About Jeremy Leese
Jeremy’s practice focuses on corporate finance, mergers and acquisitions, corporate reorganisations and restructurings, banking and international real estate finance, structured finance, as well as regulatory and legislative compliance.
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The recent Budget announcement by the Bermuda government included one significant policy proposal which has the power to provide a welcome stimulus to the Bermuda economy over the course of the coming years. The Premier, also Minister of Finance, David Burt, indicated that a relaxation of the business ownership ‘60:40 rule’ was to be implemented to boost investment by non-Bermudians.
For those not familiar with this rule, Bermuda companies fall into two principal categories:
(i) local companies, which are usually incorporated by Bermudians to trade primarily in Bermuda; and
(ii) exempted companies, which are usually incorporated by non-Bermudians for the purpose of conducting business outside of Bermuda.
Currently, local companies are subject to the ‘60:40 rule’, which requires local companies to be ‘controlled’ by Bermudians. ‘Control’ is defined as the percentage of Bermudian directors, and the percentage of its shares beneficially owned by Bermudians, in the company being not less than 60% in each case.
Local companies can be excluded from compliance with the ‘60:40’ rule by obtaining a licence (pursuant to section 114B of the Companies Act) from the Minister of Finance. When considering an application for a Section 114B licence, the Minister takes into account:
(i) the economic situation in Bermuda and the due protection of persons already engaged in business in Bermuda;
(ii) the nature and previous conduct of the company and the persons having an interest in the company whether as directors, shareholders or otherwise;
(iii) any advantage or disadvantage which may result from the company carrying on business in Bermuda; and
(iv) the desirability of retaining in the control of Bermudians the economic resources of Bermuda.
A local company can also be exempted from the ‘60:40 rule’ if its shares are listed on a designated Stock Exchange and the company conducts business in a ‘prescribed industry’ (including telecommunications, energy, insurance, hotel operations, banking or international transportation services), or if the company is a wholly owned subsidiary of such a listed company.
Therefore, whilst the ‘60:40 rule’ has general application, local companies can apply for a licence to be able to do business outside of its ambit.
Where the new policy may go further is that the general rule itself could be varied to instead be applied as a ‘40:60 rule’ in most instances, thereby allowing majority non-Bermudian control of companies which do business in Bermuda. One would imagine, and, as with most government policy the world over, the devil is in the detail, that there may still be certain business sectors which are protected, and specific conditions may be applied to allowing such majority non-Bermudian ownership.
Premier Burt said: “The challenge that we have in Bermuda is that we have a lot of money coming in and, unfortunately, a lot of that money leaves. The easiest way to tackle that problem of getting more money circulating in our economy is figuring out how to keep more of the money that’s earned here inside our economy. That means we have to create more avenues for investment inside the economy, but the truth is that not all of that investment is going to come from people who have Bermuda status. And so there will be revisions to the ‘60:40 rule’ because it is an inhibitor to keeping more money in the Bermuda economy.” In his recent Budget announcement, he went further, stating that: “Bermudian entrepreneurs should not have to rely on their inheritance or banks that often refuse to lend to fund their ambitions. We will increase access to capital for Bermudians by reforming the 60/40 rule to one that only requires 40 percent Bermudian ownership in order to operate in the domestic economy.”
The Premier has conceded that the policy is likely to face some opposition within the country, and that any change must allow for a sufficiently lengthy and inclusive consultation period and move at a slow pace, but it still represents a seismic shift in Bermuda government policy and one which could remove one of the limiting factors to international investment in Bermuda.