The Insolvency Act came into force in Jamaica on 1 January 2015. Between then and October 2023, there have been 47 companies which have been subject to, or involved in, proceedings under the Act. Of the 47 companies, 38 fall within the micro, small and medium enterprise (MSME) category. 50% of these companies are service providers and 34% are in the business of manufacturing, followed by finance and tourism, which each constitute 6%, and finally mining companies at 4%.

The small number of companies that have been involved in financial restructurings and insolvencies under the Act since its inception are due to:

• general economic conditions which have been largely favourable;
• lack of publicity and education about the Act;
• stigma attached to distressed debtors;
• creditors acting in their own self-interest without sufficient regard to the viability of debtors;
• distressed companies not taking timely steps to prepare a proposal for their debtors until they are in a crisis; and
• generally, many of the proposals are hastily put together without guidance or advice of accountants or financial advisors and accordingly are not sufficiently robust, so creditors invariably reject same.

The effects that the COVID-19 pandemic had on the economy were not of such significance to the extent that a substantial number of Jamaican companies had to seek refuge under the Act.

Recently, the interest rates have started trending upwards and there is a decline in the construction industry, which it is felt may precipitate an increase in companies seeking rehabilitation under the Insolvency Act.

Having been in force for eight years, insolvency practitioners and the Supervisor of Insolvency have had an opportunity to assess how the Act has been used and interpreted by the courts, and are presently reviewing the Act. Some amendments are expected to be made to the Act such as to permit creditors to initiate a proposal rather than just the debtor, and to allow the Supervisor of Insolvency to issue directions.

Insolvency procedures and proceedings are governed by the Insolvency Act. The Act deals with both corporate insolvency (not limited to a legal person and includes partnerships) and personal bankruptcy. The Act introduced a focus on the rehabilitation of persons facing financial problems.

Certain types of restructurings and liquidations may be carried out under the Companies Act.

The Insolvency Act addresses:

• bankruptcy of individuals;
• reorganisation by way of composition, scheme of arrangements (proposals);
• receiverships;
• assignments (voluntary insolvency proceedings);
• receiving orders (involuntary insolvency proceedings); and;
• summary administration proceedings for small bankruptcy estates of less than JMD300,000 of unsecured debt.

Sections 206–211 of the Companies Act address arrangements and reconstruction of a company’s debt(s) with its creditors or class(es) of creditors, however, where the company files a proposal or intention to file a proposal, signalling insolvency, Part III of the Insolvency Act applies exclusively.

The Insolvency Act also regulates receiverships where the debtor is insolvent and supplants the provisions of the Companies Act and the Security Interests in Personal Property Act.

There is no statutory requirement mandating commencement of formal insolvency proceedings by a company. This is a decision that is left to the wisdom and prudence of the directors, who ought to be mindful of the potential for personal liability if it is subsequently considered that they permitted the company to trade while insolvent.

Involuntary insolvency proceedings may be initiated by a creditor filing in court an application for a receiving order where the debt owed exceeds the statutory minimum of JMD300,000 and where the debtor has committed an act of bankruptcy within six months immediately preceding the filing of the application. Acts of bankruptcy include failing to pay liabilities as they fall due, making an assignment of its property to a trustee, making a preference, permitting execution or other process over its property.

Insolvency must be established in both voluntary and involuntary proceedings. “Insolvent person” is defined as a person who resides, carries on business or has property in Jamaica whose liabilities to creditors exceed JMD300,000 and (i) is unable to meet their obligations as they generally become due; (ii) has ceased paying their current obligations in the ordinary course of business as they become due; or (iii) the aggregate of whose property, at a fair valuation or if disposed of at a fairly conducted sale is not sufficient to enable payment of all their obligations due and accruing.

The Insolvency Act expressly states that it does not apply to specified financial institutions except under the authority of the regulator.

The specific statutory restructuring and insolvency regime applicable for financial institutions such as banks, commercial lenders and other entities operating in financial markets is governed by the Banking Services Act (BSA). Where the Supervisory Committee established under the BSA believes the licensee is or appears likely to become unable to meet its obligations it may present an application to the court regarding reconstruction or petition for its winding up.

Restructuring and insolvency proceedings in relation to building societies are governed by the Building Societies Act and insurance companies by the Insurance Act. In each case, an application to wind up the company may be brought by the regulator, the Financial Services Commission.

There are no specific statutory insolvency processes or regimes for any other sector.

Institutional lenders may, on a case-by-case basis, be amenable to arriving at out-of-court or other consensual workouts with debtors as an alternative to participation in the statutory insolvency process or taking steps to immediately recover the debt. Several factors may influence the willingness of a lender to engage in such negotiations, including whether their debt is secured or unsecured, the industry/sector in which the debtor operates, the presence of other creditors and the debtor’s current financial position. Negotiating a consensual workout can be of significant benefit to a lender, given that the statutory insolvency process can be lengthy and costly, as well as operate to the detriment of a creditor’s individual interests depending on the outcome. The cost, publicity and potential reputational damage associated with the statutory insolvency process serve as incentives for many distressed debtors to seek forbearances from lenders before engaging that process as a “last resort”.

The practice of most institutional lenders is to seek to avoid participation in statutory insolvency procedures, where possible. Once the proposal stage is engaged, the statutory insolvency process restricts most lenders from taking enforcement steps against the debtor, by way of an automatic stay, until it reaches a conclusion. It is commonplace for lenders to resist this by applying for the stay to be removed on the basis of material prejudice or other grounds. 

Notwithstanding the potential benefits of consensual workouts, it is common market practice for lenders to proceed directly with enforcement actions for the recovery of debt upon an event of default, including the realisation of any secured property (where applicable), as opposed to proposing or negotiating towards consensual workouts.

Jamaican law does not require mandatory consensual restructuring negotiations before the commencement of the statutory insolvency process.

Consensual workouts are generally negotiated with debtors on an individual basis, having regard to an assessment of each debtor’s particular circumstances. A wide range of forbearances can be agreed upon. These include the deferral of interest or temporary suspension of payments altogether. Forbearances are commonly made subject to the provision of additional protections for lenders, including guarantees and new collateral, as well as adherence to stringent reporting and financial performance requirements. Lenders may also require a debtor to restructure its business with a view to preserving liquidity.

Lenders are typically unwilling to grant contractual standstills or default waivers as part of an initial informal process. It is also uncommon for lenders to be willing to compromise on any priority rights they enjoy as a part of an informal process.

In an informal restructuring process, new money may be injected by existing or new creditors subject to the terms of the debtor’s existing loan agreements. The provision of super-priority rights to a lender in this context is uncommon.

Under the statutory insolvency process, the court may make an order authorising a debtor to borrow money as interim financing, and to declare that all or part of the debtor’s assets are subject to a security or charge in favour of the lender of those funds. The court may also order that this security ranks in priority over the claims of any secured creditors of the debtor.

There are no specific duties imposed on creditors by law in the context of an informal, consensual restructuring process. Creditors may therefore generally act in their own self-interest.

Informal restructurings are based on the contracts agreed between the debtor, its creditors and other stakeholders. As such, unless there is a clear contractual provision to the contrary, a group of creditors cannot effectuate any settlement or compromise binding minority or dissenting lenders outside of a formal, statutory insolvency or other restructuring process. It is uncommon for credit agreements to enable a majority of lenders to bind minority or dissenting lenders to credit terms which differ from those agreed with the debtor.

Secured creditors may take liens/securities over real estate, shares, movable property, intangible property, intellectual property, and accounts by way of mortgages, legal and equitable charges, debentures, pledges, hypothecation agreements and liens. Security over real property is typically provided by way of a legal mortgage registered on title at the Register of Titles. Most security interests over personal property are registrable at the Security Interests in Personal Property Registry.

A secured creditor has the following rights and remedies to enforce their liens/security in a restructuring or insolvency context:

• realise the property secured if the proposal put forward by the insolvent person or person facing imminent insolvency, to accept was not made in respect of the particular security or if the proposal was made to one class of secured creditors who refused to accept the proposal;
• file proof of a secured claim with the trustee if the proposal made to them was in respect of a particular secured claim. Once the proof has been filed, they may vote on all questions relating to the proposal in respect of the entire claim; or
• realise the property secured and prove for the balance due.

Given that the Insolvency Act is primarily geared towards preserving value for unsecured creditors, the votes of secured creditors at the meeting convened to consider the proposal of a debtor are not counted towards the general decision as to whether the proposal will be accepted or refused. However, even if the wider group of creditors votes to accept a proposal, where a class of secured creditors votes for the refusal of the proposal, those creditors can immediately enforce their security.

A secured creditor has the following rights and remedies to enforce their liens/security outside of a restructuring or insolvency:

• all rights and remedies set out in the security contract;
• priority over third parties in relation to attachment and realisation of assets;
• to take possession or control of property secured;
• to direct the disposition of funds or other assets from bank accounts if the secured creditor is a financial institution;
• to seize or repossess property in any manner by which a writ in aid of execution may provide for seizure without removal;
• to dispose of secured property;
• to take control of proceeds to which the secured creditor is entitled;
• to apply the proceeds of the disposition of a property to expenses and satisfaction of a debt;
• to purchase secured property or any part of it; and
• to appoint a receiver.

The rights and remedies of the secured creditor are not subject to contractual inter-creditor covenants unless the secured creditors are parties to these intercreditor agreements and have agreed to be bound by those terms.

Generally, secured creditors’ rights, remedies and liens are subject to an automatic stay if the insolvent person/debtor files a notice of intention to file a proposal (NOI).

In statutory insolvencies and restructuring proceedings, secured creditors have the following special procedural protections and rights.

• Where a stay of proceedings has been imposed upon the filing of an NOI or proposal, the stay will not apply to a secured creditor:
1. who took possession of the secured assets, in order to realise same before the filing;
2. who gave notice of intention to enforce its security more than ten days before the filing; or
3. if the insolvent person consented to the enforcement action by the secured creditor.

That secured creditor cannot be prevented from dealing with the secured asset, taking actions to recover a claim, or enforcing any provisions of a security agreement.

• If an automatic stay has been granted, a secured creditor can apply to the court to lift the stay on the grounds that the creditor is materially prejudiced or that it is equitable on other grounds to lift it.
• The filing of a proposal does not prevent the secured creditor to whom the proposal has not been directed from realising or otherwise dealing with their security.
• On bankruptcy, the automatic stay of proceedings against the bankrupt or their property until the discharge of the trustee does not apply to prevent a secured creditor from realising or otherwise dealing with their security unless otherwise ordered by the court. The court may only postpone the realisation of the creditor’s security:
1. where security for a debt is due at the date of bankruptcy or due not later than six months thereafter, in which case the secured creditor’s right to realise their security is postponed but for no more than six months from that date; and
2. where security for a debt is not due until six months after the date of bankruptcy, in which event the right is not postponed for more than six months from that date,
1. unless all instalments of interest that are more than six months in arrears are paid and all defaults of more than six months standing are secured; and
2. only so long as no instalment of interest remains in arrears or defaults remain uncured for more than six months, but in any event not beyond the date at which the secured debt becomes payable under the instrument or the law creating the security.
• No court order which prevents a debtor from realising or otherwise dealing with their security can prevent a secured creditor from realising or otherwise dealing with financial collateral.
• If a secured creditor has proven their claim and lodged proof of claim with the trustee, they are entitled to vote on a proposal.
• If, upon realising their security, there is still an outstanding balance due to a secured creditor, they can prove the balance.
• A secured creditor may surrender their security for the general benefit of all creditors and prove their whole claim.
• A secured creditor may require the trustee to elect whether to exercise their power to redeem the security or require it to be realised. If the trustee does not elect to redeem any other interest in the property, the property shall rest with the secured creditor and the amount of the claim of the trustee shall be reduced by the amount for which the security has been valued.

There are not many differing rights and priorities among various classes of secured and unsecured creditors, however the following is noted.

Insolvency

Insolvency proceedings are mainly for the benefit of unsecured creditors given that secured creditors will have a right to enforce their security. In the distribution of a bankrupt’s estate, secured creditors will have priority over the unsecured creditors with regard to their secured claim.

Proposals

Secured creditors may be placed into a class or classes for the purposes of voting on a proposal made by a debtor. If one such class rejects a proposal, then the stay on actions regarding the debtor’s property that had become effective on filing the proposal or a notice of intention to file a proposal, is no longer applicable as it pertains to that class of secured creditors. 

Votes of secured creditors on a proposal do not influence whether a proposal is accepted or rejected.

Creditors Having Equity Claims (Equity Creditors)

Equity creditors are creditors with shares in or a right to acquire shares in the debtor corporation and whose claims relate to dividends, capital return, or other losses related to their ownership of shares or rights to same. For the purposes of proposals, they are in a class by themselves and are not permitted to vote on the proposals unless permitted by the Supervisor of Insolvency. Equity claims must rank after all other claims in order for a Proposal to be approved. Additionally, in distribution of a bankrupt’s estate on insolvency, equity claims are payable only after all other claims are satisfied.

Unsecured trade creditors are not treated any differently from any other unsecured creditor and as such are not necessarily kept whole in a restructuring process. 

Unsecured creditors have the following rights and remedies in a restructuring and insolvency context:

• entitled to vote on a proposal if they have proven a claim and lodged the proof of claim with the trustee;
• by special resolution can replace the trustee appointed under the notice of intention to file a proposal or proposal;
• may file in court an application for a receiving order for the appointment of a receiver and upon such an application the court may also stay all proceedings; or
• right to share in the proceeds of the estate after claims ranking higher in priority.

An unsecured creditor cannot disrupt a formal voluntary or involuntary insolvency process on the whole. However, an unsecured creditor can apply to the court for a declaration that a stay imposed on the filing of a proposal or notice of intention to file a proposal should not be applicable to it on the grounds of material prejudice or other equitable grounds.

A creditor may obtain a pre-judgment attachment by way of:

• a freezing order to prevent a debtor from dissipating with their assets so as to defeat a judgment creditor; or
• an application for a receiving order and the appointment of a trustee as interim receiver of the debtor’s property and directions that the trustee take immediate possession of the debtor’s property.

Subject to the rights of secured creditors, proceeds realised from the property of a debtor shall be applied in restructuring and insolvency proceedings in priority of payment in descending order in the following categories:

Category 1

• Cost of administration being fees and expenses of the trustee or receiver and legal costs.
• Prescribed fees payable to the Supervisor of Insolvency.

Category 2

• Statutory contributions payable by the debtor as an employer such as National Housing Trust, National Insurance Scheme and Pension.
• Wage and salaries of employees not exceeding JMD500,000.
• Redundancy payments.
• All taxes excluding penalties and interest having become due and payable by the debtor within 12 months before the appointment of a receiver or the bankruptcy, not exceeding in total one year’s assessment.

Category 3

Obligations owed to secured creditors and if more than one then in accordance with priorities of their respective securities.

Category 4

Any other claim.

Debts within each category shall rank equally among themselves and be paid in full unless there are insufficient funds/assets to pay all claims, in which case the claims shall abate in equal proportions.

Financial restructuring/reorganisation is affected by way of proposal proceedings. It is commenced by filing a proposal or a notice of intention to make a proposal (NOI). The proposal must be filed within 30 days of filing the NOI but this time can be extended by the Supervisor of Insolvency for periods of up to 45 days, up to a maximum of six months. To obtain an extension of time to file a proposal, the company must establish that it has acted and is acting in good faith and due diligence, an extension is appropriate and no creditors will be materially prejudiced if the extension is granted.

Proposal proceedings may be initiated by an insolvent person, a receiver or liquidator or a person facing imminent insolvency, which is defined as a person not yet insolvent but who will be cash flow insolvent within 12 months.

A proposal entails an arrangement for composition, extension of time or a scheme of arrangements with creditors either as a group or separated into classes, or with secured creditors. The objective is to give the debtor company the opportunity to reorganise its debt and restore its profitability. If successful, the debtor company can continue to operate and postpone the payment of some of its debts or negotiation of a lower payment. 

The proposal or NOI must name a licensed insolvency trustee who will supervise the proposal, report on the company’s business and financial affairs and may assist in the formulation of the proposal or any revisions thereto.

If a NOI is filed, within 14 days the debtor must also file:

• a cash flow statement prepared by the debtor and reviewed for reasonableness and signed by the trustee named in the NOI;
• a report on the reasonableness of the cash flow statement signed by the trustee; and
• a report setting out prescribed representations by the debtor.

The time may be extended by the supervisor for a further 14 days.

The debtor will be deemed to have made an application for the assignment of its assets for the benefit of its creditors (voluntary bankruptcy) if the proposal or the cash flow statement is not filed within the time specified or extended.

The proposal procedure can be used together with the Companies Act provisions relating to schemes of arrangements. The proposal sets out the terms on which the company will satisfy the debts of its creditors as a group or classes of creditors. A proposal made to one or more secured creditors in a particular class, is to be made to all the members of that class of secured claim. Creditors having equity claims are treated as a single class.

Meeting of Creditors

The trustee must call a meeting of creditors to consider the proposal no later than 21 days of the filing of the proposal. Notice of the meeting must be given to the supervisor and every creditor known to the trustee along with a copy of the proposal, a statement summarising the assets and liabilities, a list of the creditors and a proof of claim form.

Creditors are required to file a proof of claim and may respond to the proposal.

The Trustee must also file a notice of filing of a proposal with the Registrar of Companies.

A secured creditor may vote on all questions relating to the proposal in respect of their secured claim and may vote as an unsecured creditor in respect of an amount equal to the difference between the amount of the claim and the proposed value of the security.  If the secured creditor is dissatisfied with the value placed on the security by the trustee, they may apply to the supervisor to have the value revised. Secured creditors may only file a proof of claim and vote on a proposal if the proposal relates to their particular secured claim.

All unsecured creditors with proven claims are entitled to vote. Unsecured creditors vote in one class unless the proposal provides for more than one class. Secured creditors vote in the class with those who have sufficiently similar claims giving them a commonality of interest. Creditors with an equity claim vote if the supervisor permits. A creditor who is a related person may only vote to reject the proposal but in any event the vote is not taken into account.

Acceptance or Refusal of the Proposal

The proposal succeeds if accepted at the meeting by the majority in number of all classes of creditors holding at least two-thirds in value of the proven claims.

If the proposal is accepted, the trustee notifies the supervisor and all creditors. Either the supervisor or any creditor has 15 days to object to the approval of the proposal and require the trustee to obtain approval of the court.

If, upon the expiration of the 15 days, no notice of objection has been delivered, the proposal shall be deemed to be approved by the court.

A proposal that includes the payment of an equity claim, shall not be approved unless it also provides that all other claims are to be paid in full before the equity claim is paid.

Where a proposal is accepted by the creditors and approved (or deemed approved) by the court, it is binding on all unsecured creditors’ claims and the secured claims in respect of which it was made.

The creditors may appoint up to five inspectors for the purpose of overseeing the administration of the bankruptcy estate.

Distributions under the proposal are made by the trustee.

If it appears that the proposal cannot continue without injustice or undue delay or that approval was obtained by fraud, the trustee or the supervisor may apply to the court to annul the proposal. On such annulment, the company is deemed to have made an application for an assignment and the trustee shall file a report with the supervisor who shall then issue a certificate of assignment.

Bankruptcy Results From Failure of Proposal

Where the creditors refuse to accept a proposal, the debtor shall be deemed to have made an application for an assignment and the company is forced into bankruptcy.

In such case, the trustee shall forthwith:

• file a report with the supervisor who shall then issue a certificate of assignment;
• file a notice of the assignment with the Registrar of Companies; and
• call a meeting of creditors to approve the appointment of the Trustee in bankruptcy.

If the debtor is a person facing imminent insolvency, the refusal of the proposal shall not be deemed to convert to an assignment if the creditors resolve by special resolution to permit the termination of the proceedings.

Stay

When a proposal or a NOI is filed, a statutory stay is imposed on all enforcement by creditors, save for secured creditors who have already begun enforcement at least ten days before the filing or who are in possession of the security asset. The stay remains in place until terminated, a proposal is filed, or the debtor becomes a bankrupt. A secured creditor is not affected if the proposal does not relate to them, however the court may make an order postponing any rights of a secured creditor for a debt not yet due for a maximum period of six months from the due date except where the debt is in arrears by more than six months.

Any creditor may apply to the court to lift the stay to permit them to take or to continue proceedings. The court may lift the stay if it is satisfied that the insolvency person:

• has not acted or is not acting in good faith and with due diligence;
• is not likely to be able to make a viable proposal before the expiration of the period; and
• is not likely to be able to make a proposal before the expiration of the period that will be accepted by the creditors.

Proceeding With the Proposal

The debtor remains in control of its affairs during the implementation of the proposal and the trustee’s role is supervisory. The trustee may also assist the debtor in modifying the proposal and must notify the supervisor of any material changes.

The company may obtain interim financing during the process. This is available upon an application being made to the court by the debtor seeking authorisation to borrow money. The lender may be granted a super priority security over the debtor’s property. The court will usually approve the application if it is satisfied as to the arrangements for the management of the debtor’s business and financial affairs during the process, that the debtor’s management has the confidence of the creditors and that the loan would enhance the prospects of a viable proposal being made.

A proposal is made to creditors either as a group or separated into classes in which they share common interest and they vote as such. A proposal must address all unsecured creditors but may be made to certain secured creditors or classes of secured claim. Commonality of interest among secured creditors are determined by reference to the nature of the debts, the nature and priority of the security, the remedies available to the creditors in the absence of the proposal, the treatment of the claims and the extent to which the claims would be paid under the proposal.

Creditors with equity claims are a single class. Unsecured creditors constitute a single class unless the proposal provides for more than one class of unsecured claims.

Creditors may appoint up to five inspectors to oversee the process.

Creditors are entitled to receive a copy of the debtor’s cash flow statement, the report on its reasonableness and a report on the prescribed representations made by the insolvent person, a list of the creditors, the proofs of claim filed, the trustee’s report on the debtor’s business and financial affairs and the material adverse change report.

There is no provision for a cram-down or cram-up. A proposal which is accepted and approved by the court is binding on dissenting creditors.

This is not applicable in Jamaican law.

Under the Companies Act, a corporate group may be reorganised on a combined basis in which the assets and liabilities of the company and the connected person were a single undertaking. The reorganisation must be sanctioned by the court.

A debtor may not sell its assets outside the ordinary course of business unless authorised to do so in accordance with a proposal that has been approved by the court.

There are no express statutory provisions setting out the procedures for asset disposition, however, in practice, the sale of assets or the business is carried out by the trustee. Any purchaser acquires the property free and clear of any claim. While there are no rules for credit bidding, there is no known prohibition against it and it is not a well-known practice.

This is not applicable in Jamaican law.

The court may authorise interim financing and such loan may be ordered to be secured by the debtor’s assets, including priority over an existing secured claim. See 3.3 New Money.

Creditors must file a proof of claim to vote on the proposal.

A proposal must be approved or deemed approved by the court to be binding on the creditors. In considering the proposal, the court must consider the trustee’s report and hear from the trustee, the person making the proposal, the supervisor or any creditor, and shall refuse to approve the proposal where it is of the opinion that the terms are not fair and reasonable to the creditors or are oppressive, are not calculated to benefit the general body of creditors or contravenes any of the provisions of the Act or any other relevant law.

This is not applicable in Jamaican law.

Creditors may exercise rights of set-off or netting, however, the cross-claim must be for a liquidated sum, due and owing and must have arisen between the same parties.        

Where the debtor company defaults in performance of the proposal and such default is not remedied or waived by the creditors, the debtor is deemed to have made an application for an assignment and the trustee shall file a report with the supervisor and call a meeting of the creditors to be held within 21 days.

Equity claims may only be paid after all other claims are paid in full.

Voluntary Liquidation

Voluntary insolvency proceedings are commenced by the insolvent person making an application to the supervisor for the assignment of all its assets for the general benefit of its creditors. The members of the company must authorise the application by resolution.

The application for assignment must be accompanied by a sworn statement providing information as to:

• the property of the insolvent person available for distribution among its creditors;
• the names and addresses of all its creditors;
• the amounts of each claim; and
• the nature of the claim and whether secured, preferred or unsecured.

The application must be served on the Registrar of Companies.

Where the supervisor approves the application, they appoint a trustee, being either the person named in the application or subsequently notified by the insolvent person, or failing that, a person identified by them.

If the supervisor refuses the application, they must give reasons.

Involuntary Liquidation

Involuntary liquidation proceedings are conducted in court. One or more creditors may file an application for a receiving order. The application must state the debts owing to the creditor(s) which shall amount to not less than JMD300,000 and that the debtor has committed an act of bankruptcy within six months preceding the date of the application. In the case of secured creditors, the debtor must state the nature of the security, that the secured creditor is willing to give up their security for the benefit of creditors in the event that a receiving order is made or state an estimate of the value of security and whether the secured creditor intends to claim for the balance.

The application must be verified on affidavit.

The court may make the receiving order upon being satisfied by proof being supplied of all the facts alleged in the application.

The court will dismiss the application if it is not satisfied with the proof of facts alleged in the application or if satisfied with the debtor’s evidence that they are unable to pay their debts or are otherwise satisfied that no order ought to be made.

The court may order a stay of proceedings altogether or for a specified time.

Upon a receiving order being made, the court shall appoint a trustee of the debtor’s property.

An application for a receiving order may only be withdrawn with the leave of the court.

A debtor may also be forced into bankruptcy by the failure of a proposal to receive acceptance by its creditors. In such case the insolvent person is deemed to have made an application for an assignment.

Effect of Assignment or Receiving Order

An insolvent person who has made an assignment or against whom a receiving order has been made is referred to as a “bankrupt”. A receiving order or assignment takes precedence over all judicial and other assignments, garnishments, judgments. On the making of the order, the bankrupt has no capacity to dispose or otherwise deal with their property, subject to the right of the secured creditors. All the bankrupt’s assets pass and vest in the trustee named in the receiving order or certificate of assignment and the bankrupt has no more control over its affairs. The trustee replaces the management of the bankrupt company and assumes full control over the bankrupt company’s assets.

The trustee is required to file a notice of their appointment under the Security of Personal Property Act within 15 days. If the trustee does not, within 15 days, file any imperfected security interest, it shall be treated as unsecured debt. The trustee may file security interest perfected prior to the application for assignment or receiving order and it is treated as perfected as at the date of bankruptcy.

Where property of the bankrupt is in the possession of a bailiff having been seized by them in execution or other enforcement process, the bailiff must deliver the property over to the trustee upon receipt of a copy of the receiving order of the certificate of assignment. If the bailiff has sold property of the bankrupt, the proceeds must be turned over to the trustee.

Stay

Upon the bankruptcy of a debtor no creditor may commence or continue any proceedings for the recovery of a debt provable in bankruptcy until the trustee in bankruptcy has been discharged.

Secured creditors may proceed with realising or otherwise dealing with their security. Thus, secured creditors are outside of the bankruptcy proceedings, however, the court may order otherwise.

Proof of Claims

Every creditor who proves their claim shall be entitled to a share in any distribution that may be made. A claim is proved by delivering it to the trustee. The claim must set out the particulars of how the debt was arrived at and specify the manner in which it can be substantiated. Creditors are entitled to examine the proofs of claim of every other creditor. A secured creditor may prove the balance due to them after deducting the net amount realised on the realisation of the security. Where a secured creditor surrenders their security, they may prove their whole claim.

The trustee may require a person to file proof of security, including the value at which it is assessed by the secured creditor. The trustee may redeem the security on payment of the debt, or the value of the security as assessed by the secured creditor. The trustee may require that the security be offered for sale on terms and conditions as agreed between the trustee and the secured creditor, or as directed by the court.

The secured creditor may require the trustee to elect whether they will redeem the security or require it to be realised, and failing notification of their election, the equity of redemption shall be vested in the secured creditor.

The trustee determines whether any contingent or unliquidated claim is a provable claim and if so, shall value it. The trustee may disallow any claim or any right to priority or any security. Where the trustee disallows any claim or part thereof, they must provide reasons. Any creditor who is dissatisfied with the Trustee’s disallowance of their claim may appeal the trustee’s decision to the court within 30 days.

There is no statutory provision dealing with a creditor’s right to set-off, offset or netting.

Administration of the Bankruptcy

The trustee or receiver must call a meeting of the creditors within 21 days of the appointment of the trustee. At that first meeting the creditors may appoint inspectors.

The trustee has power to:

• take possession of the bankrupt’s property;
• conduct examinations and investigations into the bankrupt’s business and affairs;
• sell or dispose of the bankrupt’s property; and
• determine the claims of creditors.

The trustee may make distribution from time to time as required by the inspectors and must retain sufficient funds to pay claims that are disputed or not yet allowed. If a creditor fails to file a proof of claim within 30 days of the first meeting, the trustee can distribute without regard to that creditor. 

The trustee is required to report to every creditor in writing as to the condition of the bankrupt’s estate, the monies on hand and particulars of any property sold or remaining unsold. The creditors are entitled to inspect and take copies of the books and records of the administration.

Scheme of Distribution

The Act sets out the priority of payment in the following categories:

• the costs of administration, including legal fees and expenses of the trustee and the prescribed fees payable to the supervisor;
• statutory contributions, wages and salaries and all taxes payable by an employer; and
• secured creditors, applying priorities of respective securities.

The bankrupt’s assets are distributed to the creditors with proven claims pro rata after the priority and preferred creditors have been paid.

At the completion of the administration, the trustee applies to be discharged from their duties.

Timelines

There is no statutory timeline for insolvency proceedings. The process of voluntary liquidation is much shorter than involuntary liquidation. The assignment may be made by the supervisor in fairly short order since the supervisor may only refuse the application if it is not procedurally compliant. Once the certificate of assignment is issued and the trustee in bankruptcy is appointed, a meeting of creditors must be called within five days and the administration of the estate proceeds to completion.

The Act provides for summary administration in small bankruptcy estates. This is the only mechanism for expedition.

Involuntary liquidation, being a court-managed proceedings, is dependent on the availability of court dates as well as whether the proceedings are contested. If the application for a receiving order is not opposed, the order will be made on the date of first hearing. If the debtor opposes, there will be a trial at which the applicant must prove that the debt is due and owing and that the debtor committed an act of bankruptcy.

Distressed sale of assets is conducted by the trustee or receiver who may seek directions from the court prior to proceeding. A purchaser in such sale acquires good title free and clear of claims and liabilities. See 6.8 Asset Disposition and Related Procedures.

Within ten days of the date of the trustee’s appointment they must give notice of the first meeting of creditors. The meeting must be held within twenty-one days of the trustee’s appointment. This period may be extended by the supervisor for a period of ten days or if special circumstances exist up to thirty days, if they are satisfied that it is not detrimental to the creditors and is in the general interest of the administration of the estate.

At the first meeting of creditors, the appointment of the trustee is affirmed, or they may be replaced, their remuneration is fixed and directions are given with reference to the administration of the estate.

At any meeting of creditors, creditors may express their views as a class. A secured creditor may vote only as to the unsecured portion of their claim, unless they surrender their security. Only creditors whose claims have been admitted are entitled to vote.

The creditors appoint up to five inspectors to represent their interest. The inspectors (acting by majority) have the power to:

• require the trustee to call a meeting; and
• convene a meeting at any time when the trustee is unavailable or has neglected to call a meeting when so directed.

The inspectors’ duties are to verify the bank balance of the estate, examine the trustee’s accounts and enquire into the adequacy of the security filed by the trustee, approve the trustee’s final statement of receipts and disbursements, dividend sheet and disposition of unrealised property.

The inspectors are entitled to be reimbursed the actual and necessary travel expenses incurred in the performance of their duties and may be paid a fee for each meeting. They may also receive special fees for performing special services for the estate.

Recognition of bankruptcy or insolvency proceedings in other countries may be given on application to the court by the person appointed to administer the debtor’s property or to act as representative in respect of the foreign proceedings supported by copies of the instruments commencing or affirming the foreign proceedings and authorising the representative to act. All known overseas proceedings are to be disclosed. The court is empowered to make orders for the protection of the debtor’s property or the interests of creditors.

Once an overseas proceeding is recognised locally, the court and officeholders serving in any existing local proceeding must co-operate with the foreign court and representative as much as possible. Co-operation may include court approval or implementation of any agreements for co-ordination of proceedings and the appointment of persons to act at the direction of the court.

The Insolvency Regulations, 2015, provide the following guidelines regarding overseas proceedings.

Foreign Proceeding but no Existing Local Proceeding Under Insolvency Act

If the recognised foreign proceeding is out of the country in which the debtor has the centre of its main interests, then subject to any exceptions stated by the court, local actions against the debtor’s property (other than proceedings under the Insolvency Act) shall cease and none shall commence. The debtor is prohibited from disposing of property in Jamaica (including property relating to the business) outside the ordinary course of  business.

Foreign Proceeding and Existing Local Proceeding Under Insolvency Act

The local proceeding shall continue, and any orders obtained in respect of the foreign proceeding shall be consistent with orders in the local proceeding.

Local Proceeding Commences After Recognition of a Foreign Proceeding

The orders made by the local court in respect of the foreign proceeding are then subject to amendment or revocation to ensure consistency. Prohibitions against local actions or transactions in respect of the debtor’s property shall be made inapplicable, if inconsistent with prohibitions imposed in the local proceedings.

Multiple Foreign Proceedings

A proceeding in the country in which the debtor has the centre of its main interest will take precedence, and orders relating to other foreign proceedings will be reviewed to ensure consistency.

Foreign creditors are treated similarly to local creditors. However, a foreign creditor may be required to provide security for costs of a respondent named in the application.

Foreign judgments may be recognised by local courts provided that the judgment is from a country specified under the Judgments (Foreign) (Reciprocal Enforcements) Act (JFREA) or under the Judgments and Awards (Reciprocal Enforcement) Act (JAREA). Otherwise, the judgment must meet certain conditions of common law.

JAREA or JFREA

Application for registration must be made within twelve months (JAREA) or six years (JFREA) after the date of the judgment. Under JAREA the local court must be satisfied that it is just and convenient to enforce the judgment. Under JFREA the applicant must show that the judgment was final and conclusive of the issues between the parties and that at the date of the application the judgment could have been enforced in the country of origin. Under JAREA the judgment will not be registered if certain conditions are not met. However, under JFREA the judgment may be registered but the court sets a period during which the judgment cannot be enforced and during which registration could be set aside if cause is shown. Some of such conditions or causes include:

• original judgment was obtained by fraud;
• the original court did not have jurisdiction;
• the defendant did not appear in the original proceedings;
• the cause of action or enforcement of the judgment would be contrary to public policy locally; and
• there is an appeal or a right thereto and an intention to appeal the judgment.

Common Law

The judgment will be recognised if it:

• was handed down by a court of competent jurisdiction; 
• is final and conclusive;
• is enforceable by or under Jamaican law; 
• is in respect of a definite money debt and not immovable property; and
• does not contain a penalty.

Registered foreign judgments may be enforced in like manner as similar local judgments, including obtaining orders for seizure and sale of goods, sale of land, charging orders, attachment of debts, and appointment of receivers.

The following statutory officers may be appointed in proceedings under the Insolvency Act of Jamaica:

• trustees – bankruptcy, proposals (restructurings) and receivership proceedings;
• government trustee – bankruptcy;
• receivers – receivership; and
• inspectors – bankruptcy.

Trustees

Trustees must be licensed.

Bankruptcy

The bankrupt’s property is vested in the trustee who manages the administration of the bankrupt’s estate for the benefit of the creditors. The administration is subject to the directions of creditors and inspectors to whom the trustee reports. Trustees also provide certain reports to the Supervisor of Insolvency and the Registrar of Companies. Trustees are responsible for matters such as:

• verifying the bankrupt’s statement of affairs;
• convening meetings of creditors and/or inspectors;
• admitting or rejecting proofs of claims submitted by creditors;
• recovery and protection of the assets of the estate;
• delivering possession of property claimed;
• selling or disposing of property; and
• distributing dividends among creditors.

Proposals for insolvent persons or persons facing imminent insolvency

Where a trustee has agreed to act as trustee under a proposal, the trustee will, among other things:

• send notices to and convene meetings of creditors;
• review cash flow statements;
• assist in the preparation of the proposal and negotiations;
• notify the Supervisor of Insolvency and Registrar of Companies of the proposal;
• investigate and monitor the affairs and property of the person; and
• distribute property under the proposal if approved.

Government Trustee

A government trustee is appointed to administer the estates of bankrupts where no willing licensed trustee can be found and has the same roles, responsibilities and powers of licensed Trustees regarding the administration of a bankrupt’s estate.

Receivers

Receivers must be licensed trustees and are appointed to take possession or control of an asset or assets of an insolvent person in accordance with a security agreement or court order. The receiver will give notice of its appointment and provide reports on its receivership, as required. The receiver has a duty to act honestly, in good faith and to deal with the debtor’s property in a commercially reasonable manner. The receiver’s function is to use the proceeds of the property to realise the interest of their appointers.

Inspectors

Inspectors are appointed to oversee the trustee in the administration of the estate of a bankrupt and their functions include verifying bank balances, examining the trustee’s accounts, and approving the trustee’s final report. The inspectors may also convene meetings of creditors if the trustee has not done so.

Receivers

Receivers are appointed under the terms of a security agreement between the debtor and creditor or by the court under any law that provides for appointment of a receiver. A receiver appointed by court order may be replaced by special resolution of the creditors or by court order.

Trustees

Trustees may be designated by a debtor who wishes to file a proposal or who voluntarily applies for assignment of its property. This is subject to the right of the creditors to later replace the designated trustee by special resolution. Persons related to the debtor, such as wholly owned subsidiaries and directors, are not permitted to vote on the appointment of a trustee.

In involuntary bankruptcy proceedings, a trustee is appointed by the court when a receiving order is made on the application of a creditor or creditors who can show that the debt is above the statutory threshold and that the debtor has committed an “act of bankruptcy”, as defined. The creditors have the right, by special resolution, to replace any court-appointed trustee.

Trustees may also be removed by the Supervisor of Insolvency or by the court if grounds for removal are shown.

Government Trustee

A government trustee is appointed by the court or the Supervisor of Insolvency.

Inspectors

Inspectors are appointed by the creditors in a bankruptcy proceeding and there shall not be more than five inspectors. Persons related to the debtor are not permitted to vote on the appointment. Inspectors may be removed by the creditors at a meeting or by the court on the application of the trustee or a creditor.

Restrictions on who can Serve as Trustee

Trustees, receivers, or liquidators, in respect of persons related to a debtor, can only act in a debtor’s estate if they make full disclosure of those circumstances at the time of appointment. Certain persons with an existing or recent relationship with a debtor can only act as trustee of the debtor’s estate if they obtain permission from the Supervisor of Insolvency. Such persons include:

• a creditor;
• an employee;
• an employer;
• a director or officer and their employer/employee and immediate relatives;
• an auditor, attorney, accountant, and their employees;
• a partner; and
• a trustee in a trust settled by the debtor.

Under the Companies Act of Jamaica directors and officers of a company owe to the company a  fiduciary duty to act honestly and in good faith in the best interest of the company and to act with due care, diligence and skill that a reasonable prudent person would exercise in comparable circumstances.

Directors may be held to be personally liable for pre-insolvency obligations of the company and be subject to other sanctions where they have directed, authorised, assented to, acquiesced in or participated in the commission of certain offences such as:

• making a fraudulent disposition of property of the bankrupt;
• refusing or neglecting to answer fully and truthfully proper questions put to the company at any examination;
• making a false entry or knowingly making a material omission in a statement or accounting; and
• carrying out acts intended to conceal, destroy or misrepresent information regarding the property or affairs of the bankrupt or obtaining credit or property by false representation.

Directors who commit these offences may on conviction be liable to pay a fine or to imprisonment or both, or community service. Directors may also be ordered to pay a sum by way of compensation or satisfaction for any loss or damage suffered by someone consequent on the commission of the offence which, if not paid, is enforceable as any judgment in civil proceedings.

Further, directors may be held liable if they make certain distribution of funds, for example dividends, if the company is insolvent or if such distributions lead to the company’s insolvency.

Fiduciary breach claims against directors are pursued by the insolvency office holder.

Historical transactions may be set aside under the Insolvency Act on several grounds. These are outlined below.

Settlements

The term “settlement” includes any contract or transfer that is gratuitous or made for nominal consideration. Settlements of property made within the period beginning one year before the date of the initial bankruptcy event and ending on the date of bankruptcy are void. Additionally, settlements of property made within the period beginning five years before the date of the initial bankruptcy event and ending on the date of bankruptcy will be void if the trustee is able to prove that the debtor was, at the time of making the settlement, unable to pay its debts without the aid of the property transferred or that the interest of the debtor in the property did not actually pass to another person.

Assignment of Book Debts

The assignment of any book debts that are not paid as at the date of bankruptcy of a debtor is void unless the assignment is registered. However, this does not apply to the assignment of book debts due at the date of assignment from specified debtors, debts growing under specified contracts, and the assignment of book debts included in a transfer of business made in good faith for valuable consideration.

Preferences

Payments and other transactions entered into by an insolvent debtor which have the effect of giving a creditor a preference over other creditors are deemed to be fraudulent and void where they are made within the period beginning six months before the date of the initial bankruptcy event and ending on the date of bankruptcy. This period is extended to one year in the case of payments and other transactions in favour of related parties.

Transactions Between Initial Bankruptcy Event and Bankruptcy

Payments and other transactions with a bankrupt between the date of the initial bankruptcy event and the date of bankruptcy are void, except the following transactions carried out in good faith and in compliance with any restrictions under the Act affecting such payments (including the restrictions on settlements, preferences and reviewable transactions): (i) a payment to creditors by the bankrupt; (ii) a payment or delivery to the bankrupt; (iii) a transfer by the bankrupt for adequate or valuable consideration; and (iv) a contract or transaction by or with the bankrupt for adequate valuable consideration.

Reviewable Transactions

A reviewable transaction is any transaction entered into otherwise than at arm’s length. Where a bankrupt enters into a reviewable transaction within the period beginning one year before the date of the initial bankruptcy event and ending on the date of bankruptcy, the trustee may apply for the court to inquire into whether the bankrupt gave fair market value for the property or services. If the consideration given is determined to be conspicuously greater or less than fair market value, the court may give judgment to the trustee against the other party, and/or any other person privy to the transaction, for the difference between the actual consideration and the fair market value.

Dividends

If a bankrupt corporation pays a dividend, other than a stock dividend, or redeemed or purchased any capital stock of the corporation for cancellation within the period beginning one year before the date of the initial bankruptcy event and ending on the date of bankruptcy, the court may, on the application of the trustee, inquire into whether it took place when the corporation was insolvent or whether any such payment rendered the corporation insolvent. The court may give judgment to the trustee against the directors for the payment, with interest, unless the directors can show that they had reasonable grounds to believe that the transaction was occurring at a time when the company was solvent and the transaction would not render the company insolvent.

Where a transaction is deemed to be void or is set aside, the trustee can recover the property, the value of the property or the proceeds from the property, from the person who acquired it from the bankrupt or any other person to whom the property was resold or transferred, or that received the proceeds of the property. However, where a transferee has paid or given in good faith adequate valuable consideration for the property, the trustee’s only recourse will be against the person who entered into the transaction with the bankrupt for recovery of the amount paid or given or the value of the property.

When a proposal is made by a debtor, these restrictions will also apply to the proposal except where the proposal indicates otherwise.

The look-back periods for each transaction that may be set aside have been outlined above under 11.1 Historical Transactions. Look-back periods generally encompass a period of time commencing on a certain date prior to the initial bankruptcy event (whether six months, one year or five years before this date) and ending on the date of bankruptcy.

Claims to set aside or otherwise invalidate transactions are brought by the trustee.