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Taking Charge in Bermuda: Some Tips for Cross Border Security Arrangements

December 2010

Security can be given over intangibles by various means, but the grant of a charge is undoubtedly one of the most popular. For practical reasons, most lenders will not want to take possession of the security providerʹs assets and nor will the security provider want to lose control of them, especially if they are used in the day‐to‐day running of its business. As a result, charges over shares, contractual rights and other intangible assets are commonly taken as part of a bank’s security package. Local law considerations will inevitably arise where a borrower or chargor is incorporated outside England or the assets subject to the security are located overseas.

Charges granted by Bermuda companies, or by foreign companies over assets in Bermuda, will often be governed by Bermuda law and subject to the jurisdiction of the Bermuda courts. This is usually in order to minimise any procedural and/or or conflicts of laws arguments being raised by the chargor in an enforcement situation. However, it is not uncommon for security to be granted under the laws of another jurisdiction and subject to the jurisdiction of overseas courts, even where the assets and/or the grantor is/are located in Bermuda. This arises principally, although not exclusively, in connection with large financings where the main credit and security package is governed by the laws of a leading onshore financial centre. Although such arrangements are generally recognised in the Bermuda courts, it is beyond the scope of this article to cover the potential conflicts of laws or enforcement issues which may arise in each particular set of circumstances. Whatever the choice of governing law, a chargee’s position may still be affected by elements of Bermuda law by virtue of the location of the assets which are the subject of the charge and/or the chargor.

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Taking Charge in Bermuda: Some Tips for Cross Border Security Arrangements



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