The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tibunemedia.net

The Bahamas was yesterday urged to consider whether to reform its insolvency laws and offer companies a path to Chapter 11-style reorganisation, following the recent $3.5 billion Baha Mar dispute.

Gowon Bowe, the PricewaterhouseCoopers (PwC) Bahamas partner, who was a presenter at a Bahamas Institute of Chartered Accountants (BICA) seminar, told Tribune Business this nation does not offer any protection for companies seeking protection from their creditors while they reorganise.

“We either have receiverships or liquidations,” he said. “The liquidation is often considered the death knell-type route. While there is provision in the common law for there to be agreements, for there to be an emergence from the liquidation process, ultimately the conclusion of a liquidation is the sale, or disposal and settlement, of the actual obligations.”

“In the United States they have Chapter 11, which people automatically assume is reorganisation, but there is not always reorganisation. They have what they term the ‘363 sale’, which means that when a business goes into Chapter 11, effectively the owners of the business seek to get it sold and that is not a fire sale process; it is an auction process because it is court-upervised like our liquidation process can be;certainly in the case of insolvency. The sale route in the United States is considered the shorter of the two routes, with the alternate route being the reorganisation plan.”

Mr Bowe added: “When we put it all in the context of the Bahamas, liquidation is an end result. We have the route of receivership, which means taking over the assets of the business in order to pay creditors. Whether it’s Chapter 11 or receivership, the ultimate goal is to pay creditors.

“The differences are in the details; the nature of the legislation, the role and responsibilities of the various participants in Chapter 11. The shareholders in Chapter 11 remain in control to a certain extent, although they have to get the buy-in of the creditors. In voluntary liquidation it goes into the hands of the court appointed liquidators, who assume the role of directors and management. From that perspective there is a huge difference between the two.”

Mr Bowe said the Bahamas needs to consider whether it will evolve its insolvency practices to more ‘codified’ procedures. “The winding-up rules in 2011 sought to do that where certain things like jurisdiction, who could petition and how things would play out; those aspects were put into the Winding-Up Rules of 2011 and codified.

“Now, do we evolve to where we have formal reorganisation plan rules, which don’t change receiverships/liquidations but add, if you will, an element?

“While there are variations between liquidations and Chapter 11, the principles are very much the same. One has a codified system and the other has a common law system,” he added.

“In our case we have to avoid saying which one would have been better and look at the facts and circumstances, and say which jurisdiction would have been appropriate. We as a financial services sector, major investment hub and FDI attractor need to consider whether we need to expand our laws and regulations on business operations around insolvency to ensure there is a clear path, as opposed to the open common law jurisdiction.”