Bermuda Company Law Changes To Help Listings

Tax-News.com, London

13 January 2003

Martin Lane of the London office of Bermudian law firm Conyers Dill & Pearman describes a change being made to the Companies Act 1981 of Bermuda which will facilitate U.S. offerings

Until now there has been no distinction in Bermuda company law between private and public companies as there is in England. In Bermuda, the term "public company" is generally taken to mean a company whose shares are listed on an international stock exchange.

At the last count there were approximately 70 Bermuda companies (excluding mutual funds) listed on the NYSE or NASDAQ in the US and 24 listed in London. Add to this the 500+ companies listed in Hong Kong and over 40 listed in Singapore and it becomes clear that Bermuda has a very credible C.V. as a jurisdiction in which to establish such public companies.

Following on from the last two waves of reinsurance capital arriving in Bermuda and the spate of so-called "inversions" of US companies, many of these companies have sought to access the US capital markets via a US listing and/or IPO.

Bermuda law, with its roots in English law, provides that a company may not offer its shares to the public unless it "publishes in writing a prospectus signed by or on behalf of all of the directors or the provisional directors of the company and files a copy with the Registrar" [of Companies] (S.26 Companies Act 1981).

In many U.S. and international offerings of securities to the public, a preliminary prospectus is often published by a Bermuda Company. This allows the Company's underwriters to pre-market the securities. From a Bermuda law perspective, it is unclear whether such a preliminary prospectus constitutes an "offer" within the meaning of the filing requirement in Section 26 of the Companies Act 1981. A preliminary prospectus does not normally contain pricing details. Without a price or some mechanism for determining the price, delivery of such a preliminary prospectus would not be an offer capable of acceptance by the recipient such as would result in a binding subscription agreement. In most cases, a preliminary prospectus is not therefore considered to be an offer for Bermuda company law purposes.

When pricing of the offer occurs, the supplementary pricing information is delivered to potential purchasers, arguably allowing a contractual offer to be made, subject only to delivery of a final prospectus. It is common for the underwriting agreement to be signed immediately after pricing. In such circumstances, there is then arguably an offer and an acceptance and a filing requirement in Bermuda in order to comply with the Companies Act prospectus provisions. The filing requirements in Bermuda may thus arise before a corresponding requirement in the regulating jurisdiction.

This apparent timing conundrum between typical pricing practice and the requirements of Bermuda law has given rise to an amendment to the Companies Act 1981 that will resolve the problem. Effective 14 February 2003, Section 26 of the Companies Act 1981 will provide that subject to certain exemptions, a company may not offer its shares to the public unless prior to such offer it publishes a prospectus. However, the requirement that the prospectus also be filed in Bermuda prior to the offer will be replaced with a requirement that the filing occur either prior to or as soon as reasonably practicable after publication.

As a result of the change, the Bermuda filing may occur as soon as reasonably practicable after the securities are priced and the final prospectus is available. The round hole has thus been widened to accommodate the square peg.

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