The Bermuda Telephone Company Ltd. has lost a key battle to win effective control of Bermuda Cablevision Ltd., a company of which it is the majority shareholder.

And during the judicial process, it has emerged that Bermuda companies may be able to contravene key provisions of the Companies Act that are designed to protect Bermudians from foreign ownership, by accepting the mere penalty of $100 a day.

A decision was handed down on Friday, by Puisne Judge the Hon. Mr. Justice Ground, accepting an application to strike down a petition against the structure of Bermuda Cablevision.

That structure allows 60 percent of Cablevision profits to automatically be paid out as a fee, under a "consulting agreement'', to a US company, Atlantic Communications Ltd.

The petition against Cablevision's unusual share structure was brought by Colica Trust Company Ltd., as a nominee for the Bermuda Telephone Company Ltd.

The writ was filed under section 111 of the Companies Act 1981.

The case being heard was the respondents' applications to have the petition struck out. Appleby, Spurling & Kempe partner Mr. Alan Dunch appeared for Cablevision with Mr. R. Potts QC. Mr. D. Oliver QC and Mr. Narinder Hargun of Conyers, Dill & Pearman represented the other applicants. Mr. M. Burton QC and Mr. P. Hoser appeared for the petitioner.

Mr. Justice Ground may have determined a weakness in the law when he noted that a Bermuda company could carry out its business in contravention of the requirement for Bermudian control, as he put it, for "a modest fine of $100 a day.'' He added "The enforcement of the criminal law remains a matter for the properly constituted authorities by way of prosecution in the criminal courts.

"There may be cases where the inadequacy of the penalty justifies the intervention of the civil courts by way of injunction or other remedy if there is a persistent breach of a criminal provision, but that again is a matter for the authorities, and usually for the Attorney General, rather than for a private person acting in his private capacity.'' The petition had sought a court sanctioned takeover of the voting powers of the company, including the right to appoint directors, suggesting that Colica, or Telco, had some right to control, due to its majority holding of Class `A' shares.

Mr. Justice Ground replied, "That premise is not correct. The petitioner did not bargain for that control when it bought its shares, and it was not part of the contract that the petitioner entered into with the other shareholders and with the company: the petitioner bought the `A' shares with restricted voting rights, as set out in the bye-laws.'' The Puisne Judge summarised that having struck out the entire petition, if he had not done so, he would have considered any attempt to use the courts to force a take over of Cablevision to be an abuse of process.

Mr. Justice Ground insisted that the petitioner knew about the consulting agreement before buying shares in Cablevision. And they couldn't, then, regard the state of affairs as "oppressive or prejudicial'', as had been claimed.

And because of that advance knowledge, they would be "debarred by that knowledge from complaining about it.'' He outlined that one of the petitioner's main objections was to the voting structure established through the two classes of shares. But he said when the company "acquired its shares, it bound itself to abide by the bye-laws and it is incompatible with that undertaking on its part for the petitioner to now seek to escape from those parts of the bargain which it does not like.'' Mr. Justice Ground said," For the above reasons, therefore, I consider that the petitioner had failed to bring itself within the provisions of section 111 of the Companies Act 1981, and that the petition should be struck out in its entirety on that basis.'' That section confers upon the court wide powers to regulate the affairs of a company where it finds that those affairs are being or have been conducted in a manner which is oppressive or prejudicial to the interests of some part of the members, including the petitioner.

At issue is the fact that although Cablevision is a Bermuda company under the 60/40 rule, a share structure is in place that the petitioner said effectively gives control of the company to the foreign owners.

Under the law, only exempted companies, or those given a special licence by the Finance Minister, are not required to comply with a statute that prohibits foreign control of a company.

Colica and Telco have argued that with the current Cablevision share structure, the American family of the McDonald group has control, and therefore has been carrying on business illegally, and action should be taken against the company.

The catch is that Colica holds its Cablevision shares as nominee of Telco. So Telco owns the majority of class `A' shares and more than half of the total shares in Cablevision even though, they've complained, they don't have effective control.

The respondents in the petition were McDonald Group Inc., Atlantic Communications Ltd., Mr. Allan J. McDonald (now deceased) and Mr. William W.

McDonald.

The McDonald group owned all of the 355,000 class `B' shares that were issued.

It is the holders of Class `B' shares only who have the power to appoint and remove one half of the directors. Board meetings have to have an equal number of `A' and `B' directors present.

And the officers required by the bye-laws to take the chair at any board meeting are all appointed by Class `B' share holders and the chairman has a casting vote at the end of a deadlock.