Provisional Liquidation In Bermuda And The Selection Of Provisional Liquidators

Published date06 December 2021
Subject MatterCorporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
Law FirmAppleby
AuthorMr John Wasty and Sam Riihiluoma

First published in Corporate Live Wire, Bankruptcy & Restructuring - Expert Guide, November 2021

In the absence of a formal equivalent to English administration proceedings or U.S. Chapter 11 proceedings, Bermuda has developed its own unique restructuring regime through the use of provisional liquidation.

For more than 20 years, it has been recognised that the winding up provisions of Bermuda's Companies Act 1981 and Companies (Winding-Up) Rules 1982 empower the Supreme Court of Bermuda to appoint provisional liquidators with powers limited to implementing a restructuring rather than displacing management altogether pending a winding-up of the company. Historically, provisional liquidation was used for a different purpose, namely, to displace management where there was a justifiable fear of a company's assets being dissipated pending the making of a winding up order.

An application to appoint provisional liquidators is made at, or after, the filing of a winding up petition at the Supreme Court of Bermuda. In practice, applications are often commenced by the company itself, with the support of its main creditors. The applicant needs to show a reasonable basis for believing that the company's debts can be restructured. It is therefore important to have a developed restructuring plan in place when the application comes on for hearing, as well as adequate 'buy in' from relevant creditors and stakeholders. It must also be shown that there is a good prima facie case for winding-up the company, albeit the case law shows that a clear case of insolvency is not required. It is enough that the company being restructured is in the 'zone of insolvency.'

If the court appoints provisional liquidators to carry out a restructuring, it will adjourn the winding-up petition periodically until the restructuring has been completed, at which time the winding-up proceedings can be discontinued or withdrawn. If the court appoints provisional liquidators, it imposes a mandatory stay of proceedings against the company, which gives the company time to restructure without the threat of hostile proceedings being pursued against it, including petitions by creditors to wind up the company and place it into a full-blown liquidation.

The provisional liquidators may be appointed with full powers, in which case they displace the board of directors which becomes defunct. Alternatively, they may be appointed with limited powers, in which case the board of directors remains in place, subject...

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