BERMUDA Law and Practice Contributed by: Erik Gotfredsen, Jemima Fearnside and Larina Kenny, Wakefield Quin Limited
7.2 Waterfall of Payments In general, secured creditors have priority over all unsecured creditors and may enforce their rights out- side any insolvency or winding-up process. In the winding-up of a Bermuda company, debts secured by fixed charges retain first priority, followed by: • all taxes owing to the Bermuda government and rates owing to a municipality; • all wages or salary (up to a maximum of BMD2,500 in respect of any one claimant) of any employee for services rendered to the company during the four months before the winding-up; • all accrued holiday remuneration payable to any employee on termination of his/her employment before or following the winding-up; • certain amounts due by the company as employer of any persons under the Contributory Pensions Act 1970 or any contract of insurance; • certain amounts due in respect of any liability for compensation under the Workmen’s Compensa- tion Act 1965 (being amounts which have accrued before the winding-up); • secured creditors under floating charges; and • unsecured creditors and secured creditors to the degree that their collateral was insufficient to repay the secured obligations. Upon an insolvency of a Bermuda company, the failure of a secured creditor to perfect its security or register the security as a charge in Bermuda does not entitle the liquidator to set aside the security (for the benefit of the company’s unsecured creditors). It is generally accepted that registration does not constitute perfec- tion and so the method of perfection for a particular asset class is a matter of common law. Where a credi- tor has failed to perfect its security, there is a risk that a subsequent creditor with a security interest in the same asset may be able to achieve priority over that asset by being the first to register its security. Regis- tration affects priority among the secured lenders. If no secured party has registered its security, priority is determined by the time of the creation of the applica- ble security interest.
The Bermuda International Conciliation and Arbitra- tion Act 1993 gave statutory footing in Bermuda to the UNCITRAL Model Law on International Commercial Arbitration 1985, and provides that enforceable arbi- tral awards include: • decisions in preliminary/provisional proceedings; • decisions or awards by arbitral tribunals granting provisional measures (subject to the discretion of the court, provided that the granting of the meas- ure does not lead to fraud, corruption, injustice or a breach of Bermuda public policy); and • declaratory awards. Similarly, Bermuda is party to the New York Conven- tion on the Recognition and Enforcement of Foreign Arbitral Awards, and recognises awards made under agreements in any jurisdiction that is also party to such convention, without any retrial of the merits of the claim. 6.4 A Foreign Lender’s Ability to Enforce Its Rights Save where a foreign lender may seek to enforce security over land in Bermuda (which requires the per- mission of the Minister of Finance) or where a chargee wishes to transfer shares in a Bermuda company in the absence of a permission granted by the Bermuda Monetary Authority, generally there are no other spe- cific restrictions relevant to foreign lenders’ ability to enforce their rights. Save to the extent that a floating charge is created within 12 months of insolvency, secured creditors may enforce their rights regardless of the commencement of insolvency proceedings. In Bermuda, the concept of a moratorium on enforce- ment is limited to specific situations where a company enters provisional liquidation, under the supervision of court-appointed provisional liquidators, to restructure the company for the benefit of creditors generally. 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
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