Bermuda remains a jurisdiction of choice for holding companies, insurers, investment funds and asset-owning vehicles, and lenders regularly take security from Bermuda entities.
This advisory outlines the key legal and practical considerations for secured parties taking security from Bermuda entities, including the steps needed to protect priority and support effective enforcement.
Main types of security
Security is commonly taken by way of legal mortgage, equitable mortgage or charge (fixed or floating), and security assignment, mirroring English law concepts. Typical security packages include:
- share charges over shares in Bermuda companies
- fixed and floating charges over a company's assets and undertaking
- assignments of contractual rights and receivables
- account charges
Security over assets located outside Bermuda is frequently governed by the law of the jurisdiction where the asset is situated, although the secured party will still need to consider Bermuda registration (see below).
Specialist regimes apply to certain asset classes. Mortgages over Bermuda registered ships are governed by the Merchant Shipping Act 2002 and associated regulations, mortgages over aircraft and aircraft engines by the Mortgaging of Aircraft and Aircraft Engines Act 1999 and associated regulations, and charges over Bermuda land by the Land Title Registration Act 2011 and associated rules or, for unregistered land, the Mortgage Registration Act 1786. Assignments of life insurance contracts are subject to the procedures in the Life Insurance Act 1978.
Formalities and corporate authority
Before execution, the secured party should confirm that the Bermuda chargor has the capacity and authority to grant the security, typically through a review of its memorandum of association and bye-laws (or LLC or partnership agreement as applicable), board resolutions approving the transaction and a certificate of compliance or good standing. Where shares are charged, lenders customarily require delivery of share certificates (if any), undated share transfer forms, a proxy and power of attorney, director resignation letters and an undertaking from the company to co-operate on enforcement. Lenders should also consider whether any bye-law amendments are required to remove restrictions on transfer on enforcement or other elements that may frustrate enforcement.
Registration of charges
Following execution, the secured party will want particulars of the security to be filed with the Registrar of Companies. Under section 55 of the Companies Act 1981, the Registrar keeps a register of charges for each company, and any interested person, including the company or the secured party, may apply to register a charge. Registration (which also gives third parties constructive notice) is optional rather than mandatory, but it is strongly advisable: a registered charge has priority based on its date of registration, not its date of creation, and takes priority over any unregistered charge.
There is no statutory deadline for registration, in contrast to England and Wales and certain other common law jurisdictions. Even so, the secured party should file as soon as possible to secure priority and protect itself against competing interests. The filing, made electronically through the Registrar's online portal, comprises the particulars of charge together with a certified copy of the security document, which becomes part of the publicly searchable register. A filing fee is payable. On completion, the chargor should deliver the certificate of registration of charge to the secured party. Unlike in the British Virgin Islands and the Cayman Islands, Bermuda exempted companies are not required to maintain a private register of charges.
A charge over assets outside Bermuda may be registered even if further steps are needed under the law of the situs. Registering an amendment, assignment or transfer of a registered charge does not affect its original priority, and the Registrar may rectify accidental omissions or misstatements of particulars.
Similar registration regimes operate in respect of LLCs or partnerships with separate legal personality. In addition, security granted over Bermuda property by individuals, trusts or partnerships without separate legal personality is registrable with the Bermuda Registry General under the Mortgage Registration Act 1786.
Charges over Bermuda land, Bermuda ships and aircraft are registered under their specialist regimes, not the Companies Act charge register, and priority is determined under those regimes.
Stamp duty
Security documents granted in typical cross-border financings are generally not subject to Bermuda stamp duty, although the Registrar's filing fee applies. Instruments relating to Bermuda land or other local assets should be considered separately under the Stamp Duties Act 1976.
Enforcement considerations
Bermuda law generally gives effect to contractual enforcement rights, meaning secured creditors can often rely on self-help remedies without court involvement. This can make enforcement faster and more predictable than in some jurisdictions, subject always to the terms of the security documents and any insolvency considerations.
The Companies Act 1981 contains provisions dealing with receivers and managers, including notification of appointment and delivery of accounts to the Registrar, and Part V provides for the registration of the enforcement of security. A registered ship mortgagee has a statutory power of sale once the mortgage money is due, although a subsequent mortgagee cannot sell without the concurrence of every prior mortgagee or a court order.
Insolvency must also be considered. The Companies Act 1981 gives the court powers to stay proceedings against a company being wound up, to avoid dispositions after the start of a winding up, and to set aside fraudulent preferences, and it contains specific rules on the effect of floating charges.
Conclusion
Bermuda provides a well-established and predictable framework for taking and enforcing security. In practice, the most important protections for secured parties are prompt registration, careful verification of corporate authority and ensuring that enforcement documentation is in place from the outset. Taken together, these steps help protect priority and support an efficient enforcement process if required.
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