Dear Editor,
The Tribune reported on September 29, 2023, that Attorney General Ryan Pinder, while addressing a financial conference, referred to The Bahamas' insolvency regime as "a joke."
He also noted that companies are leaving The Bahamas because of our outdated legislation regarding insolvencies.
The Bahamas' major legislation governing company insolvency and restructuring includes The Bahamas Companies (Winding up Amendment) Act, 2011, The Bahamas International Business Companies (Winding Up Amendment) Act, 2011, The Bahamas Insolvency Practitioners Rules, 2012, The Bahamas Companies Liquidation Rules, 2012 and The Bahamas Foreign Proceedings (International Cooperation) Liquidation Rules, 2016.
Additionally, we have still not seen fit to amend the Bankruptcy Act of 1870.
Many persons who practice as insolvency practitioners will support the attorney general's description of our proceedings.
The Bahamas describes itself as a "creditor friendly" jurisdiction, as do most of our competitors, including Bermuda, the British Virgin Islands, and Cayman Islands.
It is believed that most of our competitors deliberately keep the creditor-friendly identification to attract foreign business and protect foreign investors.
However, how much protection is provided by legislation formed in the early 1900s?
Pinder noted that to remain competitive, we should seek to urgently update our laws as they "instill no confidence in sophisticated structuring of companies on a commercial basis in The Bahamas."
There is some support for what the attorney general noted, especially regarding cross-border insolvency.
INSOL, an international body of insolvency and bankruptcy practitioners, and the Restructuring and Insolvency Specialist Association (Bahamas) (RISA) support the continuous development of insolvency regimes to reflect current business trends (although I am not a spokesperson for either organization).
INSOL recommends the adaptation of the UNCITRAL Model Laws for cross-border insolvency. These laws were adopted by the United Nations Commission on International Trade Laws in 1985 and amended in 2006.
In order to see the need for change, we need only look at the two most recent cases of cross-border insolvencies in The Bahamas.
These are the ongoing matters or FTX and the previous attempt of the previous owner of Baha Mar to seek redress in the USA under Chapter 11 bankruptcy protection.
The Bahamian government opposed the filing, but I think the opposition related more to how it was done than the procedure itself.
Indeed, many international companies seek redress under the US Bankruptcy Code because of the relief offered to debtors when a company is distressed.
Under our current laws, when a company is distressed, the remedy is to declare the company insolvent and appoint a provisional or permanent liquidator.
This is despite the possibility that all stakeholders may be better off if a company is allowed to restructure and, for example, seek additional financing.
This is allowed to some extent with the provisional liquidator if a "soft touch" approach is used, but the debtor cannot remain in control of the assets.
This is the most significant benefit of seeking protection under a US Bankruptcy Code or the UK's Scheme of Arrangements under Part 26 Companies Act 2006.
Traditionally in the UK, four stand-alone options were available to distressed companies seeking to restructure debt.
These include a contractual workout, a Company Voluntary Arrangement (CVA), a scheme of the arrangement, and administration.
There are advantages and disadvantages to each of these options. Additionally, combining these options is common to maximize several advantages.
Notably, the UK and the USA (through Chapter 15 in the Bankruptcy Code) have adopted the key elements of UNCITRAL model laws.
Both the USA and the UK present insolvency infrastructure that facilitates cross-border insolvencies.
Indeed, both jurisdictions have had numerous international cases that allow global companies with worldwide assets to be litigated.
When seeking an appropriate jurisdiction for cross-border insolvencies, insolvency practitioners and governments seeking to strengthen their insolvency regimes should be aware of the laws and options available in the insolvency jurisdiction and how they may serve the various stakeholders.
The USA and UK bankruptcy proceedings have developed below the political horizon over time. In both jurisdictions, professional practitioners contributed to the development of insolvency proceedings.
Practitioners in countries currently reviewing their insolvency proceedings should follow and choose the jurisdiction that offers the type of relief sought and the benefits of litigating in either country.
Pinder said, "We need to lead from the front and be innovative."
As an insolvency practitioner in The Bahamas, at our practice at HLB Bahamas, we look forward to and would welcome a revamping of our insolvency regime to reflect the 21st century.
Most large companies are global, and our laws are too restrictive.
The allowance for restructuring under the auspices of the courts would be a welcome addition and a standstill agreement (an agreement to halt unsecured creditors actions) that allows a distressed company breathing room to seek new finance, new management, sell unproductive assets, and cancel unprofitable contracts.
Forming specialist bankruptcy courts alongside the Supreme Court controlled by judges with prior experience in bankruptcy proceedings would also go a long way in developing our jurisdiction to enable the development of an insolvency regime attractive to large companies seeking to litigate outside of the USA or the UK.
These changes may allow us to jump ahead of the competition, as noted by our attorney general.
Yours sincerely,
— John S. Bain
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