Bermuda Updates 'Segregated Company' Law

Bermuda Royal Gazette

14 August 2000

Segregated accounts legislation sails through

This story is reproduced by kind permission of the Royal Gazette at http://www.accessbda.bm

Government has moved to allow international companies to set up separate corporate entities and offer better protection to investors.

Parliamentarians on Friday debated the Segregated Accounts Companies Act with Opposition members generally approving of the Act.

Finance Minister Eugene Cox introduced the bill saying it was an update to laws providing for the formation of separate private companies by large companies.

Mr. Cox said Bermuda was the first jurisdiction to establish segregated accounts, but with limited knowledge at the time.

Experience had led Government to introduce legislation to allow for their formation through private bills in Parliament.

Over the last ten years of company formation, more than 100 companies of this type have been created.

Investment in a segregated account company allows a creditor or shareholder's investment to be insulated from creditors of the larger overall company.

The Act provides for record keeping, the distribution of shares and dividends, winding up of a company and appointment of an official receiver.

It also includes law similar to US laws on the legal relationship between a company and the owner of a segregated account, thereby making Bermuda attractive to US companies.

Mr. Cox called segregated accounting a "novel and innovative approach to carrying out business" and said the Island would retain its place as a world leader in international business with it.

He said there had been some concern that competitors had already introduced similar law which effectively "walls off" separate entities.

Segregated companies will have the designation SAC attached to their company name, alerting creditors to the arrangement.

Mr. Cox assured Parliament the Island's reputation as a "first class business centre" that fought against money laundering would not suffer because of the "vetting" process all non-Bermudian owners of Bermudian companies had to go through.

The vetting process would still be in place and would not undermine regulatory safeguards against criminal activity.

Mr. Cox said companies that had already set up segregated accounts via private Acts would be "encouraged in time" to register under the Act.

Shadow Finance Minister Grant Gibbons said the bill was "not a new concept", tracing it back to discussions his Government had in the mid-1990s on "protected cell legislation".

But he said it was a "useful and, at this point, positive step forward in a broad sense" for the business community.

"Certainly from our side we support the Segregated Accounts Act but that is not to say we do not have questions," Dr. Gibbons added.

He explained concerns that the creation of companies within companies would see the loss of potential revenue for Government.

Mr. Cox conceded the issue's "importance" but deflected the criticism, saying: "I think it is important for us to grow international business and get revenue that way."

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