The Tribune

By NEIL HARTNELL

Tribune Business Editor

CHANGES to Bahamian insolvency law will prevent directors/shareholders from putting companies into voluntary liquidation for "sinister reasons", a leading accountant yesterday arguing that the amendments bring this nation "into line with model international law".

Ed Rahming, managing director of KrYs Global (Bahamas), told Tribune Business that the Companies (Winding Up Amendment) Act had placed Bahamian law and insolvency experts - typically accountants - "on a level playing field with competitors" in the Caribbean and globally.

Detailing what he viewed as the main improvements to the legislation, Mr Rahming said the winding-up of insolvent companies originally placed into voluntary liquidation must now be court-supervised. This had not been mandated previously, and created an opportunity for directors and shareholders to place their firms into liquidation for unsrcupulous reasons.

Pointing out that the Act also now required that qualified specialists be appointed to wind-up insolvent firms, Mr Rahming explained: "In the past, with voluntary liquidations, it was fine for a shareholder to put forward a resolution to voluntarily liquidate an entity. It was not mandated that it be court-supervised."

This, he added, could allow Bahamian companies to be placed into voluntary liquidation "for sinister reasons".

But, in contrast, Mr Rahming said the Companies (Winding Up Amendment) Act "allows for greater transparency" when it comes to the winding-up of Bahamas-domiciled entities, acting as a barrier to foul play.

"This puts us in line with the model internationally," he told Tribune Business. "Now, only solvent entities can be placed into voluntary liquidation. Insolvent entities placed into voluntary liquidation must be court-supervised, and their liquidations must be court-supervised by a qualified insolvency practitioner.

"Previously, it could have been done by a shareholder, director or corporate secretary. It [the law] allows for the possibility of things not being done in the interests of all parties. That's fairly significant. Insolvent voluntary liquidations must be court-supervised."

Elsewhere, Mr Rahming told Tribune Business that Section 199 (3) provided Bahamian companies with the ability to seek protection from its creditors via a provisional winding-up Order, giving it time to seek settlements and compromises with those it owes monies to.

"Where creditors are forcing an entity into liquidation and it can't pay its bills, in the past creditors could have a provisional liquidator appointed and force the issue right away," he said. "The provisional liquidator, duly appointed, could say the company is insolvent and it would go into liquidation. This, though, allows the company to petition the court, saying it's insolvent and can't pay its bills, but that it wants to reach a compromise with creditors."

Mr Rahming added: "They take this step before the creditors. The court will grant the company relief, and a stay of proceedings, as it works out a compromise.

"It allows the company protection from creditors, time to re-organise its affairs and emerge as a going concern. It puts the company in the driver's seat to reach a compromise with creditors, laying the cards on the table, saying it can't meet the payments, and reaching a compromise. It gives companies a period to be proactive, to reorganise and emerge as a going concern."

Other notable reforms, the KrYS Global managing director added, were that the Act now provides for the Supreme Court to rule on "alternatives" to winding-up a company, when presented with petitions seeking this action on "just and equitable grounds".

Citing as an example an oppressed minority shareholder, moving to wind-up a company because he is being excluded from all information related to its affairs, Mr Rahming told Tribune Business: "The court now has the ability to say: 'That's probably not the best way to deal with this'.

"The court has remedies regarding the conduct of the company's affairs in the future, stipulations as to what occurs, requiring shareholders to refrain from activities complained of by the petition, allowing civil proceedings brought against the company by the petitioner on terms the court may dictate, and stopping the repression of shareholders by other shareholders.

"There are alternatives now when you have dissenting or oppressed minority shareholders, providing them with alternatives."

When it came to international insolvency proceedings with a Bahamas connection, Mr Rahming said the new Act's Section 254 provided for international co-operation, and for the Bahamian courts to grant 'ancillary orders' to facilitate their actions relating to entities domiciled here.

The reforms, he added, codified the necessary procedures in law, improving both the perception - and reality - of the Bahamas' co-operation in international insolvency proceedings.

"Over the last 25 years, the Bahamas has seen the vast majority of its liquidations involve multijurisdictional litigation and recovery," Mr Rahming told Tribune Business.

"As a result, the court has seen a large volume of cross-border insolvency cases, and while case law and practice in the Bahamas is largely viewed as open and cooperative in cross-border cases, the new insolvency regime seeks to codify the law consistent with the objectives of the UNCITRAL model law."

The latter acronym stands for United Nations Commission on International Trade Law, and Mr Rahming told Tribune Business of the new Act: "It makes the Bahamas, not stand out, but fall more in line with the model law, and puts us on the same playing field as competitors as it relates to co-operation between jurisdictions in the international financial services industry."