BERMUDA Law and Practice Contributed by: E. Scott Swainson, Andrew Morgan and Erik Gotfredsen, Wakefield Quin Limited
Priority The priority of legal charges is determined by registra - tion at the LTRO. Court judgments may take priority over mortgages if they are correctly registered in a way that creates constructive notice to the lender before the charge is executed/registered. Such judgments would, however, be discoverable by searches at the LTRO. Dealings that lead to first registration enjoy pri - ority from the time of submission (assuming there are no registered liens). First registrations are back-dated to submission once the registration is finalised. Cautions Owners and claimants may register a caution against first registration (for example, if they claim an equita - ble interest under a resulting trust). 3.7 Subordinating Existing Debt to Newly Created Debt Priority of Charges Debt secured by a registered legal charge will rank in priority to any subsequently registered legal charge. Subordination by Agreement Lenders can agree a different priority as between them but this is rare. If there is ample equity, lenders may agree that their debts will rank pari passu. Most Ber - muda banks will not allow the borrower to grant a second mortgage, as they fear the loss of control this would bring. 3.8 Lenders’ Liability Under Environmental Laws The lender’s position is the same as for a successor; see 2.7 Soil Pollution or Environmental Contamination . 3.9 Effects of a Borrower Becoming Insolvent Moratoriums do not apply to the enforcement of col - lateral security, as secured parties generally operate outside of Bermuda’s bankruptcy regime. Insolvency proceedings may affect the ability of a secured lender to enforce its rights, as underlying transactions may be attacked. For example, any con - veyance or other disposition of property (including the creation of a security interest) made by or against a Bermuda company within six months prior to the com - mencement of its winding-up will be invalid if it was
USD1 million are exempt, with any “new money” trig - gering stamp duty at the usual rates. Registration Fees Any first legal mortgage triggers first registration at the LTRO. Fees are based on the market value of the property and banded, with the highest band being for properties valued over USD1 million and attracting a fee of USD1,300. 3.5 Legal Requirements Before an Entity Can Give Valid Security Generally, a Bermuda company may grant a security interest over real estate in order to secure its obliga - tions as a borrower under a credit facility and as a guarantor of the obligations of other borrowers/guar - antors, provided there is a demonstrable corporate benefit to the company (which may be in the form of a benefit to the company group, if applicable) and the There is no general prohibition or restriction on finan - cial assistance, but loans to directors or security in favour of directors (or loans to persons connected to a director) are restricted. 3.6 Formalities When a Borrower Is in Default The current market has not altered the typical reluc - tance on the part of most established lenders in Ber - muda to exercise their power of sale. Exercising such a power continues to be widely considered a last resort, with lenders attempting to negotiate voluntary surrender where other accommodations fail. Court Order A lender with the right to exercise power of sale may require an order of court (in order to obtain vacant possession and effectively complete a disposal where the borrower is unco-operative). Lender Duties company is solvent. Financial Assistance A lender who exercises a power of sale must secure the best realisable sale price and account to the bor - rower for any surplus. Many corporate insolvencies lead to receivership rather than the exercise of the power of sale, to allow for additional time and flex - ibility.
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