Bermuda has bolstered its position as a premier jurisdiction for private equity financing transactions and funds generally, with its informed and decisive implementation of a series of innovative changes to the existing partnership legislation.
One of the key strengths of Bermuda as a premier business jurisdiction is the approachability of the regulators and their willingness to listen to, and respond to, industry needs in an inclusive and commercial manner, whilst protecting the Bermuda brand. In response to these evolving industry requirements, amendments have been made to the Partnership Act 1883, the Exempted Partnerships Act 1992, the Limited Partnership Act 1883 and the Companies Act 1981.
KEY FEATURES OF THE AMENDMENTS
Creation of a Register of Charges
The amendments introduce a register of charges to be maintained by the Registrar of Companies which register can be used in relation to partnerships which have elected to have separate legal personality.
The creation of a register of charges, and therefore statutory priority, provides increased certainty and operational efficiency as this is the same regime that has been in place for companies for some time. Any person who is interested in a charge created on the assets of such a partnership can apply to have that charge registered. Any charge registered on or after the effective date of the new legislation will have priority based on the date that the charge is registered.
Much like with the registered security regime for companies, the Registrar of Companies has the statutory ability to both amend the register of charges and to correct the register of charges in prescribed circumstances.
Traditionally, the ability to take security in Bermuda has been unnecessarily different from companies, and this amendment is certainly a welcome change to practitioners and clients that deal frequently with secured financings.
Foreign Partnerships can now Simply Re-domicile to Bermuda
One of the clearly defined Government mandates is to attract and retain entities in Bermuda. A previous barrier to this was the inability to easily transfer non-corporates to Bermuda whilst retaining their existing corpus. The amended legislation provides for the ability of a foreign partnership to re-domicile in Bermuda. Currently, the foreign jurisdiction must be an 'appointed jurisdiction' of which there are currently 29 jurisdictions, including all US states, the UK, France, Germany, Ireland, the Cayman Islands, Luxembourg, Switzerland, Isle of Man and Jersey.
Under the new legislation, the re-domiciliation into Bermuda will not be deemed to create a new legal entity or affect the continuity of the partnership. The property of the foreign partnership continues to be the property of the Bermuda partnership and inter alia, the Bermuda partnership continues to be liable for the obligations of the foreign partnership.
Limited Partnership can Convert into Exempted Companies
An exempted, limited partnership which has elected to have separate legal personality can convert into an exempted company, further expanding the structuring opportunities available in Bermuda.
Once the partnership has converted into a company, the property of the partnership so converted continues to be the property of the company and inter alia, the company continues to be liable for the obligations of the partnership.
The conversion of a partnership to a company will not create a new legal entity, will not require the partnership to wind up its affairs, will not constitute a dissolution of the partnership or otherwise prejudice or affect the continuity of the former partnership.
It is key to note, from an onshore tax perspective, that the rights, privileges, powers and interests in the property of the partnership that has converted are not deemed, by statute, to have been transferred to the company to which the partnership converted.
Exempted Companies can Convert into Exempted, Limited Partnerships
To match the greater flexibility afforded to partnerships, exempted companies have also been provided with the ability to convert into exempted, limited partnerships.
On the conversion of an exempted company to an exempted, limited partnership, the property of the company continues to be the property of the partnership and, inter alia, the partnership continues to be liable for the obligations of the company.
It is key to note, from an onshore tax perspective, that the rights, privileges, powers and interests in the property of the company that has converted are not deemed, by statute, to have been transferred to the partnership to which the company converted.
It is of consequence to note that the conversion does not constitute a dissolution of the company, by statute, the partnership will be deemed to be the same entity as the converting company and the conversion constitutes a continuation of the existence of the company in the form of a partnership. The conversion of the company does not create a new legal entity or prejudice the continuity of the body corporate which was formerly the company.
The amendments further extend the existing "safeharbour" provisions and clarify what a limited partner can participate in for the partnership without compromising its status as a limited partner.
A limited partner will not be deemed to be taking part in the conduct of the business of the limited partnership if the limited partner serves on the board or committee of the partnership, a general partner, the limited partners, or any person in which the limited partner has an interest. It is interesting to note that subject to any express provision in the partnership agreement, a limited partner that acts in that capacity does not owe a fiduciary duty in exercising rights or authorities under the partnership agreement to any partner, including any other limited partner.
In addition, the statute specifically provides that the general partner has to act, in good faith and, subject to any express provisions in the partnership agreement, in the best interests of the partnership.
This is one of the most interesting changes from a private equity perspective given the increased demand by investors for transparency and the global focus on management oversight.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.