Answer ... (a) Commercial/corporate
We advise buyers to conduct typical commercial and legal due diligence. Legal diligence will include, but is not limited to, reviewing the following:
- the target’s constitutional documents, including byelaws and private incorporating act, as applicable;
- material contracts for change of control and other material provisions involving obligations to third parties (eg, indemnification);
- materials regarding material intellectual property or IT assets (trademarks, patents and commercial agreements);
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employee-related matters, such as:
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- executive officer employment contracts;
- employee handbooks;
- work permit approvals; and
- employee long-term incentive programmes;
- material ongoing or threatened litigation, arbitration and other similar disputes (with commercial parties, government or regulatory bodies);
- if the target is regulated by the Bermuda Monetary Authority (BMA), any regulatory filings, audits and other material correspondence and interactions with the BMA, including evidence of licensing (eg, under the Insurance Act, the Investment Business Act 2003, as amended or the Digital Asset Business Act 2018, as amended) and other materials (including governance documents) required pursuant to such licences; and
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records with respect to compliance with Bermuda’s:
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- economic substance requirements;
- beneficial ownership reporting requirements; and/or
- anti-money laundering and anti-terrorist financing requirements, as applicable.
(b) Financial
There are no Bermuda-specific points regarding financial due diligence.
(c) Litigation
The Supreme Court Causes Book at the Registry of the Supreme Court should be reviewed for any entries and filings shown in respect of the target. Such information will include any pending legal proceedings or judgments in Bermuda.
(d) Tax
Currently, there is no Bermuda income, corporate or profits tax or withholding tax, capital gains tax or capital transfer tax, or estate or inheritance tax. In respect of a Bermuda exempted company, no stamp duty, registration, documentary or any similar tax or duty of any kind is payable in Bermuda in connection with the signature, performance or enforcement by legal proceedings of any Bermuda law-governed document as long as the document does not effect a disposition or constitute an agreement for the disposition of Bermuda property.
A Bermuda exempted company may obtain an assurance from the Ministry of Finance of Bermuda granting an exemption, until 31 March 2035, from the imposition of tax under any applicable Bermuda law computed on profits or income or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, in each case in respect of such company or any of its operations, or the shares, debentures or other obligations of such company. However, such an exemption will not:
- prevent the application of any such tax or duty to such persons as are ordinarily resident in Bermuda and holding such shares, debentures or other obligations of such company; or
- prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967 or otherwise payable in relation to land in Bermuda leased to such company.
(e) Employment
A purchaser should engage employment counsel to review the material terms of the target’s employment arrangements, employee handbooks, work permit approvals and long-term incentive plans. Bermuda’s Employment Act 2000 governs employment in Bermuda.
(f) Intellectual property and IT
A purchaser should engage counsel to review the material documents regarding a target’s intellectual property.
Copyright: Predominately based on the UK Copyright, Designs and Patents Act 1988, the protection of copyright in Bermuda is provided for by the Copyright and Designs Act 2004. Registration is not required, as IP protection for copyrights is automatic in Bermuda. The principal IP right that protects software, for example, is copyright – the right to prevent others from, among other things, copying the software. The Copyright and Designs Act expressly includes computer programs, preparatory design materials for computer programs and databases within the definition of a ‘literary work’. For computer-generated works, the copyright expires at the end of the period of 50 years from the end of the calendar year in which the work was made.
Trademarks: The Trade Marks Act 1974 affords IP protection to trademarks and service marks, which can carry one of two levels of protection: Part A or Part B. Trademarks and service marks can be registered and renewed repeatedly or unregistered. Unregistered trademark rights are enforced through the law of passing off. Trademarks are registered locally at the Registry General for a fee, which generally takes 18 months.
Patents: Currently, patent protection in Bermuda is provided by the Patents and Designs Act 1930, which is largely based on the UK Patents and Designs Act 1919. The Registry General offers three types of patent applications:
- a national patent;
- a provisional (national) patent; or
- registration of a UK-granted patent or a European patent with a UK designation to Bermuda.
A patent granted in the United Kingdom or a European patent that designates the United Kingdom can be registered in Bermuda within three years of its original grant and will remain in force for as long as the original patent is in force. As with patents globally, patents are non-renewable.
(g) Data protection
Bermuda’s Personal Information Protection Act 2016 (PIPA) received royal assent in July 2016 and applies to all organisations in Bermuda that use personal information. With significant ties to both sides of the Atlantic, PIPA was drafted as a bespoke privacy framework, designed to meet Bermuda’s unique requirements. Its provisions are drawn from privacy legislation in multiple jurisdictions, including Canada and the European Union. As at the time of writing, PIPA remains only partially in force.
PIPA is bespoke legislation drafted around a set of EU-style data protection principles with the express intention of securing EU ‘adequacy’ status to enable personal information to move freely between the European Union and Bermuda.
Pending the full implementation of PIPA, it is likely that the Bermuda courts will follow English common law principles regarding breach of confidence and the misuse of confidential or private information.
(h) Cybersecurity
The Bermuda government and regulators (including the BMA) have been establishing cybersecurity requirements and cyber risk management frameworks in accordance with the Bermuda government’s Cybersecurity Strategy 2018–2022. Between 2020 and 2022, the BMA has released Cyber Risk Management Codes of Conduct for various regulated industries, including insurance and digital assets. These codes establish for registrants certain duties, requirements, standards, procedures and principles to be complied with in relation to operational cyber risk management. Additionally, targets that are licensed under the Digital Asset Business Act must have a cybersecurity programme that meets the requirements of the Digital Asset Business (Cybersecurity) Rules 2018.
(i) Real estate
Title to real estate is evidenced by registration at the Bermuda Land Title Registry Office, which is open to public inspection and is the primary source of information on any real estate due diligence in Bermuda.