The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday urged to further reform the Bahamas’ “all or nothing” insolvency laws, a leading commercial attorney yesterday describing them as “archaic” and needing to become more “humane”.

Fred Smith QC, the Callenders & Co partner, told Tribune Business that rather than focus on its mortgage relief plan, the Christie administration would better serve the Bahamas by reforming the bankruptcy/insolvency laws through enacting something akin to US Chapter 11 procedures, protecting homeowners and businesses from “the vicious guillotine of debt”.

And, backing calls by Trades Union Congress (TUC) president, Obie Ferguson, for employees and their severance pay to be treated as priority creditors when their employer went into bankruptcy/liquidation, Mr Smith said such an amendment to the Employment Act would bring it into line with maritime legislation.

He also supported the Government’s moves to protect employee pension schemes, draft legislation for which is currently in circulation.

Arguing for further insolvency law reform to protect businesses and homeowners struggling with temporary cash flow problems, Mr Smith said: “In this very challenging economic time, which has especially plagued Grand Bahama for so long, it would behove the Government to consider enacting legislation that gives protection to homeowners, companies going into liquidation or persons going into bankruptcy.

“In the US there is a system that exists, called Chapter 11 procedures, where persons in dire financial straits can go to the court for protection from creditors.

“This allows them to re-organise the business, to defer a payment to creditors, to allow settlement of debts that may be due, and generally to provide some kind of equitable opportunity for the business to stay alive,” Mr Smith added.

“There is nothing worse than the... draconian debt and creditor arrangements in the Bahamas where it’s all or nothing - you pay or you lose.”

Pointing out that “in many instances” businesses and homeowners were technically ‘rich’ in assets or equity, but suffering from liquidity and cash flow problems, Mr Smith told Tribune Business that strengthening the protection for such cases should be the Government’s priority, not its proposed mortgage relief plan.

“More important, there should be a complete overhaul of the creditor and debt collection system,” Mr Smith told Tribune Business, suggesting that any reform should give Bahamian businesses/homeowners time to access the equity they have built up or re-organise their affairs/companies.

The end result, he added, would ensure that homeowners and businesses “do not lose something they may have spent decades over, or put blood, sweat and tears into.

“To encourage a little bit more of a humane approach to debt recovery in the Bahamas would be a good social policy for the Government to pursue,” Mr Smith added.

“I certainly hope that the Government enacts protective legislation, so that the vicious guillotine of debt does not destroy a person’s life work.

“At any given time, many businesses and individuals have cash flow challenges, and for a creditor to be able to simply serve a statutory demand that puts a business into compulsory liquidation after 21 days is archaic in this day and age.”

In fact, the Ingraham administration already implemented steps to increase protection from creditors, at least as far as Bahamas-based companies and International Business Companies (IBCs) are concerned.

Ed Rahming, managing director at the KRyS Global accounting firm, told Tribune Business earlier this year that Section 199 (3) of the Companies (Winding-Up Amendment) Act provided Bahamian firms with the ability to seek protection from creditors via a provisional winding-up Order, giving them 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.”

Meanwhile, Mr Smith praised TUC president, Mr Ferguson, and Shane Gibson, minister of labour, for moving to address the issue of what happened to employee severance pay in the event their employer went bankrupt, or was placed into liquidation.

Agreeing that workers and sums owed to them should be placed at the head of the creditor queue, the well-known QC added: “I have read the comments by Mr Ferguson regarding securing severance pay in the event of a company going into liquidation or an employer going bankrupt.

“I think it’s essential, just as in the maritime legislation. There are priority payments under Admiralty law, for creditors, particularly seamen’s wages as first priority. Likewise, in the Bahamas there should be priority payments for severance and notice pay.”

Mr Smith also urged the Government to protect employer-sponsored pension plans, and staff entitlements under them.

“They should also enact laws that segregate pension funds that may be under the control of the employer, so that in the event of liquidation or bankruptcy pension funds are protected from creditors or, alternatively, protected from employers who, being a little cash light, dip into the pension fund,” he added.

The Christie administration committed to enacting legislation to protect employee pension funds during its first 100 days in office, and Tribune Business understands that a draft Bill is already circulating.

Much of the Bill is understood to contain the recommendations made by the Ingraham administration’s Pension Reform Committee. The only new provision is one that would allow Bahamian employees access to their pension funds during an emergency, something that has caused some concern, given the already-low savings rate in the Bahamas.