The Tribune

• Accountant: COVID makes reform urgent

• Proposes alternatives to 1870 legislation

• Warns too many losing prime earning years

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must urgently modernise its centuries' old personal bankruptcy laws to prevent hundreds of persons being marginalised post-COVID-19, a top accountant warned yesterday.

Ed Rahming, Intelisys (Bahamas) founder and managing director, told Tribune Business the pandemic had made it "more important than ever before" to modernise laws dating from 1870 and give debt-shackled Bahamians the opportunity to free themselves from a burden that could last most of their working lives.

Writing in a column on Page 2B in this newspaper today, Mr Rahming argued that the Act needed to be reformed such that debtors have "options" enabling them to work out legally binding agreements with their creditors to repay some of what is owed under the supervision of the Bahamian court system.

He suggests two options, the first being a "consumer proposal" where a debt-stricken person agrees to pay a percentage of their unsecured debts over a five-year period in exchange for the remainder being fully forgiven. This would avoid the stigma of being declared bankrupt while providing debt relief, with the newly-formed Credit Bureau monitoring to make sure no new debt is taken on.

Mr Rahming also called for a "bankruptcy" alternative where insolvency practitioners would liquidate the assets of persons unable to repay their debts, with the sums recovered used to pay-off the amount outstanding on a monthly basis. Once the debts are cleared - something he suggested could be achieved in 12 months - then the debtor is discharged.

The Intelisys chief said this marked a sharp change from the current creditor-driven process, where a court-appointed trustee takes over every asset and aspect of life for Bahamians who are declared bankrupt, with the impacts "severe" and long-lasting.

And, with COVID-19's fall-out of high unemployment and reduced incomes likely to be with The Bahamas for some time to come, Mr Rahming argued that it was vital to act now given that increasing numbers of Bahamian individuals and households will be unable to service their debts once lenders end their payment deferral initiatives.

He told this newspaper that unless the Bankruptcy Act 1870 was reformed, along with its accompanying rules that were brought into effect in 1958, numerous Bahamians will be "left behind" and condemned to a life on the margins unable to participate in the formal economy due to the debt burden they are carrying.

Warning that the wider consequences involve "economic instability" and "social unrest", Mr Rahming - himself a well-known insolvency practitioner - said he had personally dealt with bankruptcy cases where debtors were taking home as little as $40 per week from their salary.

"The Bankruptcy Act is 1870, and the rules that go along with it are 1958," he told this newspaper. "It's very out-of-date. It's very creditor driven, and not the best process for allowing debtors to be proactive and try and make arrangements with creditors.

"That is absolutely necessary. There are a lot of people that find themselves in difficult circumstances that would be able to take advantage of a process supervised by the court, and proactively come up with settlement arrangements with their creditors, and get on with their life rather than them burdened with so much debt during most of their income-earning years.

"The Bahamas has changed a lot since 1870. The way credit is allocated has changed significantly since 1870. The Bahamas is not in the same place it used to be, so persons that find themselves burdened by debt need more options than be hammered over the head by a Bankruptcy Act from 1870 and lose so much of their livelihood in terms of their assets and reputation," Mr Rahming added.

"Whatever assets they have, they currently lose. Put in laws that are more modern, more lenient and allow them to proactively sell their assets. Rather than them being a burden to society they can quickly fix with creditors the position they are in so they have a new start, start afresh and learn how to manage debt.

"What happens now is that persons who find themselves in a precarious position with more debt than they can service on a monthly basis, that continues with them for an indefinite period; a long time. Over time it causes instability in the economy because we have so many people left out of the marketplace, and not able to buy a house because they have too much debt. Eventually it will cause social unrest."

Mr Rahming argued that a modernised Bankruptcy Act, which allowed debtors to "get back on their feet" under court and credit bureau supervision, was now "more important" than ever due to the impact of COVID-19.

Acknowledging that the pandemic's effects are "just beginning", and could "get worse before it gets better", he added: "I think more than ever before modernising the bankruptcy laws is needed to ensure that persons aren't left behind as a result of what is happening in the economy right now. People are unable to service their debt and we don't know when we will come out of it.

"In The Bahamas, bankruptcy is presently not an option for many people and there's a stigma attached to it that's very significant. If we modernise the laws I think you'll find more persons will participate in the process and move on with their lives as opposed to what's happening right now with a class of people, a group of persons, living month-to-month unable to make ends meet because they took on so much debt at a young age.

"Modernising the bankruptcy laws so that their needs can be addressed in a modern, accountable and transparent manner would lead to more stability in our economy and more persons able to participate in the marketplace and earn a piece of the economic pie."