes over formal statutory processes. Consensual restructurings tend to be difficult to achieve unless the number of creditors is small, as unanimity is required. If the body of creditors is too large to be certain that all have been included in the consensus, it is preferable to go through a scheme of arrangement which, if approved, will bind all creditors intended to be bound.

Banks and other lenders will usually work with borrower companies experiencing financial difficulties if they consider there is a realistic prospect of forbearance resulting in them getting paid – or of a restructuring being effected. If there is no prospect of this occurring, a lender may be willing to move promptly to make a statutory demand and commence winding-up proceedings if the demand is not paid.

The scheme of arrangement is the only statutory tool under Bermudian law for restructuring of debt. But it is a very flexible tool and more likely to be used than a consensual out-of court restructuring as it provides certainty for all parties.

There is no requirement under Bermudian law for mandatory consensual restructuring negotiations before the commencement of a formal statutory process.

There is no typical consensual restructuring or workout process and timeline. These will depend upon the parties involved, their goals and what deadlines may be imminent in relation to any debt, such as upcoming maturity dates. It is common for ad hoc committees or groups to be formed for different categories of creditor involved in the negotiations.

New money may be injected by existing investors, lenders or by new investors and lenders. It is common for new money investors/lenders to be given super priority in any restructuring process and this can be done contractually outside of a statutory process.

There are no requirements under Bermudian law imposing duties on creditors to each other. Therefore, individual creditors may act in their own best interests, for example, when voting on whether to approve a scheme of arrangement, and do not have to take into consideration the interests as a whole of any class of creditors to which they belong. However, where a creditors’ committee is appointed to represent all creditors or a class of them, the committee members will owe duties to act in the interests of all the other creditors whom they represent.

As noted in 2.3 Obligation to Commence Formal Insolvency Proceedings, the directors owe duties to the company to act in its best interests, which entails having regard to the interests of creditors when the company is insolvent or in the zone of insolvency. The statutory provisions relating to a company’s oppressive or prejudicial conduct relate to shareholders, not creditors.

An out-of-court financial restructuring or workout cannot be accomplished over the dissent of minority creditors who are in the class of creditors whose debt is being restructured. Unanimity is usually required for an out-of-court restructuring unless there is provision in the contracts for a majority to bind the minority of lenders. In that case, the restructuring can only affect the lenders that are parties to the facility in question. No cram-down mechanisms exist under Bermudian law to bind dissenters to a consensual financial restructuring.

The principal types of security devices that are taken over immovable property are legal and equitable mortgages. Non-Bermudian individuals or entities are prohibited from owning land and property in Bermuda without a government-issued licence, which is only granted in limited circumstances. Therefore, it is unusual for the insolvency or reorganisation of an internationally owned company to involve secured lending and credit issues in respect of immovable property.

The principal types of security that are taken over moveable property are a fixed charge over a particular asset, or a floating charge over the assets, business and undertaking of the entity. Security devices may be registered under the Companies Act in a register of charges which is maintained by the Registrar of Companies. Registration of a charge is not necessary in order for the charge to be valid; the effect of registration is to give the charge priority over unregistered charges or charges created after registration based on the date that the charge is registered. Accordingly, registration is usually recommended.

Secured creditors are entitled to enforce their security notwithstanding the commencement of winding-up proceedings against the company.

Secured creditors cannot prove their debts in a winding-up to the extent that they have security, unless they forfeit their security.

Secured creditors have standing to commence winding-up proceedings and to participate in them even if they are fully secured. They may oppose or support the making of a winding-up order or other orders within the proceedings, such as an order to appoint a provisional liquidator. They can participate in any restructuring that may be proposed in winding-up proceedings. Secured creditors can similarly participate in a CVL.

In a compulsory liquidation, an automatic stay on the commencement or continuation of proceedings against the company without leave of the Court is imposed by Section 167(4) of the Companies Act upon the making of a winding-up order, or earlier appointment of a provisional liquidator. A secured creditor is bound by the automatic stay, but if proceedings were necessary in Bermuda in order for it to enforce its security, leave to do so would be likely to be granted by the Court.

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. Under a scheme of arrangement, secured creditors will be in a different class to unsecured creditors and secured creditors with different rights and priorities may in turn be separated into different classes.

Upon liquidation of a company, the statutory scheme establishes the following order of payment of debts and expenses of the liquidation:

  • secured creditors with fixed charges have priority over all other creditors and over the expenses of the liquidation (provision will be made for any unpaid pension contributions due from the company under the National Pensions Scheme (Occupational Pensions) Act 1998 before any distribution is made to a secured creditor applying for an order for seizure or sale of property of the company);
  • fees and expenses of the liquidation, including the costs of the petition (also ranked in priority);
  • claims under the Employment Act 2000 of Bermuda resident employees to unpaid salary, vacation pay and severance allowance up to a maximum of 26 weeks’ pay;
  • preferential claims including certain overseas employee claims, government taxes, certain pension contributions and worker’s compensation claims;
  • secured creditors with floating charges;
  • unsecured creditors (in the liquidation of a (re)insurer, the unsecured (re)insurance debts of the company must be paid in priority to other unsecured creditors of the company pursuant to section 36A of the Insurance Act);
  • monies due to shareholders in their capacity as shareholders; eg, declared but unpaid dividends; and
  • shareholders if there is a surplus.

Each category of debts must be paid in full before payment of creditors in the subsequent category. Creditors in the same category rank equally among themselves. A company can enter into an agreement with its creditors, and creditors may enter into agreements with each other, under which certain debts are contractually subordinated to other debts.

Assets secured by a mortgage or fixed charge are outside the scope of an insolvency as they are not assets to which the company is beneficially entitled. The secured debts are satisfied from the proceeds of sale of the secured property. However, the liquidator will typically:

  • review the circumstances of the creation of the security to ensure that it is valid; and
  • seek repayment of any sums recovered that are above the amount payable to the creditor under the mortgage or fixed charge.

If the proceeds from the sale of the property do not fully satisfy the debt secured by the mortgage or fixed charge (or if the estimated value would be insufficient to satisfy the debt), the secured creditor may claim in the liquidation as an unsecured creditor.

There is no statutory rule that requires that unsecured trade creditors be kept whole during a restructuring process. Whether or not it occurs will be determined in each individual restructuring. Companies in Bermuda that usually enter into schemes of arrangement are in the international business sector and may not have large volumes of trade creditors. Therefore, generally, trade creditors will not usually be the target of the scheme and will be unaffected.

An unsecured creditor whose debt is undisputed has standing to petition to have a company wound up, if the company is unable to pay its debts. The usual way in which a creditor will prove that a company is unable to pay its debts, if the debt is undisputed and is currently due but unpaid, is by issuing a statutory demand; the company will be deemed unable to pay its debts, by virtue of section 162(a) of the Companies Act if it fails failure to pay the demand or reach a satisfactory settlement within 21 days. 

In a CVL, the creditors’ choice of a liquidator, made at a meeting convened for the purpose of voting on who should be liquidator, will prevail over the choice of the shareholders. The creditors may appoint a committee of inspection (creditors’ committee) with the power to sanction certain actions of the liquidator that require the sanction of the Court or the committee.

In a winding-up by the Court, a creditor:

  • has the right to appear and be heard at the hearing of the petition and may oppose or support the making of a winding-up order;
  • may apply for the appointment of a provisional liquidator prior to the making of a winding-up order;
  • has the right to obtain a copy of the petition from the petitioner;
  • has the right to inspect the court file in the liquidation (subject to any sealing orders) upon establishing to the Court that it is a creditor;
  • has the right to apply to be substituted as petitioner in various circumstances, including if the petitioner consents to withdraw its petition or have it dismissed, or the petition hearing is adjourned; and
  • if unsecured, has the right to vote on who the permanent liquidator(s) should be, at the first statutory meeting of creditors and the right to vote on whether there should be a committee of inspection appointed (creditors’ committee) to act with the liquidator and to be nominated to be, and be appointed as, a member of that committee, if voted on. 

The creditors’ committee (if appointed) has the power to sanction the exercise of the liquidator’s power to bring or defend any legal proceeding, carry on the business of the company, appoint an attorney, pay any class of creditors in full, and compromise with any creditor or debtor of the company.

A creditor or group of creditors can disrupt a compulsory liquidation process by objecting to the making of a winding-up order at the hearing of a winding-up petition. If the Court accepts that the objection may proceed, this will lead to the adjournment of the petition to a later date for a contested hearing. If the creditor is unsuccessful in its opposition, it may have costs awarded against it.

In a restructuring by scheme of arrangement, a dissenting creditor can make objections at the directions hearing relating to the convening of creditors’ meetings to vote on the scheme, at the scheme meetings and at the hearing to sanction the scheme. Also, as the requisite majority creditors (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation) must vote in favour of a scheme in every class of creditor, a dissenting creditor or group of creditors in any class who hold more than 25% in value of the debt in that class can veto the scheme.

A creditor who is pursuing an action against the debtor in Bermuda may be granted pre-judgment relief by way of an interim injunction requiring a party to the proceedings to do, or refrain from, some act. For example, if there is a danger of the debtor dissipating its assets, the creditor may apply to the Court for an order to freeze assets of the debtor (such as its bank accounts) to prevent dissipation.

The priority of claims in a restructuring will be determined by the terms of the restructuring.

The priority of claims in a liquidation is as listed in 5.1 Differing Rights and Priorities.

Overview of Bermuda’s Scheme of Arrangement

The statutory process for reaching and effectuating a formal financial restructuring/reorganisation plan or agreement under Bermudian law is the scheme of arrangement. A scheme of arrangement is a statute-based compromise or arrangement between a company and its creditors, and/or its shareholders, under Sections 99 to 101 of the Companies Act. For the purposes of this chapter, we will only address creditor schemes. A scheme of arrangement can be proposed both within and outside a liquidation proceeding.

Approval Process

If a scheme of arrangement is approved by the requisite majority of creditors and sanctioned by the Court, it will be binding on all creditors who are the subject of the scheme, including creditors who voted against the scheme, or who did not vote at all. Therefore, unanimity is not required for approval of a scheme. The requisite majority required to approve a scheme is a majority in number representing 75% in value of creditors present, in person or by proxy, and voting at the meeting held to vote on whether to approve the scheme. If there is more than one class of creditor, that majority must be achieved in each class meeting. The dissenting minority in each class of creditor is crammed down in this process, but there is no provision for a whole class of creditors to be crammed down. If any class meeting fails to approve the scheme in the requisite majority, the scheme will fail.


There is no limitation on the types of agreements, compromises or reorganisations that can be achieved under a scheme of arrangement. The Companies Act contains no restrictions on how a scheme may be used and therefore the scheme of arrangement is a very flexible tool.

The scheme of arrangement process is a court process and if the scheme is approved by the creditors, it then has to be sanctioned by the Court at a fairness hearing in order to become effective.

Implementation and Binding Nature

No timelines are set by the Companies Act for the scheme process, and the timeline will vary from scheme to scheme and be dependent on the extent to which there is creditor buy-in, and whether or not any creditors oppose the scheme in court, which will delay the process. Much of the time in the process will be incurred prior to the formal commencement in court – in negotiating the scheme terms with key creditors, and then seeking support for the scheme from other creditors. A company will rarely commence the scheme process unless it has already obtained support for the scheme from a sufficient number of creditors for the company to be reasonably confident that the scheme will be approved at the scheme meetings.

The calculation of creditors’ claims will depend on the nature of those claims. For the purpose of voting on the scheme, creditors will be required to state the value of their claims on their ballot forms, and the chairperson of the scheme meetings will have a discretion regarding what value should be allowed. In situations where the value of a claim may not be certain, a creditor may be required to provide supporting evidence regarding the claim – by way of proof of debt or otherwise. In schemes where there are contingent claims, for example, in an insurance company scheme, estimates of claims may be accepted for voting purposes. However, the scheme will provide a mechanism for valuing contingent claims for the purpose of payment of claims – for example, an actuarial methodology for contingent insurance claims. The scheme will usually also include a mechanism for dealing with adjudication of claims that are rejected by the scheme administrators.

If a scheme is sanctioned by the Court and becomes effective, it will be binding on all creditors who were intended to be bound by the scheme, whether they voted for or against the scheme, or did not vote at all. Whether the scheme is binding on creditors with claims such as contingent claims will depend on whether it is intended that they are so bound.

Challenging a Scheme of Arrangement

A scheme of arrangement can be challenged by a dissenting creditor at the convening hearing, at the scheme meeting and at the sanction hearing. The process for doing so will be for the creditor to appear, usually by counsel, at the relevant hearing, who will make submissions in opposition. The dissenting creditor may submit evidence in support of its opposition. The company and other creditors will have standing to be heard on any application in opposition to the scheme. 

The procedure for approval of the scheme by creditors is set out in the timelines above. The procedure for value distribution to creditors will be dependent on the nature of each scheme. The formal scheme procedure is concluded when a copy of the order sanctioning the scheme is delivered to the Registrar of Companies for registration. A process of the arrangement under the scheme may be in place for an extended period after sanction – for example, if the purpose of the scheme is to facilitate the conduct of a liquidation, the scheme will continue until all creditor claims under the scheme have been dealt with and paid, to the extent possible.

The company can continue to operate its business while going through the scheme procedure.

If the scheme of arrangement is taking place outside of a liquidation proceeding, there is no moratorium or automatic stay of claims asserted against the company.

If the company is at risk of proceedings that could disrupt the restructuring process, it can commence its own winding-up proceeding and apply for provisional liquidators to be appointed for the purposes of restructuring with “light touch” powers of oversight of the board and management of the company while they seek to negotiate and implement the restructuring.

There are no rules regarding the company borrowing money during the process, if it is conducted outside of a liquidation; this will be a matter of agreement between the company and its lenders. If it is conducted within a liquidation proceeding after the making of a winding-up order, the liquidator has power to cause the company to borrow money. If light touch provisional liquidators have been appointed for restructuring purposes prior to the making of a winding-up order, the order limiting the provisional liquidators’ powers will state whether or not any such borrowing requires the prior approval of the provisional liquidators.

Classes of Creditor

Based on decisions of the English Court that have been followed in Bermuda:

  • creditors are put into separate classes when their rights prior to proposal of the scheme, or their rights under the scheme, are so dissimilar as to make it impossible for them to consult together with a view to their common interest; and
  • the principle upon which the classes of creditors or members are to be constituted is that they should depend upon the similarity or dissimilarity of their rights against the company and the way in which those rights are affected by the scheme, and not upon the similarity or dissimilarity of their private interests arising from matters extraneous to such rights.

If a creditor has a private interest that may cause it to vote against the interests of the class, this will not prevent it from voting in that class, but the Court may take the fact that that creditor has voted in this manner into account when deciding whether to sanction the scheme.

Creditor Committees

The Companies Act does not provide for the formation of creditor committees in the scheme process. Instead, it is common for groups of creditors with the same rights to form ad hoc groups or committees, usually during the period prior to proposal of the scheme, for the purpose of negotiating the terms of the scheme with the company. These ad hoc groups do not have any powers as such, but are very influential in getting the scheme proposed and implemented if they support it. The scheme may provide for such ad hoc groups to receive some form of payment in cash or in kind, as consideration for the assistance they provide to the company in the restructuring process, and the ad hoc groups’ fees of the attorneys and financial advisers to each group will usually be paid by the company.

If the company is in liquidation and there is a Committee of Inspection (creditors’ committee) it would be usual to obtain the prior approval of the draft scheme from the members of the committee of inspection and their commitment to vote in favour of the scheme.

Information Provided to Creditors

Certain information is required to be provided to creditors who are intended to be bound by the scheme.

Pursuant to a practice direction issued by the Bermuda Court in Circular No 18 of 2007, prior to the convening hearing in a scheme proceeding, the company proposing to implement a scheme of arrangement must notify those creditors affected by the scheme of the following:

  • that a scheme of arrangement is being promoted;
  • the purpose that the scheme is designed to achieve;
  • what meeting(s) of creditors the company believes are required for the purpose of voting on the scheme; and
  • what the company considers to be the appropriate composition of the creditor meeting(s).

This information is provided to creditors by way of a practice direction letter (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation) setting out this information. The key purpose of the practice direction letter is to try to ensure that any issues regarding the composition of creditor classes are addressed at the convening hearing, prior to the scheme being proposed. If the classes are not properly constituted, the Court will not have jurisdiction to sanction the scheme, even if the scheme is approved by the creditors.

Section 100 of the Companies Act requires that the company send to creditors with the notice of the scheme meeting(s) a statement (the “explanatory statement”) explaining the effect of the scheme and in particular any material interests of the directors of the company and the effect of the scheme on those interests if different from the like interests of other persons. This is the only direction regarding the content of the explanatory statement that is prescribed.

Typically, the explanatory statement will describe in detail the company and its business and the company’s financial situation, including the financial difficulties that have led to the need for restructuring under the scheme. Details of any material interests of any party (not just directors) that could impact voting on the scheme will be disclosed, along with information about any ad hoc groups and their involvement in the process.

The terms of the proposed scheme will be part of the explanatory statement and various other documents will be sent to creditors with the notice of the meeting(s) and explanatory statement, including a letter from the board recommending the scheme to creditors, drafts of documents that need to be executed to implement the scheme, a comparator analysis (often a liquidation analysis) comparing the outcomes for creditors with or without a scheme.

The claims of dissenting creditors within a class may be modified without their consent if their class and every other class vote to approve the scheme in the requisite majority, and the scheme is then sanctioned. There is no provision for inter-class cram-down or cram-up under Bermudian law. If any class of creditors votes against the scheme, the Court has no jurisdiction to sanction the scheme and the company will not seek sanction.

There are no rules regarding transfer of claims while scheme proceedings are pending. Therefore, this is not restricted by law. A record date will usually be set in the explanatory statement and only holders of claims as of that date will be entitled to vote. The transferor would have to exercise the vote on behalf of the transferee.

Scheme proceedings of group companies cannot be consolidated into one proceeding, meaning that each company’s scheme proceeding will have a separate cause number. However, the Bermuda Court will allow proceedings of several companies to be dealt with on an effectively consolidated basis, with all applications being heard at the same time in one hearing, with evidence shared across the proceedings.

If the scheme process is being conducted without liquidation proceedings, there are no restrictions imposed on the company’s use of its assets, unless the company agrees to restrictions requested by the key creditors or ad hoc groups involved in negotiating the terms of the scheme.

If the scheme is being conducted within liquidation proceedings where provisional liquidators are appointed with light touch powers, the order appointing the JPLs will set out what oversight powers the JPLs have; for example, the right to be consulted prior to the company’s use of assets outside the normal course of business; or the entry into transactions over a certain amount. The JPLs may be given veto power over certain transactions.

If the scheme is being conducted within a compulsory liquidation, where the JPLs have full powers, the liquidator(s) will have control of the company’s assets and will deal with them in the usual course subject to control of the Court.

If the Bermuda restructuring process is being conducted in parallel to a US Chapter 11 reorganisation, the rules of the US Bankruptcy Code may also come into play in determining whether there are any restrictions on the use of assets.

There are no asset disposition or related procedures that apply during a scheme process.

There is no statutory provision for credit bidding under Bermudian law, but it is possible that this would be allowed by a liquidator on a case-by-case basis (likely with the sanction of the Court or creditors’ committee).

It is very typical for claims compromised by the scheme, both secured and unsecured, to be released pursuant to a scheme, in consideration for whatever benefit is provided under the scheme, which may well comprise new security, new loans or new equity.

There are no statutory procedures relating to priority for new money and what security may be provided for it. The status of new money will be determined by the terms of the scheme.

The scheme process itself would not be used as a process for determining the value of claims and creditors with an economic interest in the company. However, where there is likely to be an issue regarding the value of claims when it comes to distributing the scheme consideration, the scheme can provide a mechanism for the adjudication of claims which may differ from, for example, the statutory process for adjudication in a winding-up, or the dispute resolution process previously agreed between the company and creditors contractually. As noted in 6.1 Statutory Process for a Financial Restructuring/Reorganisation, this would be typical in a (re)insurance company scheme where contingent claims would be common.

Once a scheme has been approved by the creditors in the scheme meetings, it must then be sanctioned by the Court. The sanction of the Court is not a formality. The Court has an unfettered discretion as to whether or not to sanction the scheme, and will apply a fairness test at the sanction hearing in exercising that discretion. The Court is likely to sanction a scheme if satisfied that:

  • the provisions of the statute have been complied with;
  • each class was fairly represented by those who attended the meeting and that the statutory majority is acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom it purports to represent; and
  • the arrangement is such that an intelligent and honest person, who is a member of the class concerned and acting in respect of his/her interest, might reasonably approve.

There is no statutory power for the company or liquidator to reject or disclaim contracts as part of the scheme sanction process, but this could be allowed under the terms of the scheme. Independently of the scheme process, a liquidator in a winding-up by the court has the power, with the leave of the Court, to disclaim assets that are onerous for the company to hold or unprofitable or unsaleable.

Third-party releases can be granted under a scheme and are typically granted to company’s and scheme creditors’ directors and officers, affiliates, advisers, managers, members partners, employees, etc, on a mutual basis.

Rights of set-off, offset or netting may be altered, eliminated or allowed under a scheme. The terms of the scheme will address this specifically if necessary.

If the company or any party to a scheme fails to observe the terms of the scheme, the scheme can be enforced by action in the Bermuda Court.

The rights of equity owners cannot be changed by a scheme to which they are not party, which would usually be the case in a creditors’ scheme. Therefore, they would retain their ownership of their shares. However, their rights can be indirectly affected if the scheme consideration involves the issuing of new shares to creditors, diluting the voting power of existing equity, or the creation of share classes that have preference over existing equity. In the worst-case scenario for shareholders, the assets of the company in which they own their shares may be transferred to a new company in which they are not issued shares, meaning their equity interest becomes worthless.

Proof of Debt and Automatic Stays

In a compulsory liquidation, creditors are required to prove their claims by submitting a proof of debt with supporting documentation to the liquidator. After a winding-up order is made, the provisional liquidator will call for creditors to prove their debts for the purpose of voting at the first statutory meeting of creditors. During this meeting, the creditors vote on who they wish the Court to appoint as permanent liquidator, whether they wish the Court to appoint a creditors’ committee and, if so, who its members should be. These proofs are for voting purposes only and are not binding on the provisional liquidator or creditor. The provisional liquidator will often accept the valuation at face value, unless obviously incorrect.

The liquidator will call for creditors to prove their debts again (or rely on a previously submitted proof of debt), whenever there are assets to distribute to creditors. Where debts are contingent or sound only in damages that have not been determined, the liquidator has power to estimate the value of the claim under Section 234 of the Companies Act. Contingent and prospective claims can be proved in a liquidation, and claims for unliquidated damages arising from breach of contract or trust. Other unliquidated claims, for example arising from tort, are not provable.

In a compulsory liquidation, an automatic stay on the commencement or continuation of proceedings against the company without leave of the Court is imposed by Section 167(4) of the Companies Act upon the making of a winding-up order, or earlier appointment of a provisional liquidator. This stay relates to proceedings in Bermuda and does not have extra-territorial effect. However, if a creditor is subject to the jurisdiction of the Bermuda Court and commences proceedings overseas, the liquidator will be able to seek an injunction to prevent the creditor from continuing the proceedings.

Powers and Duties of the Liquidator

In a compulsory liquidation, once the provisional liquidator is appointed with full powers, the powers of the directors and officers cease, other than the residual power to cause the company to defend the winding-up proceedings. The powers of a liquidator in a compulsory liquidation are set out in Section 175 of the Companies Act. 

Certain powers may only be exercised with the sanction of the Court or the creditors’ committee (if any), namely the powers:

  • to bring or defend any legal proceeding;
  • carry on the business of the company;
  • appoint an attorney;
  • pay any class of creditors in full; and
  • compromise with any creditor or debtor of the company.

Other powers do not require sanction and include:

  • the power to sell the property of the company;
  • the power to execute deeds and raise money on security of the assets of the company;
  • the power to appoint agents; and
  • a catch-all power to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.

Disclaimer of Assets and Rights in Liquidation

In a compulsory liquidation, the liquidator has the power to disclaim assets that are onerous for the company to hold, unprofitable, or unsaleable. The liquidator must apply to the Court for leave to disclaim and may be required to give notice of the application to interested persons. The disclaimer ends the company’s rights and liabilities in the property, but does not affect the rights or liabilities of any other person. Any person injured by the disclaimer may claim any loss in the liquidation as a creditor.

In a liquidation of an insolvent company, mandatory set-off of mutual credits, mutual debts or other mutual dealings applies, displacing any contractual rights of set-off. The time at which the right to set off is determined is the date of commencement of the liquidation; ie, the date of presentation of the petition or passing of the resolution to voluntarily wind up the company in a CVL.

Creditors’ Rights and Information Access

Creditors in a compulsory liquidation are entitled to receive a copy of the winding-up petition from the petitioner, and may apply to inspect the court file in the proceedings on seven days’ notice to the petitioner and liquidator upon submitting a sworn statement to the Registrar of the Supreme Court confirming that they are a creditor. The liquidator is required to send a summary of the statement of affairs prepared by the directors or officers (if any) to creditors and contributories prior to the first statutory meetings. There are no requirements that the liquidators report to creditors on the progress of the liquidation, but this is commonly done.

Final Steps: Dividend Declaration and Company Dissolution

In a compulsory liquidation, when the liquidators have assets that are available for distribution to creditors, they may declare a dividend, after giving no more than two months’ notice of their intention to declare the dividend and calling for proofs of debt from creditors who have not already proved. After adjudicating proofs and making provision for the dividend in respect of any claim that is appealed, and excluding any proofs which have been rejected and not appealed, the liquidators may declare and pay the dividend.

When the affairs of a company have been completely wound up, the liquidator will apply to the Court for their release and discharge and for an order that the company be dissolved. The liquidator must give twenty one days’ notice of their intention to apply for their release to contributories and creditors who have proved their debts and send them a copy of their summary of receipts and payments in the liquidation.

The liquidator takes control of the assets of the company and is responsible for the negotiation and execution of sales of assets of the company during the liquidation. The directors and management cease to have power to do so once a liquidator in a voluntary liquidation, or provisional liquidator in a compulsory liquidation, is appointed – save that if the provisional liquidator is appointed with light touch powers only, the assets may remain in the control of the board and management and they may be able to sell assets, with the provisional liquidators’ oversight and possibly consent if required by the order appointing them. 

There is no statutory provision for credit bidding under Bermudian law, but it is possible that this would be allowed by a liquidator on a case-by-case basis (likely with the sanction of the Court or creditors’ committee).

Under section 166 of the Companies Act any disposition of the property of the company and any transfers of shares or alteration in the status of members made after the commencement of the liquidation is void, unless the Court orders otherwise. Therefore, pre-negotiated sales transactions would not be able to proceed without the leave of the Court.

When a winding-up order has been made by the Court, the provisional liquidator is required to convene first statutory meetings of the creditors and contributories at which they will determine by votes on resolutions proposed at the meetings, whether an application should be made to the Court to appoint permanent liquidators and whether an application should be made to the Court to appoint a committee of inspection, and if so what creditors/contributories shall make up such committee of inspection. Thereafter, an application is made by the provisional liquidator to the Court to make these appointments in accordance with the votes at the meetings.

If appointed, the committee shall meet at such times as it determines and the liquidator and any member of the committee may also call a meeting of the committee when considered necessary. The committee may act by a majority of the members if a majority of the committee is present. A committee must consist of a minimum of two members.

The committee may sanction the following actions of the liquidator instead of the Court:

  • bringing or defending actions;
  • carrying on the business of the company;
  • appointing lawyers;
  • paying any class or classes of creditors in full;
  • making compromises or arrangements with creditors; and
  • compromising any claims against contributories or other debtors

The committee may also fix the remuneration to be paid to the liquidator and approve the fees and expenses of the liquidator.

No members of the committee, or their affiliates, are entitled to make a profit from their appointment.

Committee members are not paid except for the reimbursement of their reasonable expenses, including the reasonable costs of any necessary advisers, if allowed by the Court.

Informal Committees in Provisional Liquidation

Informal creditors’ committees are sometimes formed by a provisional liquidator before a winding-up order is made. The order appointing a provisional liquidator may grant them the power to appoint a creditors’ committee and may specify the role of the committee. There are no statutory rules surrounding informal creditors’ committees, and their organisation, powers, and expenses are agreed on an ad hoc basis, usually in line with the rules for committees of inspection, or may be ordered by the Court.

Under the common law application of “modified universalism” (a legal concept in relation to corporate insolvency that national courts should strive to administer the estates of insolvent companies in the spirit of international comity), the Bermuda court may recognise and assist overseas/foreign insolvency proceedings, and the appointment of insolvency officeholders in those proceedings and will use its powers to grant relief to insolvency officeholders. However, there are some limitations:

  • The UK Privy Council held in Singularis (2009) that when assistance is provided to a foreign insolvency officer, the Bermuda Court is limited to providing assistance under Bermudian law only to the same extent that such relief is available under the law of the country of the foreign insolvency proceeding.
  • The Court has since further restricted the recognition and assistance provided to foreign insolvency proceedings, holding that the Bermuda Court will require evidence that the company is either incorporated in Bermuda or has assets within Bermuda, necessitating the protection of the Bermuda Court.

It is common for the Bermuda Court to recognise foreign insolvency and restructuring proceedings, subject to the restrictions outlined in 8.1 Recognition or Relief in Connection With Overseas Proceedings, with recognition orders and stays of proceedings.

There are no set protocols. However, to facilitate court-to-court communications in cross-border cases, the Bermuda Court has issued two practice directions:

  • Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases; and
  • Guidelines for Communication and Co-operation between Courts in Cross-Border Insolvency Matters.

Further, the Bermuda Court has established a process for recognising and giving effect in Bermuda to plans of reorganisation under chapter 11 of the US Bankruptcy Code relating to Bermuda incorporated companies. When this recognition process was first established in proceedings in 1999 and into the early 2000s, it was usual for there to be a Chapter 11 proceeding and a parallel Bermuda liquidation proceeding for the company in which provisional liquidators were appointed with light touch powers. The key purpose of the Bermuda proceedings was to benefit from the automatic stay imposed on the appointment of the JPLs, which would protect the company from claims in Bermuda whilst the Chapter 11 reorganisation was underway.

The restructuring would be effected by the Chapter 11 plan of reorganisation, which would be implemented in Bermuda by a parallel scheme of arrangement. Over the years the process has changed and the parallel scheme of arrangement is not commonly used anymore. Instead, there is a process in the Bermuda provisional liquidation in which the provisional liquidators make an application for an order recognising the Chapter 11 plan and for orders giving effect to the plan by:

  • permanently staying all claims by creditors or contributories in Bermuda;
  • stating that leave to commence any proceedings against the company will not be granted; and
  • stating that no debts may be proved by creditors whose claims are affected by the plan, and no claims may be brought by any contributories in the Bermuda proceedings.

The application is made on notice to all creditors and included with the solicitation package distributed to creditors in the Chapter 11 proceedings. Creditors who are not subject to the jurisdiction of the US Bankruptcy Court are entitled to appear at the hearing of the application.

Insolvency proceedings in the Bermuda Court will be governed by Bermuda law, and the rules thereunder. Assets located in Bermuda are usually subject to the jurisdiction and laws of Bermuda. Assets of the company located in foreign jurisdictions may be subject to other laws too. Conflicts of law is a complex area and much will turn on the specific facts of a case.

Within insolvency proceedings with international aspects, the Bermuda Court will usually take a co-operative approach, in line with modified universalism.

As discussed in 8.2 Co-ordination in Cross-Border Cases, in respect of foreign insolvency proceedings, the Bermuda Court may not exercise any powers or grant any relief to foreign insolvency office holders that is not available under the law of that foreign jurisdiction. Hence, the Bermuda Court will look to the rules, standards and guidelines of the foreign jurisdiction before granting any relief in these instances.

Within insolvency proceedings, foreign creditors should be treated the same as domestic creditors.

Under Bermuda law, the enforcement of a foreign judgment by a judgment creditor cannot be undertaken on the basis of the foreign judgment solely and directly. Bermuda is not a party to any bilateral or multilateral treaty for reciprocal recognition and enforcement of foreign judgments. However, arbitration awards are enforceable through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Part IV of the Bermuda International Conciliation and Arbitration Act 1993.

A foreign judgment undertakes the character of a debt which is capable of enforcement by one of two regimes available under Bermuda law:

  • by statue pursuant to the Judgments (Reciprocal Enforcement) Act 1958 (the “JRE Act”); or
  • at common law.

The JRE Act, which is derived from the English Foreign Judgments (Reciprocal Enforcement) Act 1933, provides for enforcement by registering a foreign judgment, to which the JRE Act applies, in the Bermuda Court. The JRE Act applies to judgments of the superior courts, as defined by the JRE Act, of certain countries, states or territories (predominantly the courts of the United Kingdom and certain other designated countries).

In order to qualify for registration under the Act the judgment must be:

  • final and conclusive as between the parties;
  • for a sum of money, not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or another penalty (judgments for specific performance or for an injunction will not be enforced, although such judgments may be relied upon as a defence to a claim or as conclusive of an issue in a claim);
  • given by a Superior Court of a relevant jurisdiction (including an Appellate Court on appeal from a Superior Court); and
  • within the time limit (six years after the date of last judgment).

Furthermore, if the judgment is an arbitration award, the award must be enforceable as a judgment of the superior court in the place where it was made.

This statutory-based recognition of the foreign judgment is granted as of right rather than as a matter of discretion, provided the requirements have been complied with. The judgment creditor can, upon registration, seek enforcement via the Supreme Court by way of:

  • garnishee proceedings;
  • the appointment of a receiver;
  • writ of fieri facias;
  • committal (if appropriate); or
  • writ of sequestration.

In cases where the JRE Act does not apply, because the judgment is of the court of a country not designated under the JRE Act, such as jurisdictions like the United States and Canada, the enforcement route is not a direct execution of the foreign judgment, but by a fresh common law action.

The foreign judgment creates a debt capable of enforcement and the judgment creditor will sue on the foreign debt obligation. This procedure does not mean that a full trial on the merits will be necessary, as the Bermuda Court will not usually look behind the decision of the foreign court in determining the judgment obtained. The judgment creditor will seek judgment in default of appearance, or summary judgment if the proceedings are acknowledged.

The summary judgment procedure expedites enforcement upon the foreign judgment asserting that there is no defence to the action in Bermuda on this basis. Upon judgment being granted, the Supreme Court will have the powers of enforcement.

Liquidators, receivers, and trustees in bankruptcy (the statutory officers in insolvency proceedings in Bermuda) are not currently subject to any licensing or qualification criteria. However, they do have to satisfy the Court as to their credentials, and undischarged bankrupts are unable to hold office, and can be liable to imprisonment and/or a fine if they seek to do so.

In compulsory liquidations, appointments are usually accepted by chartered accountants who specialise in insolvency, and at least one liquidator in every matter must be ordinarily resident in Bermuda. The Official Receiver is the liquidator appointed by the Bermuda Court when a private sector liquidator is not appointed. The Official Receiver is a government official with a limited government budget.

In voluntary liquidations, there is also no licencing or qualification criteria for liquidators, nor is there currently a resident requirement, with appointments commonly accepted by chartered accounts and lawyers, and sometimes company officers.

There is no administrator or administration concept under Bermuda law.

A trustee in bankruptcy is appointed by the Bermuda Court when an individual is adjudged bankrupt, or by creditors after a resolution on the same.

A receiver may be appointed over one or more segregated accounts of a segregated accounts company under the SAC Act or of an incorporated segregated accounts company under the ISAC Act. In practice, receivers appointed under these Acts are usually chartered accountants specialising in insolvency, although this is not a prerequisite.

A receiver may be appointed by the Court under Section 19(c) of the Supreme Courts Act 1905 over the property of a company or individual whenever it appears to the Court to be just or convenient to do so. Receivers can also be appointed out of court under the powers contained in a security instrument. 

A receiver may also be appointed under Section 35 of the Conveyancing Act 1983 by mortgagees once they have received a power of sale.

Certain provisions regarding receivers, whether appointed in or out of court, are found in the Companies Act, Part XIV. They deal with issues such as the right of any receiver to apply to the Court for directions and delivery of accounts to the Registrar of Companies.

Liquidators are officers of the Court and owe duties to and are subject to control by the Court. They also owe duties to the creditors. The liquidator has a duty to:

  • preserve, get in and realise the assets of the company;
  • adjudicate claims;
  • after payment of the expenses of the liquidation and preferential debts, distribute the available assets of the company pari passu to the unsecured creditors; and
  • distribute any surplus to the shareholders.

The insolvency statutory officers mentioned in 9.1 Types of Statutory Officers owe fiduciary duties to the respective creditors. Their general duties include preserving, realising and distributing the estate assets for the benefit of the body of creditors as a whole.

The court-appointed officers – liquidators in involuntary liquidations, statutory receivers under SAC and ISAC, and trustees in bankruptcy – may often have the terms of their appointment defined in the court order appointing them, which may be in addition to their usual powers as granted for under the relevant statute: for liquidators – Section 175 of the Act; for SAC receivers – Section 21 of the SAC Act; for ISAC receivers – Section 46 of the ISAC Act.

Receivers and managers under Part XIV of the Act will have the terms and powers of their appointment defined in the relevant security agreement or in the court order appointing them.

All insolvency officers will usually report to creditors periodically, and may have additional reporting requirements, including, to the Registrar of Companies, the Bermuda Monetary Authority (Bermuda’s financial regulator) and the Official Receiver. Court-appointed insolvency officers will report to the court periodically.

In compulsory liquidation proceedings where a private sector liquidator is appointed, the liquidators are usually selected by the petitioner, although the company (if not the petitioner) or other creditors may put forward their own nominees. At the first statutory meetings, the creditors and contributories will vote on whether an application should be made for the continuance of the provisional liquidator already appointed, or whether a different person should be appointed.

In voluntary liquidations, members appoint the liquidator in an MVL, whereas the creditors appoint the liquidator in a CVL.

See 9.1 Types of Statutory Officers in respect of the appointment of the liquidator, trustees and statutory receivers.

See 9.1 Types of Statutory Officers for licensing, qualifications and residency requirements. Anyone with a conflict or a relevant interest in an estate would not be able to act as a liquidator in a compulsory liquidation or as a receiver – eg, auditors creditors, creditor representatives, members, officers, or directors.

It is usual for a lawyer or accountant to act as liquidator in a voluntary liquidation, although any person can act.

A liquidator appointed by the Court may be removed for cause and a vacancy shall be filled by the Court.

The duties of directors and officers are stated in Section 97 of the Act as follows:

“Every officer of a company in exercising his powers and discharging his duties shall act honestly and in good faith with a view to the best interests of the company; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”

For more details, see 2.3 Obligation to Commence Formal Insolvency Proceedings.

Directors can be held personally liable for fraudulent trading and creditors may have the right to bring claims against directors for this under Section 246 of the Companies Act 1981 (see 2.3 Obligation to Commence Formal Insolvency Proceedings).

Directors may be liable personally to creditors or shareholders if the directors have accepted or voluntarily assumed a direct personal liability to a creditor or a shareholder, but this would be unusual. 

Otherwise, directors’ duties are owed to the company and it is the liquidator who would need to cause the company to bring any action against the directors.

There are no provisions in Bermuda’s insolvency regime for disqualification of directors.

Fraudulent Preferences

Under Section 237(1) of the Companies Act 1981 (applying Section 47 of the Bankruptcy Act), any transaction or other act relating to property may be challenged as a fraudulent preference if a company goes into liquidation and the transaction was made or done by or against a company:

  • in favour of any creditor;
  • within the six months before the commencement of the company’s winding-up (ie, the date of presentation of the winding-up petition or passing of the resolution to commence a voluntary liquidation);
  • with the dominant purpose of preferring that creditor at the expense of other creditors; and
  • the company was insolvent at the time of the transaction or rendered insolvent by the transaction.

Floating Charges

A floating charge granted by a company within 12 months before the commencement of its winding-up is void, unless it can be proven that the company was solvent immediately upon the granting of the charge, except to the amount of any cash paid to the company at the time of creating the charge.

Onerous Property

Liquidators can disclaim onerous, unprofitable or unsaleable property belonging to the company with the leave of the Court. Any person injured by the disclaimer may prove in the liquidation for the amount of the injury.

Dispositions at an Undervalue With the Requisite Intent

Under Sections 36A to 36C of the Conveyancing Act 1983 (which replace former fraudulent conveyance provisions), a creditor may apply to set aside a disposition made by a company at an undervalue if it was made with the dominant purpose of putting property that is the subject of the disposition beyond the reach of other creditors.

Fraudulent Trading

See2.3 Obligation to Commence Formal Insolvency Proceedings.

The look-back periods for fraudulent preferences and floating charges are discussed in 11.1 Historical Transactions.

Applications to set aside dispositions at an undervalue with the requisite intent must be brought within six years of the relevant disposition, or the date when the creditors’ claim arose, whichever is later. This means that, in some circumstances, the limitation period can be as long as eight years. The company does not have to be insolvent or in liquidation for the claim to be brought.

Only liquidators can bring an action to set aside fraudulent preferences or floating charges, or to disclaim onerous property.

The Official Receiver, liquidator, or any creditor or contributory can bring an action for fraudulent trading.

Only an eligible creditor can bring an action to avoid a disposition at an undervalue with the requisite intention.

ASW Law Limited

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Law and Practice in Bermuda


ASW Law Limited (ASW) is a leading, specialist, corporate and commercial law firm based in Bermuda. The firm’s practice comprises three main departments: (i) corporate; (ii) dispute resolution; and (iii) restructuring and insolvency. ASW’s restructuring and insolvency department regularly provides Bermuda law advice and court representation to companies, directors, shareholders, investors, creditors, liquidators, regulators, and interested parties, in local and cross-border, contentious and non-contentious, insolvent and solvent, restructuring and insolvency matters.