Does Endurance’s scheme of arrangement endanger Bermuda?

11-06-2014

Endurance’s use of a scheme of arrangement to force Aspen’s hand in its latest bid for the company, would have significant implications for Bermuda should the move succeed.

Schemes of arrangement (SoA) have traditionally been used to force the winding-up of bankrupt companies, but in this instance Endurance is using the legislation in an attempt to trigger a meeting of Aspen shareholders that would decide upon Endurance’s hostile M&A offer.

The move aims to drive a wedge between the board and management at Aspen and its shareholders, limiting Aspen’s ability to fight off the hostile bid.

The tactic is however highly unusual and has only been used once—and unsuccessfully—during Validus’ ultimately successful hostile take-over of IPC Holdings.

At that time the SoA measure was rejected by the Bermuda courts, but Endurance evidently sees an opportunity to pursue a similar route as it looks to dislodge Aspen from an entrenched position.

The implications for Bermuda should the SoA arrangement succeed however, are significant.

If passed, the use of a SoA to force the issue of sale has the potential to weaken the position of any publicly-listed board on Island and undermine the Island’s long-term business proposition.

Should Endurance succeed, it would create considerable uncertainty on Island, while undermining one of the key strengths of the domicile—its business-friendly legal and regulatory framework.

A decision undermining the position of boards and management would likely cast a long shadow in Bermuda.

The issue would be decided upon by the Bermuda Supreme Court, with two avenues for further appeal possible through the Bermuda Court of Appeal and the Privy Council in the UK.  

Sources close to the issue have argued that Endurance’s case is unlikely to be persuasive, but indicated that it could nevertheless undermine Bermuda’s position as a pre-eminent business domicile if the issue gains ground in the courts.

Bermuda Re