Insolvency 2020

Last Updated November 19, 2020

Bahamas

Law and Practice

Author



Higgs & Johnson has an insolvency and corporate restructuring practice that has a distinguished track record of acting in large and complex cross-border insolvencies. The firm has a diverse client base which comprises secured and unsecured creditors, including international financial institutions, insolvency practitioners, corporate debtors encompassing shipping conglomerates and publicly listed companies in onshore jurisdictions, directors, shareholders and regulators. Higgs & Johnson has acted in some of the most significant insolvencies before the courts of The Bahamas, including the Privy Council, and has earned a reputation for delivering result-oriented solutions to clients. The group is led by seasoned practitioners equipped with the necessary expertise to navigate the intricate aspects of a distressed scenario.

The COVID-19 pandemic hit The Bahamas a mere six months after Hurricane Dorian dealt a devastating blow to the Bahamian economy in September 2019. It is too early to ascertain the overall economic impact of these events. However, it is clear that the financial pressures in the economy are tremendous and the number of restructurings and insolvencies will undoubtedly increase.

The number of filings in the Bankruptcy Division of the Supreme Court does not accurately reflect the state of the Bahamian economy: there were five filings in 2019 and in 2020 there have been three filings to date. It appears that, in the current climate, creditors are more willing to work with debtors to seek to achieve a restructuring solution as an alternative to the liquidation and dissolution of the debtor.

Recent changes in the credit markets and tax or regulatory developments include loan deferral programmes have been rolled out by domestic banks and credit unions for debtors negatively impacted by COVID-19, and a number of initiatives implemented by the Bahamas Government in an effort to ease the economic impact of the pandemic. Such initiatives include:

  • a Business Continuity Loan Program and a COVID-19 stimulus package to assist businesses with their operating costs; and
  • a Tax Credit and Tax Deferral Employment Retention Programme under which qualifying businesses may defer the payment of certain taxes and receive tax credits to enable them to preserve their current employment levels.

The only type of insolvency proceeding presently available under Bahamian law is liquidation, which generally results in the dissolution of the company.

Save for the special procedures which apply to licensed banks and registered insurers, there is no statutory procedure for restructuring the debt obligations of an insolvent company in The Bahamas. However, it is possible to obtain a stay of a liquidation proceeding if the official liquidator successfully promotes an arrangement for the reorganisation or reconstruction of the company or a separation of its businesses. Additionally, a company may, after the presentation of a winding up petition, apply to the court for the appointment of a provisional liquidator on the basis that the company is or is likely to become unable to pay its debts and intends to present a compromise or arrangement to its creditors. To this extent, it may be possible to forge a restructuring in the course of liquidation.

Liquidation proceedings may be voluntary, within or without a court process, or involuntary; and a winding up petition may be presented by the company itself, or by any creditor, contributory or regulator of the company. The grounds upon which the petition may be presented include where the company has passed a resolution requiring that it be wound up by the court, is insolvent or a winding up is just an equitable in the particular circumstances.

The assets of a company may be placed into receivership by a mortgagee, where the mortgage in by deed, or a lender pursuant to the terms of the security documents governing their relationship. Additionally, the Supreme Court may appoint a receiver in respect of a debtor company in any case where it appears to the Court to be just and convenient to do so.

Liquidation proceedings ought to be commenced where a company is insolvent. If a company continues to trade when it is insolvent the directors may incur liability for insolvent trading.

Where liquidation is commenced voluntarily, a declaration of solvency is required to be provided within 90 days by all of the directors of the company. If such declaration is not provided, the voluntary liquidator must apply to the Court for an order that the liquidation shall continue under the supervision of the Court. Even where the declaration is provided, the voluntary liquidator is obliged to seek a supervision order if it becomes apparent during the course of the liquidation that the company is insolvent or of doubtful solvency.

A creditor or contributory of a company may commence involuntary proceedings against a company on the basis that the company is insolvent or that it is just and equitable that it be wound up. Where a company carries on a regulated business, its regulator may present a winding up petition on the ground that the company is not duly licensed or registered to carry on such business; or for any other reason provided for under the relevant regulatory laws.

Insolvency is not required for the commencement of proceedings; it is merely one of the grounds.

If a winding up petition is presented on the ground of insolvency, the petitioner must show that the company is unable to pay its debts as they fall due or the value of the company’s liabilities exceeds its assets.

A company shall be deemed to be unable to pay its debts if:

  • a creditor serves a valid statutory demand which the company fails to pay or settle within three weeks;
  • execution against the company of a judgment or court order in favour of a creditor is wholly or partly unsatisfied; or
  • it is proved to the satisfaction of the court that the company is unable to pay its debts.

The procedure for liquidation is generally the same for all types of companies and there is no comprehensive insolvency regime that applies solely to banks, insurance companies or other companies carrying on regulated business. However, companies licensed or registered under the Banks and Trust Companies Regulation Act, Securities Industry Act or Insurance Act, are subject to additional requirements relating to liquidation as set forth in those Acts. For example, such companies may not commence voluntary liquidation without the prior written approval of the Central Bank, Securities Commission or Insurance Commission, as the case may be.

Additionally, in the case of a registered insurer, that company must publish a notice of intention to apply for such approval in the local newspaper and send a copy of that notice to its shareholders and policyholders, unless that requirement is dispensed with by the Insurance Commission. A shareholder or policyholder who may be affected by the insurer’s voluntary liquidation shall be entitled to make representations to the Insurance Commission before it determines whether or not to grant approval.

Restructuring of Licensed Banks

With the coming into force of the Banks and Trust Companies Regulation Act, 2020, the Central Bank now has statutory power to appoint a statutory administrator in respect of a licensed bank if it is of the opinion that such bank company is, among other things, unable or likely to become unable to meet its debts as they fall due, or pay its depositors’ demands in the normal course of business. A statutory administrator shall be appointed for a specified period, which may be extended; during which, no proceedings may be brought or continued against the bank and no creditor may enforce their security or issue any execution, without the prior written consent of the statutory administrator.

The statutory administrator shall have full and exclusive powers to operate and manage the bank and may, with the approval of the Central Bank, carry out a merger of the bank or transfer of all or some of the bank’s shares or other securities, assets, rights and liabilities. Such transfer may be made by the statutory administrator in favour of a purchaser, bridge institution or an asset management vehicle, with a view to resolving the bank. Additionally, the statutory administrator may, with the written approval of the Central Bank, carry out a restructuring of the liabilities of the bank through arrangements with the bank’s creditors, including a reduction, modification, rescheduling or novation of their claims.

At the expiry of the period of the statutory administration, the Central Bank shall revoke the bank’s licence and commence a compulsory winding up proceeding against, if the reason for the appointment of the statutory administrator continues to exist.

Restructuring of Registered Insurers

Similar to banks, registered insurers may also be placed into statutory administration by their regulator. Pursuant to Section 75(A) of the Insurance Act, the Insurance Commission may appoint a statutory administrator in a number of specified circumstances, including where the insurer has failed to pay its liabilities or is, in the opinion of the Insurance Commission, unlikely to be able to pay its debts as they become due. The statutory administrator shall have exclusive power to manage and control the affairs of the insurer and if the statutory administrator considers it feasible to restore the company to financial soundness, they shall develop a plan of reorganisation accordingly. Further, within ni90 days after their appointment, the statutory administrator shall apply to the Supreme Court for the approval of such plan, if the Insurance Commission determines that, through reorganisation, there is a reasonable prospect of restoring the insurer to financial soundness.

In the event the Supreme Court approves the plan of reorganisation and makes an order to that effect, the statutory administrator must provide a copy of the plan to the insurer’s policyholders and other creditors who would not receive full restitution or payment of their claims under the plan. The copy of the reorganisation plan must be accompanied with a notice requiring the insurer’s policyholders and creditors to submit their objections within the time prescribed by the Insurance Act.

If the statutory administrator does not receive objections to the plan from at least 20% of the policyholders of the company within the time specified, the reorganisation may be duly carried out. Otherwise, the statutory administrator shall submit, in like manner, further reorganisation plans until such time as fewer than 15% of the policyholders submit objections to the plan; or alternatively, refer the matter to the Court for directions.

Judicial management

Pursuant to Section 77 of the Insurance Act, the Insurance Commission also has power to present a petition, with leave of the Court, for an order that a registered insurer or any part of its insurance business be placed under judicial management. The grounds on which such a petition may be presented include where the insurer is in financial difficulties. Once the petition is presented, all proceedings and the execution of all writs, against the company shall be stayed, unless the leave of the Court is obtained or the Court orders otherwise.

Upon the appointment of a judicial manager, the management of the insurer or of such part of the insurer’s business as the Court directs, shall vest in the judicial manager to the exclusion of any other person. The Court shall issue directions to the judicial manager as to his or her powers and duties as it deems fit and the judicial manager shall act under the control and supervision of the Court. As soon as practicable, the judicial manager shall file a report with the Court stating which of the following courses of action is, in their opinion, most advantageous to the general interests of the company’s policyholders and seek an order accordingly:

  • the transfer of all or any part of the insurance business of the company to some other company in pursuance of a scheme prepared by the judicial manager and annexed to the report;
  • the carrying on of its business by the company either unconditionally or subject to such conditions as the judicial manager may suggest;
  • the winding-up of the company; or
  • such other course as the judicial manager considers advisable.

After hearing from the Insurance Commission, the judicial manager and any person who in the opinion of the Court should be heard, the Court shall make an order to give effect to the course it considers most advantageous to the interests of the policyholders of the insurer.

Because there is no specific statutory procedure for out-of-Court restructurings, informal/consensual restructurings are generally explored when a company finds itself in financial difficulty.

There appears to be some appetite for a statutory process to become available and a bill to provide for the reorganisation of a company in financial difficulty was drafted some years ago. It is unclear, however, when such legislation will be enacted.

Banks and other lenders may be willing to provide support to a borrower, depending on the economic climate and the nature of the security and level of risk involved. As a practical matter, a consensual workout may involve forbearance by the lender, a restructuring of the loan and/or the injection of new money by the lender or security by the borrower or related parties.

The insolvency laws of The Bahamas do not require any mandatory consensual restructuring negotiations before the commencement of liquidation.

See 2.1 Overview of Laws and Statutory Regimes and 3.1 Consensual and Other Out-of-Court Workouts and Restructurings.

As indicated, it is not unusual for new money to be injected by the lender, although it is possible for the injection to be made by a third party. A third party would likely seek the subordination of existing debts and in such a case, secured lenders may agree to subordinate their debts, depending on the nature of their security.

If a deed of arrangement is made between a company and its creditors in circumstances where there is a common basis of consent, it may be repudiated by a creditor who discovers that other creditors were induced to execute the deed by a secret bargain to their advantage.

Additionally, if a company fails to have due regard to the interests of the its debenture holders or other creditors when negotiating or implementing a consensual workout strategy, such company and its directors may be exposed to a claim of oppression or unfair prejudice. Pursuant to Section 280 of the Companies Act, a debenture holder, and any other person who in the opinion of the court is a proper person to bring a complaint, may apply to the Supreme Court for an order against a company or its directors or officers to restrain oppressive action. Where such an application is made, the Court may make an order to rectify the matter complained of if it is satisfied that:

  • an act or omission of the company or any of its affiliates effects a result;
  • the business or affairs of the company or any of its affiliates are or have been carried on or conducted in a manner; or
  • the powers of the directors of the company or any of its affiliates are or have been exercised in a manner, that is oppressive or unfairly oppressive, or unfairly disregards the interest of any debenture holder or creditor.

In a syndicated loan transaction, it would not be unusual for lenders to agree terms permitting a majority or super-majority of lenders to bind dissenting lenders to changes made to the credit agreement terms. 

In the absence of such an agreement, however, an informal consensual process would be challenging, as there are no cram-down mechanisms to bring about an otherwise consensual financial restructuring.

The main types of security that may be taken by a secured creditor may include mortgages and assignments, fixed or floating charges and pledges. A mortgage or assignment involves the transfer of legal title to the asset; mortgages are typical for creating security interests in real property, whereas an assignment is more commonly used for creating security interests in intangible property.

A charge on the other hand does not involve any transfer of title and is created by an agreement which gives the chargee a right to realise the charged asset and to apply the proceeds in discharging the obligations of the chargor. A pledge involves the transfer of possession of an asset in circumstances where title to the asset remains with the pledger. Share pledges are commonly used under Bahamian law.

Charges are either fixed or floating. A fixed charge is one which attaches immediately over specific property. In contrast, a floating charge does not relate to any particular property but exists over a fluctuating body of assets whereby the chargor is free to deal with and dispose of the charged assets unless and until the charge crystallises and is converted into a fixed charge.

In an insolvency context, a secured creditor may enforce and realise his security without reference to the debtor’s liquidator, provided that his or her security is validly created and effective under its governing law. In exercising such rights, a secured creditor will be subject to the terms of any intercreditor agreement to which he is a party.

If there is a balance owing to a secured creditor after he or she realises his or her security, the secured creditor may prove in the liquidation for the unsecured balance. 

Additionally, if a secured creditor considers that his or her debt is more than the value of his or her security, he or she may, before realising his or her security, provide the liquidator with particulars of his or her security and valuation of it. When the security is realised in such a case, the net proceeds of realisation shall be substituted for the valuation initially provided to the liquidator.

Unsecured creditors participate in the distribution of the company’s assets of the company pari passu, subject to the rights of preferential creditors.

This is not applicable in The Bahamas.

In all matters relating to the liquidation and winding up, the Court shall have regard to the wishes of the creditors. Further, although the powers of the Court to appoint or remove an official liquidator or stay the proceedings are discretionary, great weight will be placed on the wishes of the majority of the creditors in value where the Court is exercising such powers.

Pre-judgment attachments are permitted if they are executed or completed by a creditor before a winding up petition is presented to the Supreme Court, or in the case of a voluntary liquidation, before the creditor has notice that a meeting was called for the purpose of commencing a voluntary winding up. In this context, execution is completed vis-à-vis goods by seizure and sale and vis-à-vis securities, upon making a charging order absolute. Further, an attachment of a debt is completed when the debt is recovered.

The order of priority of claims in a liquidation is as follows:

  • expenses of the liquidation, including the liquidator's fees and disbursements;
  • preferential debts, namely:
    1. certain debts due to employees, including salary, wages and gratuities accrued during the four months before the liquidation commenced, medical health insurance premiums and pension contributions, and severance pay and earned vacation leave when the employment contract was terminated as a consequence of the company's liquidation; and
    2. certain taxes due to the Bahamas Government; and
  • ordinary unsecured debts.             

In each category above, the debts are ranked equally and must be paid in full unless there are insufficient assets, in which case they shall abate in equal proportions. Insofar as the assets of the company are insufficient, preferential debts shall have priority over the claims of debenture holders under any floating charges created by the company and may be paid from the property so charged.

As indicated in 2.1 Overview of Laws and Statutory Regimes and 3.1 Consensual and Other Out-of-Court Workouts and Restructurings, there is no general statutory process or procedure for reaching and effectuating a financial restructuring/reorganisation plan or agreement in an insolvency context.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

Voluntary Liquidation

A company may be placed into voluntary liquidation, by a resolution of its directors or shareholders in accordance with its Articles of Association. As indicated above, however, the liquidation of an insolvent company is required to be controlled by the Supreme Court. Therefore, even where a company is placed into liquidation voluntarily, the voluntary liquidator is required to apply to the Court for a supervision order if there is no declaration of solvency by the directors within the prescribed time.

Compulsory Liquidation

Involuntary liquidation proceedings are generally brought by a creditor or contributory on the basis that company is insolvent or it is just and equitable for the company to be wound up. However, a regulator of the company may also bring proceedings on the ground that the company’s regulatory license has been suspended or revoked, or for any other reason provided under the applicable laws.

As an alternative to liquidation commenced by a creditor, contributory or regulator, it is possible for the directors or shareholders of a company to place the company into voluntary liquidation and appoint a voluntary liquidator with a view to the voluntary liquidator applying to the Court for an order that the company be wound up under the supervision of the Court. Once granted, the supervision order will be effective as an order that the company would be wound up by the Court and the prior actions of the voluntary liquidator will be valid and binding upon the company and its official liquidator. Although such proceedings may be regarded as involuntary because they are controlled by the Court, they invoked at the instance of the company and are “voluntary” to that extent.

Provisional Liquidation

After the filing of the winding up petition, the Court may at any time before making a winding up order, appoint a Provisional Liquidator in respect of the company. The appointment of a Provisional Liquidator provides interim relief until the final determination of the Petition. An application for the appointment of a Provisional Liquidator may be made by a creditor or contributory of the company on the grounds that:

  • there is a prima facie case for making a winding up order; and
  • the appointment of a provisional liquidator is necessary:
    1. to prevent the dissipation or misuse of the company’s assets;
    2. to prevent the oppression of minority shareholders;
    3. to prevent the mismanagement or misconduct on the part of the company’s directors; or
    4. in the public interest.

As previously stated, an application to appoint a provisional liquidator may also be made by the company itself, on the basis that the company is or is likely to become unable to pay and intends to present a compromise or arrangement to its creditors.

Powers of Liquidators

The official liquidator is an officer of the Court and enjoys broad powers, which are exercisable with or without the sanction of the Court. Powers exercisable with Court sanction include:

  • the power to bring or defend legal proceedings in the name and on behalf of the company;
  • the power to pay any class of creditors in full;
  • the power to make any compromise or arrangement with creditors; and
  • the power to disclaim onerous property.

A voluntary liquidator has the same powers enjoyed by the official liquidator and may exercise such powers without the sanction of the Court, although there are certain exceptions. A provisional liquidator may exercise the rights and powers of a liquidator to the extent necessary to maintain the value of the assets owned or managed by the company or to carry out any specific functions for which they were appointed, including facilitating a restructuring.

Automatic Stay, Set-off, Disclaimer, Etc

When a company is placed in voluntary liquidation there is no automatic stay of proceedings against the company, as is the case when a winding up order or supervision order is made or a provisional liquidator is appointed.

In all liquidations, contractual rights of set-off between the debtor company and any creditor shall be enforced. Further, even if contractual set-off is not available, set-off shall nevertheless be applied after an account is taken of what is due from each party to the other in respect of their mutual dealings, and any balance shall be provable in the company’s liquidation or paid to the liquidator accordingly. Albeit, sums due from the debtor company shall not be included in such account if the creditor had notice at the time they became due that a winding up petition against the company was pending.

With the leave of the court, a liquidator of the company may disclaim any onerous property of the company even though they have taken possession of it, tried to sell or assign it or otherwise exercised the rights of ownership in relation to it. For these purposes, “onerous property” means an unprofitable contract or assets of the company which are unsaleable or not readily saleable, or which may give rise to a liability to pay money or perform an onerous act. A disclaimer of onerous property operates to determine the rights, interests and liabilities of the company in or in respect of the property disclaimed but except so far as necessary to release the company from liability, does not affect the rights and liabilities of any third party. Further, any person who suffered loss or damage as a result of a disclaimer may prove in the liquidation in respect of such loss and damage.

Proofs of debt are adjudicated by the liquidator and where the debt is subject to a contingency, the liquidator shall estimate the value of the debt and inform the creditor accordingly. If a creditor is dissatisfied with the decision of the liquidator in respect of a proof or claim, they may lodge an appeal to the Court within 21 days for the decision to be reversed or varied.

In a voluntary solvent liquidation, the surplus assets of the company (if any) will be distributed in accordance with the company’s articles of association. In an official liquidation, the official liquidator may pay dividends and distributions in cash or in specie.

Reports to Creditors and Conclusion

The liquidator shall prepare reports and accounts with respect to their conduct of the liquidation and the state of the company’s affairs. Where the company is being wound up by or subject to the supervision of the Court, the liquidator’s reports are periodically filed with the Court and are matter of public record.

When the affairs of the company are fully wound up, the liquidator shall prepare their final report and accounts, which should be filed with the Companies Registrar and provided to the company’s members or creditors, as the case may be. In a voluntary solvent liquidation, a certificate of dissolution of the company may be obtained from the Companies Registrar after the filing of the requisite documents. In liquidations by or subject to the supervision of the Court, the official liquidator will apply for their release and an order that the company be dissolved.

In a liquidation proceeding, it is the responsibility of the official liquidator to negotiate and execute the sale of the company’s assets or business and he may exercise his power to sell such assets to any person, subject to the sanction of the court. In such a sale, a purchaser would acquire good title, which is free and clear of claims and liabilities asserted against the company which are not secured buy the assets sold.

It is possible for an official liquidator to obtain the sanction of the court to execute a sale transaction that was negotiated prior the commencement of liquidation.

A liquidation committee comprising not less than three and no more than five creditors may be elected at the first meeting of creditors, which is required to be convened within 90 days of the making of the winding-up or supervision order. A creditor is eligible to be a member of the liquidation committee if its debt is not fully secured and it has lodged a proof of debt which has not been rejected or disallowed for voting purposes. The committee may appoint legal counsel and its legal fees and expenses which are reasonably and properly incurred shall be paid out of the estate of the company as a liquidation expense.

The Supreme Court of The Bahamas has statutory power to grant recognition and assistance in relation to international insolvency proceedings.

The enabling provision is Section 254 of the Companies Act which provides that the Court may make ancillary orders in connection with a liquidation or insolvency proceeding outside The Bahamas. Such ancillary orders include orders directing that property in The Bahamas belonging to a foreign debtor be turned over to that debtor’s foreign representative as well as orders requiring a person in possession of information relating to the business or affairs of a debtor to be examined by and produce documents to its foreign representative.

In order to fall within the contemplation of the provision, certain important criteria must be met. The applicant must be a foreign representative as defined by the Companies Act, ie, a trustee, liquidator or other official appointed in respect of a foreign corporation or other foreign legal entity. The debtor must be subject to a foreign proceeding in the country in which it is incorporated or established.

The foreign proceeding must be a judicial or administrative proceeding relating to liquidation or insolvency in which the property and affairs of the debtor are subject to the control or supervision of the foreign court for the purpose of the reorganisation, rehabilitation, liquidation or bankruptcy of the debtor. Furthermore, the foreign proceeding must be in a “relevant foreign country” designated under the Foreign Proceedings (International Co-operation) (Relevant Foreign Countries) Liquidation Rules, 2016.

The Companies Act does not expressly enable the Court to enter into protocols or other arrangements with foreign courts to co-ordinate proceedings; however, there is power to do so at common law and the Courts of The Bahamas have exercised such power in appropriate cases.

In exercising its discretion to grant or refuse an ancillary order, the Court will be guided by considerations, which would facilitate the economic and expeditious administration of the debtor’s estate in a manner consistent with, among other things:

  • the public policy of The Bahamas;
  • the just treatment of all holders of claims against or interests in a debtor’s estate;
  • the protection of claim holders in The Bahamas against prejudice and inconvenience in the processing of claims in the foreign proceedings;
  • the distribution of the debtor’s estate amongst creditors substantially in accordance with Bahamian law;
  • the recognition and enforcement of security interests created by the debtor;
  • the non-enforcement of foreign taxes, fines and penalties; and
  • comity.

There are no special procedures or regimes for foreign creditors.

In an insolvency case, a receiver or liquidator may be appointed in respect of the debtor company. 

It is the duty of the liquidator to ascertain and marshal and collect the assets of the company, determine the liabilities and identify the creditors, and distribute such assets to the creditors. Further, in the event of any surplus, the liquidator is responsible for distributing the surplus assets to the persons entitled. 

Where a receiver is appointed over any property of a company, he or she shall, subject to the rights of any secured creditors, receive the income from the property, pay the liabilities connected with the property, and realise the security interest of those on behalf of whom he or she is appointed. However, unless he or she is appointed as a receiver-manager or otherwise permitted to do so by the Court, a receiver is not permitted to carry on the business of the company.

Notably, a receiver may apply to the Court for directions relating to his or her duties. Such an application for directions could be useful where, in the course of carrying out his or her functions, a receiver is uncertain as to the validity of any procedural or other step which he or she is proposing to take. The receiver should apply only in exceptional circumstances and not use this power to delegate the receivership to the Court.

The Court is responsible for the appointment of the official liquidator and may appoint such person as it sees fit. In making the appointment, the Court has an unfettered discretion but will have regard to the wishes of the majority of the creditors, whose votes will be counted by reference to the value of their debts. The official liquidator will displace the directors of the company and the act as the company’s agent for the purpose of the winding up. On an application by a creditor or contributory, the Court may exercise its discretion to remove or replace the person acting as official liquidator.

The official liquidator must be a qualified insolvency practitioner who is resident in The Bahamas and independent in relation to the company, or a foreign practitioner appointed jointly with a resident qualified insolvency practitioner who satisfies the independence requirement. A creditor, creditor representative, owner, officer or director of the company would not be regarded as independent.

Voluntary Liquidation

In a voluntary liquidation, the liquidator is appointed by the company. No particular qualifications are required. The powers of the directors cease upon the voluntary liquidator’s appointment unless the company in a general meeting or the liquidator sanctions their continuance. A voluntary liquidator may be removed from office by a resolution passed by the company at a general meeting.

Mortgages

Where a mortgage is made by deed, the mortgagee may, when the mortgage money has become due, appoint a receiver of the income of the mortgaged property or any part thereof without the need for the commencement of court proceedings. Similarly, a lender may, without a court application, appoint a receiver pursuant to the provisions of its security documents.  Further and in any event, the Supreme Court may appoint a receiver in any case where it appears to the Court to be just and convenient to do so.

A receiver is not required to have any particular qualifications and may be removed by his or her appointer or by the Court.

Company directors owe statutory and fiduciary duties to act honestly and in good faith with a view to the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. As a matter of general principle, these duties are owed to the company and the company alone. However, exceptionally, where the solvency of the company is questionable, these duties are extended and directors must have primary regard to the interests of the company’s creditors, as a whole, and must act honestly and in good faith, with a view to minimising any loss to those creditors.

In practical terms, directors should not permit or cause the company to enter into transactions with a view to preferring one creditor (or class of creditors) of the company over other creditors (or class of creditors) or with a view to avoiding an obligation that may be owed to a creditor. Further, where the directors know or ought to know that there is no reasonable prospect that the company will avoid insolvency, the directors must take every reasonable step to minimise the creditors’ loss. A director’s breach of these duties may result in personal liability for misfeasance, effecting a fraudulent disposition and/or in the latter case, wrongful trading.

In the context of liquidation, claims for breach of duty or misfeasance must be brought by the liquidator.

There are two types of historical transactions which may be set aside or annulled in an insolvency process: voidable preferences and fraudulent dispositions.

Voidable Preferences

Under the Companies Act, every conveyance or transfer of property or charge thereon and every payment obligation and judicial proceeding, made, incurred, taken or suffered by any company in favour of any creditor at a time when the company is unable to pay its debts with a view to giving such creditor a preference over the other creditors, shall be invalid if it was made, incurred, taken or suffered within six months immediately preceding the commencement of liquidation.

Fraudulent Dispositions

Additionally, every disposition of property made at an undervalue, by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of such company’s official liquidator. In this context, “undervalue” in relation to a disposition of a company’s property, means the provision of no consideration for the disposition, or a consideration for the disposition the value of which in money or monies worth is significantly less than the value of the property which is the subject of the disposition.

The look-back period for voidable preferences is six months; whereas a fraudulent disposition may be set aside or annulled any time within two years from the date of the disposition.

Claims to set aside or annul voidable preferences and fraudulent dispositions, in the context of liquidation, are properly brought by the official liquidator, who may be permitted to obtain funding from the creditors of the company for this purpose.

Higgs & Johnson

Lyford Crescent
Western Road
Lyford Cay
Nassau
The Bahamas

+1 242 502 5200

+1 242 502 5250

tcooper@higgsjohnson.com higgsjohnson.com
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Higgs & Johnson has an insolvency and corporate restructuring practice that has a distinguished track record of acting in large and complex cross-border insolvencies. The firm has a diverse client base which comprises secured and unsecured creditors, including international financial institutions, insolvency practitioners, corporate debtors encompassing shipping conglomerates and publicly listed companies in onshore jurisdictions, directors, shareholders and regulators. Higgs & Johnson has acted in some of the most significant insolvencies before the courts of The Bahamas, including the Privy Council, and has earned a reputation for delivering result-oriented solutions to clients. The group is led by seasoned practitioners equipped with the necessary expertise to navigate the intricate aspects of a distressed scenario.

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Please select at least one chapter and one topic to use the compare functionality.