Bermuda: A Primer on Secured Lending

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Secured lending is a common practice used by lenders to secure their interests against potential default by borrowers in Bermuda. This article will explore the various types of security interests that can be granted, including share charges, mortgages, and floating charges.

A share charge is a common type of security interest granted by Bermudian companies. Under a share charge, the borrower grants a charge over its shares to secure repayment of a loan or other obligations. Legal mortgages are relatively uncommon in Bermuda, but share charges typically provide the lender with the right to create a legal mortgage upon the occurrence of certain default events.

Ancillary Documents

To strengthen their secured position, chargors are recommended to deliver certain ancillary documents to chargees, including:

Undated share transfer forms
Irrevocable proxies
Undertakings

Bearer Shares

Bermuda companies are prohibited from issuing bearer shares. Share certificates do not need to be issued unless required under the company’s bye-laws or specifically requested by a shareholder. If issued, share certificates are generally deliverable under the share charge.

Exchange Control Regulations

Even though Bermuda exchange control regulations generally require the consent of the Bermuda Monetary Authority prior to the granting of a security interest, the Authority has granted exemptions for certain types of securities.

Mortgages and Charges

Mortgages and charges over Bermudian land and ships, aircraft, and aircraft engines registered in Bermuda must be filed with separate registers in Bermuda. In the event of competing security interests between lenders or members of a lender group, these are generally determined by:

Contractual arrangements such as intercreditor agreements or subordination agreements

Priming Liens

Few security interests arise by operation of law that can prime a lender’s security interest that has been properly registered in Bermuda. However, recent transactions involving Bermudian entities have seen an increase in debtor-in-possession loans with existing secured lenders being primed by exit lenders.

Enforcement

Secured lenders are not involved in competition with unsecured lenders, except to the degree that any balance remains due after realizing on their collateral. Secured lenders may enforce collateral in accordance with the contractual agreement creating the security interest, without the requirement to seek court intervention or other enforcement steps.

Foreign Law and Jurisdiction

Contractual agreements on governing law and jurisdiction are commonplace, with many financing arrangements concluded under US or English law. In general, arrangements as to foreign governing law and jurisdiction are enforceable in Bermuda, save in limited circumstances such as where the application of foreign law would be contrary to public policy in Bermuda or where there is litigation pending on the same matter in another jurisdiction.

Foreign Court Judgments

A final and conclusive judgment in the superior courts of England (as well as certain other jurisdictions) against a Bermudian company, based on a contract under which a sum of money is payable, would be recognized and enforceable in Bermuda.