Simplifying corporate structure and regulatory framework
The Group currently maintains a complicated corporate and regulatory structure. In particular, it is subject to consolidated supervision by the UK FCA, which results in the whole Group being dual regulated by both the FCA and our local regulators in the EMEA, Americas and APAC regions. Dual regulation would cease following the redomiciliation, with Group entities being supervised by their respective local regulators only, which would significantly reduce regulatory complexity and associated financial and resource costs. The Group Board would remain responsible for ensuring that the existing Group-wide risk management framework remains robust and effective, as it does today.
Reduce administrative burdens, saving costs and increasing efficiencies
The proposed redomiciliation is expected to facilitate cost savings across our Group. We estimate that we would make savings of more than $5 million annually solely by reducing administrative, accounting, tax and legal complexities that arise from dual regulation. We expect we would recoup the costs of the redomiciliation process within about 12-24 months based on these estimated annual savings alone. In the longer term, there would be further material administrative burdens that we would be able to reduce, legal and compliance costs that we expect to save, and corporate efficiencies that we expect to make, as a result of no longer being an English law governed company subject to Nasdaq and SEC regulations.
Aligning US style corporate law of Bermuda with our Nasdaq listing
The proposed redomiciliation provides an opportunity for us to align our corporate governance with the expectations of our largely US shareholder base. Bermuda law, while based on English common law, has evolved over time to increasingly reflect US legal and regulatory standards, and offers an adaptable and business friendly regime. Examples of where Bermuda law offers greater flexibility to create shareholder value include:
(1) Share buybacks
It would be significantly easier to conduct share buybacks in the future under Bermuda law. We would no longer be required to seek shareholder approval of the terms and counterparty to any buyback contract, giving the Directors greater flexibility to execute buybacks when required to be reactive to market conditions. This is consistent with the position for most US companies with which our shareholder base are familiar. We note that the costs of executing share buybacks will also be lower as we would no longer be required to pay stamp tax on the value of any shares repurchased.
(2) Distributable reserves requirement
Under English law there is a distributable reserves requirement applicable to dividends, distributions and share buybacks. Under Bermuda law, this requirement does not apply and there is generally a more permissive framework for capital management than under English law.
Preserving existing shareholder rights
While our proposal seeks to take advantage of the flexibility provided by Bermuda’s corporate law regime where we see opportunities to create shareholder value, we have sought to balance this flexibility with the need to preserve existing shareholder rights. We acknowledge that an important consideration for shareholders when assessing our proposals will be the ability to hold Directors accountable for their actions.
Our approach to the proposal has been to maintain, where possible, the shareholder protections currently provided under English law in the new Bermuda law governing documents of New Marex.
There are limited instances where we have not been able to maintain the existing protections, for example it is the case that as a matter of Bermuda law, a shareholder’s ability to sue Directors would be more restricted than under English law, which is a negative change from a shareholder perspective. However, as the chances of bringing successful claims against Directors under English law, as a practical matter, are historically very low, our assessment is that this would not be a materially adverse change for shareholders.
Our proposals would allow shareholders to continue to hold our Directors accountable as they do today. Director’s duties would be substantially similar under Bermuda law. Similarly, Directors would continue to be elected on an annual basis by ordinary resolution, and shareholders would still be entitled to remove directors by ordinary resolution with or without cause between AGMs. The important safeguards concerning Directors’ duties and conduct required by NASDAQ rules and SEC regulations will also continue to apply. In addition, we have elected to maintain the same voting thresholds for amendments to the governing documents as we have today to ensure that shareholder protections are preserved.
Overall we believe that, while there would be a limited negative impact on shareholder rights from our proposals due to the differences between English and Bermuda law, this limited impact would be significantly outweighed by the material benefits to shareholders that will come from the simplification of our corporate and regulatory framework, operating under the flexible corporate law regime of Bermuda, and the reduction in administrative burdens, costs savings and increased efficiencies we expect to achieve through the proposed redomiciliation.