Although the Company is not resident in the United Kingdom (and is therefore not subject to United Kingdom corporation tax on its profits), certain provisions of United Kingdom tax law could have adverse consequences for the Company and its shareholders under what is known as the “close company” regime.

In light of the Company’s shareholder base, the Company has always sought to ensure that it is not treated as a close company, and that objective is a feature of its constitution as approved by shareholders in 2008. To-date, the Company has operated within guidelines that mean it is not subject to the close company regime as long as its shares are listed and regularly traded on the London and Bermuda Stock Exchanges and at least 35% of the shares are held by “members of the public” – see more on this under “The close company regime” below.

The Company’s bye-laws contain provisions requiring the Board, if a holding of shares is identified which would cause the Company, or which might cause or be likely to cause the Company, to become a close company, to serve a notice on the relevant shareholder. The shareholder must then either reduce the holding to the requisite level or inform the Company why the holding would not result in the Company becoming a close company. This reflects the fact that there are a number of highly technical provisions that some types of holders (typically a collective investment scheme or investment trust) may be able to satisfy, thereby permitting the relevant holding of shares while remaining a “member of the public” for the purposes of the carve-out from the close company regime under the applicable legislation. In either case, if there has not been a disposal in the time specified in the notice, the Company will then take steps to sell the requisite number of shares, with the net proceeds held by the Company as trustee for the shareholder. If there is a dispute as to the applicability of the close company regulations, the bye-laws prescribe a procedure for arbitration, with the relevant shareholding reduced to the requisite level during the arbitration process – see more on this under “Compulsory transfers” below.

The close company regime

What is a “close company”?

A close company is a company which, as per section 439 of the Corporation Tax Act 2010 of the United Kingdom: (i) is under the control of five or fewer “participators” (the statutory definition of which includes shareholders) or any number of participators if those participators are directors or (ii) more than half the assets of which would be distributed to five or fewer participators, or to participators who are directors, in the event of the winding up of the company.

How does the Company avoid being a close company?

There is a carve-out from the close company regime for certain listed companies. This requires the Company to fulfil the following requirements:

  • Principal members must not possess more than 85% of the voting power in the Company. The statutory definition of “principal members” includes certain shareholders who either possess more than 5% of the voting rights in the Company, or who, together with their associates, meet or exceed that 5% threshold. If there are more than five such principal members, then only the five with the greatest proportions of the voting rights will be treated as principal members.
  • Shares carrying at least 35% of voting rights in the Company must be beneficially held by members of the public (i.e. shareholders who are not principal members) and have, within the preceding twelve months, been listed on and been the subject of dealings on the London Stock Exchange.

What are the consequences of the UK “close company” regime?

There are various adverse implications for companies and their shareholders which are close companies, including:

  • Under the UK “transactions in securities” rules, HMRC can counteract a transaction in shares or securities involving a close company that has resulted in a tax advantage. For example, HMRC may charge an amount to income tax that would otherwise be a capital receipt.
  • When a company is a close company, the meaning of “distributions” is extended to certain benefits in kind provided to shareholders or their families. Such benefits in kind will be non-deductible “distributions” for corporation tax purposes to the extent that they are not repaid or otherwise made good to the company. Recipients of such distributions may be liable to income tax at higher rates.
  • Capital gains realised by non-UK resident close companies can be apportioned to UK-resident shareholders who, together with their associates, control more than 25% of the shares. Each such shareholder may then be liable to pay UK capital gains tax on their economic share of the gain.

Compulsory transfers

In order to ensure that the Company continues to satisfy the requirements of the carve-out to the close company regime described above, shareholders approved the adoption of the following bye-laws at a Special General Meeting on the 4th of December 2008.

117 – Delivery of Transfer Notice

Subject always to any applicable requirements of the United Kingdom Listing Authority listing rules, the regulations of the Bermuda Stock Exchange and any applicable requirements imposed by the United Kingdom's Financial Services Authority, if it shall come to the notice of the Board that, as a result of any change in the ownership of any interest in a share or shares of the Company occurring after the date of adoption of this Bye-law, any share or shares are or may be owned or held directly or indirectly or beneficially by any person in circumstances which cause the Company, or which might cause or be likely to cause the Company, to become, if it was resident in the United Kingdom for the purposes of United Kingdom taxation, a close company as defined in sections 414 and 415 of the Income and Corporation Taxes Act 1988 of the United Kingdom (a “close company”), the Board shall serve a notice (a “Transfer Notice”) upon the person (or any one of such persons where shares are registered in joint names) appearing in the Register of Members as the holder (the “Vendor”) of the share, shares or any of the shares concerned (the “Relevant Shares”) requiring the Vendor within 14 days (or such extended time as in all the circumstances the Board shall consider reasonable) to transfer (and/or procure the disposal of all interests the Vendor may hold in) all, or such lesser number as the Board shall determine, of the Relevant Shares to another person whose holding of such shares, in the sole and conclusive determination of the Board, would cause the Company, if it was resident in the United Kingdom for the purposes of United Kingdom taxation, not to be a close company. On and after the date of such Transfer Notice, and until registration of a transfer of (or transfer of all relevant interests in) all Relevant Shares to which it relates pursuant to the provisions of these Bye-laws 117 through 122, the rights and privileges attaching to the Relevant Shares including, without limitation, any right to attend and to vote at any general meeting of the Company or any class of its Members shall, to the extent that the Transfer Notice so provides, be suspended and not capable of exercise.

118 – Withdrawal or Re-Issue of Transfer Notice

Within 14 days after the giving of a Transfer Notice (or such extended time as in all the circumstances the Board shall consider reasonable) the relevant Vendor may notify the Board of reasons why the Relevant Shares or interests therein do neither cause the Company, nor might cause nor are likely to cause the Company, to be or to become, if it was resident in the United Kingdom for the purposes of United Kingdom taxation, a close company. If the Board agrees with the reasons so notified by the Vendor pursuant to this Bye-law, the Board shall withdraw the Transfer Notice. If the Board disagrees with the reasons so notified by the Vendor pursuant to this Bye-law, the Board shall reissue the Transfer Notice (a “Reissued Transfer Notice”) and the provisions of Bye-law 119(a) shall apply.

119 – Determination by Arbitration

Within 7 days after the giving of a Reissued Transfer Notice, the relevant Vendor may request that an independent arbitrator be requested to determine whether or not the Relevant Shares do cause the Company, or might cause or be likely to cause the Company, to become, if it was resident in the United Kingdom for the purposes of United Kingdom taxation, a close company (a “Determination”). Should a member request a Determination in accordance with the provisions of Bye-law 119(a) above, then the Board shall arrange for the Relevant Shares either:

  1. to be bought into Treasury in accordance with the provisions of Bye-law 89; or
  2. to be transferred into the ownership of a third party with no other interest in Shares, the choice between (i) and (ii) being at the discretion of the Board.

A Determination shall be exclusively and finally resolved under the Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”), as amended from time to time and the following shall apply:

The tribunal shall consist of a sole arbitration to be appointed in accordance with the ICC Rules. The place of arbitration shall be Bermuda. The language of the arbitration shall be English.

This Bye-law constitutes a contract between the Company and each relevant Vendor. This Bye-law also contains or evidences an express submission to arbitration by each relevant Vendor and the Company and such submissions shall be treated as a written arbitration agreement under Article II of the United Nations Convention of the Recognition and Enforcement of Foreign Arbitral Awards (1958).

Each person to whom this Bye-law applies hereby waives, to the fullest extent permitted by law: (a) any right under the laws of any jurisdiction to apply to any court of law or other judicial authority to determine any preliminary point of law, and/or (b) any right he may otherwise have under the laws of any jurisdiction to appeal or otherwise challenge the award, ruling of decision of the tribunal.

If a Determination is resolved to the effect that the Vendor's continued interest in the Relevant Shares would not have caused, nor might have caused, nor was likely to have caused the Company, if it was resident in the United Kingdom, to be a close company then the Company shall within 30 days of the Determination becoming final, where 119(b)(i) applies, issue the relevant number of shares to the Vendor, or where 119(b)(ii) applies, procure the transfer of the relevant number of Shares from the Third Party to the Vendor to the Company's expense. To the effect that the Vendor's continued interest in the Relevant Shares could have caused, or might have caused or was likely to have caused the Company, if it was resident in the United Kingdom, to be a close company then the Company shall within 30 days of the Determination becoming final, where 119(b)(i) applies, sell the number of shares equal to the Shares bought into Treasury, or where 119(b)(ii) applies, procure that the third party sells the Relevant Shares and in either case the net proceeds of sale shall be treated as if the proceeds of a sale of shares by the Company pursuant to Bye-law 120.

120 – Sale of Relevant Shares

If within 14 days after the giving of:

  1. a Transfer Notice in respect of which no notification to the Board is made pursuant to Bye-Law 118; or
  2. a Reissued Transfer Notice in respect of which no request to the Board is made for a Determination pursuant to Bye-law 119(a),

whichever is the later (or such extended time as in all the circumstances the Board shall consider reasonable) the Transfer Notice or Reissued Transfer Notice or a Determination that the Relevant Shares do cause the Company, or might cause or be likely to cause the Company, to become, if it were resident in the United Kingdom for the purposes of United Kingdom taxation, a close company, as the case may be, has not been complied with to the satisfaction of the Board, the Board shall arrange for the Company to sell the Relevant Shares at such price as is reasonably obtainable by selling such shares in the market, less an amount equal to any duties or charges which are incurred by the Company as a result of such sale. For this purpose, the Board may authorise some person to execute an instrument of transfer of, or otherwise effect a transfer of, the Relevant Shares to the purchaser or purchasers. The net proceeds of the sale of the Relevant Shares shall be received by the Company whose receipt shall be a good discharge for the purchase money and shall be deposited by the Company in a bank account to be paid over by the Company to the former holder or holders (together with interest at such rate as the Board considers appropriate) upon surrender by such holder or holders of the certificate or certificates for any Relevant Shares which are in certificated form, which the Vendor shall forthwith be obliged to deliver to the Company. The Company may register the transferee or transferees as holder or holders of the Relevant Shares whereupon the transferee or transferees shall become absolutely entitled thereto and the Board shall issue to the transferee or transferees a certificate or certificates for any of the shares which are in certificated form. Upon deposit of the purchase money, the Vendor shall have no further interest in the Relevant Shares or any claim against the Company in respect thereof except the right to receive the purchase money so deposited upon surrender of the said certificates.

121 – Additional Requirements

In order to give effect to the foregoing restrictions and provisions, the Company may require any Member at any time to furnish such information and declarations as the Board may require. Any Member who fails to provide such information or declaration within a reasonable time (not being less than 21 days after service of the request for the same) shall be deemed to be holding shares to which the compulsory transfer provisions of Bye-laws 117 through 122 apply.

If a Member becomes aware (otherwise than as a result of receiving a Transfer Notice) that such Member is holding shares in circumstances that would entitle the Board to give a Transfer Notice in respect thereof he shall forthwith inform the Board and take such steps as necessary so as to ensure that such shares cease to be held in such circumstances.

122 – Principle by which Bye-laws 117 through 120 applied

If the Board decides to apply the provisions of Bye-laws 117 through 120, the provisions shall, as detailed in Bye-law 117, apply only to shares registered in the names of the current holder or holders in the Register of Members on or after the date of adoption of these Bye-laws 117 to 120 and on a “last in, first out” basis to the minimum extent necessary to ensure that the Company, if it were resident in the United Kingdom for the purposes of United Kingdom taxation, would cease to be a close company.