BERMUDA Law and Practice Contributed by: Erik Gotfredsen, Jemima Fearnside and Larina Kenny, Wakefield Quin Limited
an application for first registration is submitted to the LTRO. The 2011 Act also operates to automatically convert a legal mortgage into a registered charge (meaning that title is returned to the mortgagor by way of a statutory vesting and the mortgagee holds a registered charge). Both legal mortgages and charges attract stamp duty, generally at the rate of 0.5% of the principal sum secured. There are special rules that apply if an overseas or exempted company wishes to hold a mortgage over real property in Bermuda, including obtaining the prior consent of the Minister of Finance and the Minister responsible for Immigration, respectively. If such a mortgage is subsequently enforced, any land obtained by such company, must be sold within five years to either an individual or entity having Bermudian status. Share Charges Security over shares of Bermuda companies is typi- cally granted under a share charge. Legal mortgages are uncommon, although share charges usually pro- vide the chargee with the right to create a legal mort- gage upon the occurrence of certain default events. It is recommended that chargors also deliver certain ancillary documents to chargees to strengthen their secured position, including undated share transfer forms, irrevocable voting proxies and undertakings. Bermuda companies are prohibited from issuing bearer shares. Share certificates do not need to be issued unless required under the company’s by-laws or specifically requested by a shareholder. If issued, share certificates are generally a deliverable under the share charge. Even though Bermuda exchange control regulations generally require the consent of the Bermuda Mon- etary Authority prior to the granting of a security inter- est, the Authority has granted a blanket consent where the chargee is a licensed bank or lending institution. Receivables Security can be granted over receivables by way of assignment or fixed or floating charge. Assignments can be legal or equitable. Legal assignments must be
in writing, executed by the assignor and unconditional and written notice must be provided to the debtor. An equitable assignment will result if any of these require- ments are not completed. Under a legal assignment, the assignee can sue in its own name and the debtor can only discharge its obligations as instructed by the assignee. Cash Deposits Bermuda companies may grant security over cash in their bank accounts, which is typically accomplished by way of a fixed or floating charge. The amount of control that the chargee has over the account will determine whether a charge is fixed or floating. Serving notice on a financial institution will ensure a chargee’s priority in relation to subsequent assignees, provided the chargee has no knowledge of the earlier assignment. Service of notice on a financial institu- tion will perfect the security granted by the chargor, regardless of whether or not the financial institution provides an acknowledgment. Bermuda banks typically require chargees and chargors to enter into a deposit account control agree- ment to manage the administration of the account, including limiting withdrawals, unless permitted by the chargee and the financial institution’s agreement not to exercise set-off rights. 5.2 Floating Charges and/or Similar Security Interests Floating charges and/or hybrid charges (where a float- ing charge crystallises to a fixed charge on the occur- rence of contractually specified events) are common- place in Bermuda. 5.3 Downstream, Upstream and Cross- Stream Guarantees There are few restrictions on financial assistance in Bermuda and, consequently, a Bermuda entity may grant downstream, upstream and/or cross-stream guarantees in lending transactions unless there are specific restrictions in its constituting documents. In determining whether to approve a guarantee, the directors of the Bermuda entity would need to satisfy
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