Schrum, Vanessa Lovell: Summary of the Bermuda Companies Amendment Act

Summary of the Bermuda Companies Amendment Act provided by Vanessa Lovell Schrum, on behalf of Appleby Hunter Bailhache
January 4, 2007A comprehensive review of the Bermuda Companies Act 1981 (the ?Companies Act?) was undertaken last year by the Legislative Change Committee of the Bermuda International Business Association, in collaboration with the Ministry of Finance, with a view to modernising the Companies Act to take account of the various company law reform initiatives that have taken place in the UK and elsewhere. Following this review, a Bill entitled the ?Companies Amendment Act 2006? (the ?Amendment Act?) was passed in Legislature and subsequently enacted on 29 December 2006 (the ?Operative Date?).All amendments came into immediate effect on the Operative Date with the exception of the amendments relating to the delivery of electronic records to the Registrar of Companies (see below).The Amendment Act contains a number of significant amendments. These include: Electronic Delivery of DocumentsIn the past, a company could deliver documents (for example, notices, reports, instruments, and registers) in hard copy via post, mail or facsimile. The Amendment Act makes it possible for a company to deliver via electronic mode (including e-mail and website postings) an ?electronic record? of such documents and may include an electronic code or device to decrypt or interpret the electronic record. This means, for example, that a Bermuda publicly listed company may, subject to the provisions of its bye-laws, communicate with its shareholders by posting information (proxy material and notices of shareholders meetings) on a website. The Amendment Act also specifically empowers the Registrar of Companies to accept filings electronically. The Registrar of Companies will develop specific ?e-delivery? guidelines in due course. Permitting the Use of Secondary Names The Amendment Act permits companies to apply to the Registrar of Companies for registration of a secondary name, defined as a name of a company in a script other than roman script and in addition to the primary name of the company. Thus, it is now permissible for companies to register a secondary name with non roman or non alphabetic characters. Authorised Share CapitalPrior to the enactment of the Amendment Act, a company (other than a mutual fund) was required to maintain a minimum level of authorized and issued share capital ($12,000). This amount was an arbitrary amount which did not have any bearing on the business activity undertaken by companies. The Amendment Act abolishes this requirement. A company may be incorporated with any amount of authorised share capital. These new provisions do not apply to insurance companies which are registered under the Insurance Act 1978 (as amended) and other companies carrying on business requiring a licence, for which a minimum level of share capital is prescribed under the relevant licensing laws or regulations.Unrestricted Objects and PowersPrior to the coming into force of the Amendment Act, a company was required to set out in its Memorandum of Association its objects and powers. Typically, companies established a broad range of bespoke objects and powers, in addition to the statutory objects and powers set out in Second Schedule and First Schedule of the Companies Act, respectively. The rationale for including such a broad range of objects and powers was to ensure that a company had the requisite corporate capacity and power to enter into as wide a range of business as possible. The Amendment Act now permits a company to have unrestricted objects and the capacity and powers of a natural person. For those companies which adopt such objects and powers and thereby enjoy unfettered capacity and power, the ultra vires rule would become redundant. The First and Second Schedules of the Companies Act have been repealed, accordingly. It should be noted that these amendments will not affect the objects and powers of any company in existence prior to the operative date of the Amendment Act.Indemnification of Directors and Officers The Amendment Act clarifies the position regarding a company?s ability to fund the costs of proceedings against directors and officers in circumstances where there have been allegations of fraud or dishonesty. Specifically, a company is permitted to advance monies to an officer or auditor of a company for the cost of defending any civil or criminal action involving allegations of fraud or dishonesty against that officer or auditor, on condition that such officer must repay the advance if the allegations are proved.