Sources of corporate governance rules and practices
1 Primary sources of law, regulation and practice
What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a 'comply or explain' basis?
Bermuda does not have a formal general corporate governance code of conduct. The primary sources of law, regulation and practice in Bermuda are provided by specific legislation and common law. At the legislative level, all companies in Bermuda are subject to the Companies Act 1981, as amended (the Companies Act). The Companies Act applies to all bodies corporate in Bermuda and sets out the corporate governance rules in general, with special provisions for the governance of mutual funds. The BSX Listing Rules regulate the corporate governance of companies that are listed on the Bermuda Stock Exchange (BSX) and require mandatory compliance. There are several industry-specific codes of conduct (Industry Codes) as well including the Insurance Code of Conduct, the Corporate Governance Policy for Trust (Regulation of Trust Business) Act 2001, Investment Business Act 2003 and Investment Funds Act 2006, and the Corporate Governance Policy for Banks and Deposit Companies Act 1999.
2 Responsible entities
What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder groups or proxy advisory firms whose views are often considered?
The Bermuda Registrar of Companies (ROC) is the main government agency that focuses on the corporate governance of companies in Bermuda, which is similar to Companies House in England. The ROC, similarly to Companies House in England, enforces many of the rules and obligations found in the Companies Act, maintains a register of companies in Bermuda and a register of charges. Additionally, the ROC is the location in which all incorporation applications must be submitted.
Although the ROC enforces the Companies Act, it is the Bermuda Monetary Authority (BMA) that regulates companies that offer financial services and enforces many industry specific corporate governance regulations (see question 1). The BMA's risk-based supervisory and enforcement powers apply to financial institutions and other reguated entities, for example entities regulated for anti money laundering purposes and corporate service providers.
While there are no specific shareholder groups or proxy advisory firms in Bermuda whose views are considered, Bermuda's regulatory bodies work closely with government and industry stakeholders.
The rights and equitable treatment of shareholders
3 Shareholder powers
What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?
Generally, the by-laws of a company deal with the appointment and removal of directors.
The directors of a company are appointed at the first general meeting of a company, subject to the by-laws of the company, and thereafter directors are elected or appointed at each annual general meeting (section 90 of the Companies Act).
The by-laws of a company will normally set out the circumstances in which a director may be removed, although the Companies Act also provides certain protections and procedural requirements for the removal of directors. Shareholders of a company may remove a director by requesting a special general meeting be convened and holding a vote to remove any such director.
4 Shareholder decisions
What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?
The Companies Act provides that shareholders retain control over any change in the name of a company, appointment of directors (subject to any restrictions in the company's by-laws), a change to the memorandum of association or by-laws, and any increase or decrease in the authorised share capital of the company.
The shareholders also retain the right to waive the requirement to have an annual audit or annual general meeting either for a fixed period of time or until such time as the shareholders request one (indefinitely), and approve any amalgamation or merger. Shareholders are also required to approve any loan by the company to any director of the company.
5 Disproportionate voting rights
To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?
Subject to question 4 above, shareholder voting rights may be restricted by way of a shareholders' agreement.
6 Shareholders' meetings and voting
Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?
Generally, only those shareholders who have voting rights attached to their shares are given notice of a general meeting and allowed to attend; however, this is subject to the by-laws of the company or any shareholders' agreement that may exist. Any shareholder may appoint a proxy to vote on their behalf at a general meeting.
No physical presence by a shareholder, or (in the case of a corporate shareholder) their representative, is required at a general meeting to be considered present and participating. Section 75A of the Companies Act provides that unless the by-laws of a company otherwise provide, a meeting of members may be held by means of telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting will constitute presence in person at the meeting.
In the absence of a meeting of the shareholders, the shareholders may resolve to approve actions of the company by way of a unanimous written resolution, which requires approval by all shareholders of the company.
7 Shareholders and the board
Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?
The Companies Act provides that any shareholders may request that the directors of a company convene a special general meeting, provided that the shareholders requesting the special general meeting at the time of the deposit of the request hold not less than one-tenth of the paid-up capital of the company and carry the right to vote at a general meeting of the company (Requisition). Any such Requisition by a shareholder must state the purpose of the meeting, be signed by the requisitionists and deposited at the registered office of the company.
The Companies Act also includes the power for shareholders to requisition a company to give to members of the company notice of any resolution that may properly be moved and is intended to be moved at a general meeting and to circulate to members any statement of not more than 1,000 words with respect to the matter referred to in any proposed resolution or the business to be dealt with at that meeting.
8 Controlling shareholders' duties
Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?
In Bermuda there is no express code of conduct for shareholders. In practice, a company's by-laws, together with the Companies Act and any shareholders' agreement (as applicable), provide restrictions and directions as to the powers and discretion of any shareholder. However, there are generally not any fiduciary duties owed by controlling shareholders beyond voting in good faith.
9 Shareholder responsibility Can shareholders ever be held responsible for the acts or omissions of the company?
A company limited by shares has separate legal personality from that of its shareholders. The liability of a shareholder for the company's liabilities is generally limited to the amount, if any, that remains unpaid on that shareholder's shares.
10 Anti-takeover devices
Are anti-takeover devices permitted?
There is no legislation specifically regulating takeovers. However, the Companies Act 1981 applies to all companies registered in Bermuda and allows for both mergers and amalgamations, and a court sanctioned scheme of arrangement. There are no statutory merger control and takeover tests. The Bermuda Stock Exchange separately regulates all companies listed on it.
11 Issuance of new shares
May the board be permitted to issue new shares without shareholder approval? Do shareholders have pre-emptive rights to acquire newly issued shares?
Directors, subject to a company's by-laws or other governing documents, may issue new shares without shareholder approval. Preemptive rights may be contained in a company's by-laws or a shareholders' agreement; however, it is not a requirement under Bermuda law.
12 Restrictions on the transfer of fully paid shares
Are restrictions on the transfer of fully paid shares permitted and, if so, what restrictions are commonly adopted?
Shares are generally freely transferable, subject to the company's governing documents. Private companies can impose restrictions on the transfer of shares and these restrictions often provide that shares must be offered to existing shareholders before being transferred to any third parties. A private company's by-laws may also provide that the directors can refuse to register the transfer of shares to persons that they do not approve. In addition, by-laws may set out pre-emption rights. Typically, a company's by-laws will provide that no share is to be issued or transferred to any infant, bankrupt or person of unsound mind.
It is not unusual for by-laws to contain a provision that the board of a company may in its absolute discretion and without assigning any reason refuse to register the transfer of a share. It is worth noting that anyone wishing to carry on business in or from within Bermuda through any type of corporate structure is subject to vetting by both the local service provider and the BMA. Transfers of shares by non-Bermudians are also subject to review or control and companies must seek consent to carry on business in certain designated areas (Companies Act 1981).
13 Compulsory repurchase rules
Are compulsory share repurchases allowed? Can they be made mandatory in certain circumstances?
The Companies Act allows for a company limited by shares, or other company having a share capital, to purchase its own shares, if authorised to do so by its memorandum or by-laws. The principle of the preservation of capital of a company requires that certain tests be met if a company is to repurchase its shares, including establishing that the company is and will be solvent after effecting the repurchase. Unless the by-laws of the company otherwise require, or unless the company's constitution does not provide for it, the repurchase of shares by a company does not require shareholder consent.
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Originally published in Law Business Research 2018
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