Bermuda ‘Light-touch’ Provisional Liquidator Restructuring

A bold judicial reimagining of the Court’s existing power to appoint a provisional liquidator for asset preservation purposes, Bermuda’s ‘light-touch’ provisional liquidation regime empowers embattled boards to pursue company-driven restructuring with the protection of an interim moratorium on proceedings.

’Light-touch’ Provisional Liquidation for Restructuring Purposes

Bermuda has no direct equivalent to the statutory moratorium against creditor action that applies to an insolvent English company in administration pursuant to Schedule B1 to the Insolvency Act 1986, or to an American corporate reorganisation pursuant to Chapter 11 of the United States Bankruptcy Code. This legislative gap has been enthusiastically filled by the Bermuda Supreme Court’s interpretation of the power to appoint liquidators under section 170 of the Companies Act 1981 (the “Act”) to include the power to appoint provisional liquidators for restructuring purposes. For almost twenty years now, de facto debtor-in-possession, management-led restructuring has been facilitated in Bermuda by reference to this bespoke restructuring regime.

The distinguishing feature of a Bermuda light-touch provisional liquidation is that provisional liquidators are appointed - oftentimes on the company’s own petition - to independently oversee a restructuring process, with a focus on protecting creditor interests. The ultimate restructuring can manifest itself in various ways, although typically we see either an equity injection by a “white knight” investor, a purchase of distressed debt by a third party or a scheme of arrangement whereby the company makes a compromise or arrangement with its members and/or creditors pursuant to section 99 of the Act. Regardless of what form the restructuring ultimately takes, the company has the benefit of a moratorium, or stay, on proceedings being brought against the company during the period in which the provisional liquidators remain in office. This is a particularly valuable protection for imperilled boards of companies in the zone of insolvency, where creditor threats to commence winding up proceedings can distract from the primary task of implementing a financial or operational restructuring to ensure that the company may continue as a going concern.

It is not the role of the light-touch provisional liquidators to determine whether or not a certain restructuring proposal should be pursued. That is of course a question for the creditors and members of the company.

Typically, evidence must be shown to the Court at the appointment stage that demonstrates that certain creditors of certain value are either supportive of the proposal or have indicated that they are willing to wait and see what the company will propose and accordingly do not wish for a winding up order to be made immediately. Subsequent to the appointment of the provisional liquidators, if the necessary creditor support cannot be obtained and a satisfactory restructuring proposal cannot be agreed upon, the provisional liquidators would report this to the Court and, in most cases, a winding up of the company would ensue.


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