10 June 2019

Privy Council clarifies Bermuda's "60/40 Rule"

In a judgment likely to have wide-ranging implications for local companies subject to the “60/40 Rule”, the Privy Council has held that local companies may confer upon non-Bermudians “de facto control by commercial arrangements”, provided that non-Bermudians do not have control over the manner in which directors and shareholders vote.

Breaking with the prior decision of the Court of Appeal, the Privy Council held that commercial arrangements which would give non-Bermudians influence over the decisions of shareholders and directors are not prohibited by the “60/40 Rule”, provided the directors remain free to vote in the interests of the company and shareholders remain free to vote in their own interests. 

Accordingly, it is now clear that the prohibition of non-Bermudian controlling influence in the “60/40 Rule” only operates to prevent commercial agreements or arrangements which confer voting control or constrain the effectiveness of majority votes in the board of directors or in general meetings.

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