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What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?
Insolvency and restructuring proceedings in the Bahamas are governed by:
- the Companies Winding-Up Amendment Act 2011;
- the Companies Liquidation Rules 2012;
- the Insolvency Practitioners Rules 2012;
- the Foreign Proceedings (International Cooperation) Liquidation Rules 2012; and
- the Foreign Proceedings (International Cooperation) (Relevant Foreign Countries) Liquidation Rules 2016.
On an international spectrum, is your jurisdiction more creditor or debtor friendly?
The Bahamas is a more creditor-friendly jurisdiction.
Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?
Are any reforms to the legal framework envisaged?
No proposals to reform the legislative framework are currently envisaged. However, recent court decisions in relation to personal bankruptcy proceedings have given rise to an acknowledgment for the need to reform that particular area of insolvency law.
Director and parent company liability
Under what circumstances can a director or parent company be held liable for a company’s insolvency?
A director can be held liable for a company’s insolvency where:
- the company has carried out insolvent or fraudulent trading;
- fraud has been committed in anticipation of winding up, with the intent to defraud the company’s creditors or contributories, in the 12 months preceding commencement of the winding up;
- creditors or contributories (ie, persons liable under the Companies Winding-Up Amendment Act to contribute to the assets of the company in the event that it is wound up and every holder of a company’s fully paid up shares) have been defrauded in the course of the winding up; or
- misconduct has occurred in relation to the company’s liquidators in the course of winding up, including material omissions to a company’s statement of affairs.
A director may be exposed to claims of negligence if he or she has breached his or her duty of care and skill to the company, or may be held personally liable if he or she has provided a guarantee to a creditor in relation to the company’s debts.
At common law, a director has a fiduciary duty to act in the best interests of the company. If the director acts in breach of this duty, he or she could be liable to the company for damages in relation to that breach.
Parent company liability A parent company will not ordinarily be liable for the debts of its subsidiary, because it is considered a separate legal entity. Therefore, unless an agreement has been made that it will be liable for the subsidiary’s debts, a parent company cannot be liable for the subsidiary’s insolvency.
However, the parent company can be held liable if it can be established that the subsidiary is a façade or sham seeking to avoid or conceal the parent company’s liability. In these circumstances, or where the parent company could be said to exercise such a degree of control over the subsidiary that the subsidiary is acting as its agent, the court may pierce the corporate veil.
What defences are available to a liable director or parent company?
The following defences are available to a director or parent company:
- There was no intent to defraud the company’s creditors or contributories.
- The director disclosed the relevant information concerning the company to its liquidators, to the best of his or her knowledge and belief.
- There was no intent to conceal the state of affairs of the company or to defeat the law.
- The director did not know – or could not have concluded – that there was a reasonable prospect that the company could avoid being wound up by reason of insolvency at any time before commencement of the winding up.
- After the director first knew – or ought to have concluded – that there was a reasonable prospect that the company could avoid being wound up by reason of insolvency, he or she took every step reasonably available to minimise the loss to the company’s creditors.
What due diligence should be conducted to limit liability?
In order to limit liability, directors should ensure that they take every reasonable step to minimise potential losses to the company’s creditors as soon as it becomes apparent that there is no reasonable prospect that the company will avoid being wound up by reason of insolvency.
Directors should also ensure that the steps taken are within the scope of that which a director of a company ought to know or ascertain, and that the general knowledge, skill and experience that may reasonably be expected of a director carrying out the same functions are exercised.
The test of the general knowledge, skill and experience of a director is generally that which a reasonably diligent person would have known, ascertained, reached or taken.
Position of creditors
Forms of security
What are the main forms of security over moveable and immoveable property and how are they given legal effect?
Under the Companies Act, ‘security interest’ is any actual or contingent interest in or charge upon any property of a company – by way of mortgage, bond, lien, pledge or other means – that is created or taken to secure the payment of an obligation of the company.
In the Bahamas, the main forms of security over moveable and immoveable property are:
- liens; and
- promissory notes.
A ‘mortgage’ is a transfer of an interest in property, subject to a right to redeem. It includes every instrument by which land is conveyed, assigned, pledged or charged as security for the repayment of money or money’s worth lent, and can be reconveyed, re-assigned or released on satisfaction of the debt.
A ‘debenture’ is a long-term security issued by a company and secured against assets of the company.
A ‘pledge’ is a deposit of goods according to a contract as security for a debt. The right to property or goods pledged vests in the creditor to the extent necessary to secure the obligation. A company may also pledge its shares as security.
A ‘charge’ gives an individual certain rights over property as security for the debt. The charge is usually given by way of debenture, and can be fixed (ie, attached to specific assets of the company which cannot be disposed of by the borrower) and/or floating, which extends to cover assets that may need to be dealt with by the borrower (eg, shares, stock or assets). When there is a default under a security document, the floating charge crystallises and becomes a fixed charge, and the creditor can sell the assets to enforce the debt.
A ‘lien’ is a legal right which usually arises where a creditor is legally entitled to possess an asset and moneys are due to the creditor for services carried out. The creditor is entitled to keep possession of the asset until the moneys are paid. A lien arises by operation of law based on the right to lawful possession.
A ‘promissory note’ (or ‘bill of exchange’) is a written order by one party to another to pay a sum accepted or endorsed on behalf of a company by a person acting under the company’s authority, or if expressed to be made, accepted or endorsed on behalf or account of the company by a person acting under the company’s authority.
Mortgages and debentures have legal effect once executed and registered in accordance with the Conveyancing and Law of Property Act, the Companies Act and the Registration of Records Act. Floating charges also have similar legal effect under a debenture.
Ranking of creditors
How are creditors’ claims ranked in insolvency proceedings?
In insolvency proceedings, all creditors’ claims are ranked pari passu (ie, equally), subject to taking into consideration and giving effect to the rights of preferred and secured creditors, which take priority. The legal rights of creditors with mortgages or charges over a company’s assets (ie, secured creditors) are unaffected by the ranking of creditors, because secured creditors are entitled to enforce their security without leave of the court.
After the claims of secured creditors have been satisfied, the order of creditors’ claims in insolvency proceedings is as follows:
- the expenses of the liquidation, insofar as there are sufficient assets to meet them, including the liquidator’s fees and disbursements;
- preferential debts, which are all rates, taxes, assessments or impositions imposed or made under the provisions of any act;
- sums due by the company to employees – whether employed in the Bahamas or elsewhere – for salaries, wages and gratuities accrued in the four months preceding commencement of the winding up;
- wages due to any worker or labourer for services rendered to the company in the two months preceding the relevant date (ie, the date of commencement of the winding up or, in the case of a company ordered to be compulsory wound up which had not commenced winding up voluntarily, the date of the winding up order);
- sums due and payable by the company on behalf of employees in respect of medical health insurance premiums or pension fund contributions;
- sums due by the company to former employees in respect of severance pay and earned vacation leave, where employment contracts have been terminated as a consequence of the company being wound up; and
- sums due to workers for personal injury accrued before the relevant date, unless:
- the company has, on commencement of the winding up, an insurance contract with rights capable of being transferred to – and vested in – the workers; or
- the company is being wound up voluntarily merely for the purpose of reconstruction or amalgamation with another company.
Can this ranking be amended in any way?
No, although the collection and application of an insolvent company’s property in insolvency proceedings is also subject to any agreement between the company and its creditors that the creditors’ claims will be subordinated or otherwise deferred to those of any other creditors, and to any contractual rights of set-off or netting of claims between the company and any party.
What is the status of foreign creditors in filing claims?
Foreign creditors are treated equally in a liquidation, as all creditors’ claims are ranked pari passu after taking into consideration and giving effect to the rights of preferred and secured creditors.
Foreign taxes, fines and penalties may also be admitted and proved as debts against the company in a liquidation, to the extent that a judgment in respect of those debts against the company would be enforceable by law or in accordance with the Reciprocal Enforcements of Judgments Act (a Bahamian law which permits judgments from certain countries to be enforced on the basis of reciprocity).
Are any special remedies available to unsecured creditors?
By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?
Creditors can bring legal proceedings to obtain a judgment to recover unpaid debts owed by a Bahamian company and can seek to enforce or sue on the judgment.
Secured creditors may appoint a receiver over a charged asset to enforce their security, subject to the terms of the security instrument. A receiver can also be appointed where it is just and equitable to do so.
If a foreign judgment has been obtained, proceedings can be brought to seek to have the judgment registered in the Bahamas, pursuant to the Reciprocal Enforcement and Judgments Act. Registration of the judgment can be followed by enforcement proceedings.
Finally, depending on the facts of the case, a creditor may seek to recover unpaid debts by bringing proceedings to:
- pierce the corporate veil if necessary;
- freeze the assets of the company by way of a Mareva injunction; or
- seek proprietary tracing claims, including Norwich Pharmacal relief, which may also result in the discovery of further assets to satisfy debts owed by the company.
Is trade credit insurance commonly purchased in your jurisdiction?
No. An alternate mechanism used by trade creditors is to include a retention of title clause in the business or trading contract. This allows trade creditors to retain title to the goods supplied until they have been paid.
What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
In a compulsory liquidation, procedures may be initiated if:
- the company has passed a resolution requiring it to be wound up by the court;
- the company does not commence business within a year of incorporation or suspends business for a year;
- the company is insolvent (ie, it is unable to pay its debts as they fall due or the value of its liabilities exceeds its assets);
- the number of members is reduced to fewer than two;
- the court is of the opinion that it is just and equitable for the company to be wound up; or
- a regulator petitions for the winding up of a company over which it has regulatory authority and whose licence or registration has been suspended or revoked.
A company will be deemed unable to pay its debts if:
- a creditor (by assignment or otherwise) to which the company is indebted in the prescribed minimum has served a statutory demand on the company requiring that it pay the sum due and, for three weeks following the demand, the company has neglected to pay the sum or to secure or compound for it to the creditor’s satisfaction;
- the execution of another process issued on a judgment, decree or order – obtained either in the court in favour of any creditor at law or in equity in any proceedings instituted by the creditor against the company – is returned unsatisfied in whole or in part; or
- it is proved to the satisfaction of the court that the company is unable to pay its debts.
Voluntary liquidation Alternatively, a company may be liquidated voluntarily if:
- the shareholders resolve to liquidate the company voluntarily, whether or not the company is insolvent;
- a winding-up event has occurred under the company’s memorandum or its articles provide that the company shall be wound up;
- the company resolves by resolution passed by a majority of at least three-quarters of its members that it be wound up voluntarily; or
- the period fixed for the duration of the company in its articles has expired or is under the supervision of the court.
A regulator can also apply to place a company in provisional liquidation.
No entities are explicitly barred from initiating such procedures.
What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
The primary procedure to liquidate an insolvent company in the Bahamas is either compulsory liquidation or voluntary liquidation.
In a compulsory liquidation, a company is wound up by a creditor of the company if a creditor is owed debts by the company or if the company is unable to pay its debts. The key feature is that, after taking into account the rights of secured and preferred creditors, unsecured creditors can recover equally with other creditors proportionately to the value of their debt, provided that there are sufficient assets to meet their claims. A compulsory liquidation or winding up commences with a petition being presented to the court to wind up the company. The process is then overseen by the court.
A company can also be liquidated voluntarily:
- by majority of its shareholders;
- where the company resolves by resolution to be wound up voluntarily because it is insolvent; or
- based on the articles of association.
A voluntary liquidation commences with the passing of a shareholders’ resolution to wind up the company voluntarily.
A company may also be liquidated voluntarily if a fixed period has terminated or a winding-up event has occurred.
A voluntary liquidation does not require court supervision if the directors of the company have filed a declaration of solvency. However, a compulsory liquidation requires the court to oversee the process and liquidators to file periodic reports with the court. If a declaration of solvency is not filed within the prescribed timeframe in the case of a voluntary liquidation, the liquidator should apply to the court for an order that the liquidation continue under the court’s supervision.
In a voluntary liquidation, a company which carries on a regulated business is required to serve notice of the winding up on the relevant regulator.
A company may also be placed in provisional liquidation for a limited period, where the intention is to preserve and maintain the company’s assets before having the company liquidated.
How are liquidation procedures formally approved?
Liquidation procedures are formally approved either by order of the court in a compulsory liquidation or by resolution of the members in a voluntary liquidation.
In a compulsory liquidation, the winding-up order of the court provides for certain steps to be taken by the liquidator and approved by the court. In a court-supervised liquidation, the liquidator files reports with the court setting out the steps taken in the liquidation. In a voluntary liquidation, a plan of dissolution can set out the steps to be taken in terms of the winding-up procedure.
In both a compulsory and voluntary liquidation, a liquidation committee can be established. In the case of a compulsory liquidation, the committee is established by an application of creditors. In a voluntary liquidation, the committee is established by the shareholders.
The liquidator to report to the liquidation committee and answer its requests through meetings and other agreed modes of communication.
What effects do liquidation procedures have on existing contracts?
Existing contracts may be rescinded by the court when an application is made by the party entitled to the benefit or subject to the burden of the contract. If a contract is rescinded, damages can be recovered as a debt in the liquidation. Otherwise, an existing contract may be continued if it is beneficial to the company’s creditors. Some contracts (eg, contracts of employment) are automatically terminated on liquidation of the company.
What is the typical timeframe for completion of liquidation procedures?
A voluntary liquidation can be concluded within months. However, a compulsory liquidation may take much longer, depending on the value of the assets and any potential litigation arising from the liquidation.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
A liquidator in a compulsory liquidation is appointed by an application made to the court by way of a petition for the winding up of a company brought by:
- the company;
- any creditor or creditors, including any contingent or prospective creditor or creditors;
- any contributory or contributories (ie, every person liable under the Companies Winding-up Amendment Act to contribute to the assets of the company in the event that it is wound up and every holder of a company’s fully paid up shares); or
- a relevant regulator, pursuant to the regulatory laws, which seeks the liquidation of the company and appointment of a liquidator simultaneously.
Provisional liquidator A liquidator can be appointed provisionally at any time after the presentation of a winding-up petition but before the making of a winding-up order, if there is a prima facie case for making a winding-up order and the appointment of a provisional liquidator is in the public interest or necessary to prevent:
- the dissipation or misuse of the company's assets;
- the oppression of minority shareholders; or
- mismanagement or misconduct on the part of the company's directors.
A company may also seek to appoint a provisional liquidator on the grounds that:
- the company is – or is likely to become – unable to pay its debts; and
- the company intends to present a compromise or arrangement to its creditors.
Voluntary liquidator In a voluntary winding up, one or more voluntary liquidators may be appointed by resolution of the company for the purpose of winding up its affairs and distributing its assets. Alternatively, when a voluntary liquidation is commenced in accordance with the company’s memorandum or articles upon the termination of a fixed period or the occurrence of an event, the person designated as liquidator in the memorandum or articles automatically becomes liquidator. If no such person is designated or the person so designated is unwilling to act, the directors can convene a general meeting for the appointment of a new liquidator.
Any person, including a director or officer of the company, may be appointed as a voluntary liquidator.
The appointment of a voluntary liquidator takes effect upon filing with the registrar of the consent to act, unless the voluntary liquidator is designated as liquidator in the company’s memorandum or articles. Where a liquidator is appointed, all powers of the directors, cease unless the company (in a general meeting) or the liquidator approves their continuance.
The voluntary liquidator is responsible for preparing reports and accounts on the conduct of the liquidation and the state of the company’s affairs. The reports provide a narrative description and analysis of the steps taken and, in the case of an interim report, the further steps intended to be taken in the liquidation. The reports must contain the necessary information to enable members to make an informed decision about the company’s financial condition.
The voluntary liquidator’s accounts should include details of:
- the nature of the company’s assets;
- any security over the company’s assets;
- the amount realised on sale of the company’s assets and the estimated realisable value of any unsold assets;
- the nature of the company’s liabilities (including contingent liabilities), the amounts paid in satisfaction of those liabilities and the amount remaining unpaid;
- the nature and amount of the company’s income;
- the expenses of the liquidation;
- the amount of the liquidator’s remuneration; and
- the amounts distributed and available for distribution to members.
The reports must be sent to the company’s members with notice of a general meeting for the purpose of approving the reports and accounts. The voluntary liquidator can also send the reports to creditors whose debts have not been satisfied, if requested to do so.
A voluntary liquidator has the same powers and functions as an official liquidator.
Official liquidator The duties and functions of an official liquidator include:
- collecting, realising and distributing the assets of the company to its creditors and, if there is a surplus, to the persons entitled to such assets in accordance with the Companies Winding-Up Amendment Act; and
- investigating and reporting to the company's creditors and contributories on the affairs of the company and the manner in which it has been wound up.
Official liquidators may exercise the following powers with the court’s permission:
- bring or defend any action or legal proceeding in the name and on behalf of the company;
- carry on the business of the company as necessary for its beneficial winding up;
- dispose of any company property to a person that is or was related to the company;
- pay any class of creditors in full;
- make any compromise or arrangement with creditors or persons claiming to be creditors or alleging to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or for which the company may be liable;
- compromise, on such terms as may be agreed, all debts (and liabilities capable of resulting in debts) and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory, alleged contributory, other debtor or other person apprehending liability to the company;
- deal with all questions relating to the company’s assets or winding up;,
- take any security for the discharge of any call, debt, liability or claim and give a complete discharge in respect of it;
- sell company property by public auction or private contract, with power to transfer the whole of it to any person or to sell the same in parcels;
- raise or borrow money and grant securities over company property; and
- disclaim onerous property.
Official liquidators may exercise the following powers without the court’s permission:
- take possession of and collect the property of the company, taking any proceedings considered necessary for that purpose;
- execute, in the name and on behalf of the company, all deeds, receipts and other documents, using the company seal where necessary;
- prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against its estate, and receive dividends in respect of that balance as a separate debt due from the bankrupt or insolvent and rateably with the other separate creditors;
- draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the company, with the same effect in respect of the company's liability as if the bill or note had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business;
- promote a scheme of arrangement pursuant to Section 158 of the Companies Winding-Up Amendment Act;
- convene meetings of creditors and contributories;
- engage staff (whether or not as employees of the company) to assist the liquidator in the performance of his or her functions;
- engage counsel, attorneys and other professionally qualified persons to assist the liquidator in the performance of his or her functions; and
- do all other things incidental to the exercise of a liquidator’s powers.
What is the extent of the court’s involvement in liquidation procedures?
In a compulsory liquidation, the liquidator must file reports with the court concerning the steps taken within three months of the winding-up order being issued or as the court directs (at minimum, once a year).
In a voluntary liquidation, the liquidator may apply to the court for an order that the liquidation continue under the court’s supervision, unless the directors have signed a declaration of solvency within the prescribed timeframe.
Where the company has passed a resolution to wind up voluntarily, the liquidator or any contributory or creditor may apply to the court for an order that the winding up continue under the court’s supervision despite the declaration of solvency, on the grounds that:
- the company is or is likely to become insolvent; or
- the court’s supervision will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors.
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
Involvement Creditors may be involved in liquidation procedures by joining the liquidation committee which is appointed at the first creditors’ meeting.
Creditors may also be involved by attending creditors’ meetings. These are held in the first instance within 90 days of the winding-up order and thereafter are called as the liquidator sees fit or as otherwise directed by the court.
The court encourages creditors’ involvement in liquidation procedures and must have regard to the wishes of creditors or contributories. It may also call creditors’ meetings and direct that liquidators prepare reports for that purpose.
Creditors and contributories may also call meetings, for which notice must be circulated to all known creditors of the company.
In a voluntary winding up, the liquidator, creditors or contributories may apply to the court for the determination of any questions arising in the winding up. If the court considers that the determination of the question or the required exercise of power is just and beneficial, it may accede wholly or partly to the application.
Prohibited action When winding-up proceedings are commenced, no proceedings may be brought against the company except with leave of the court and a liquidator can apply to stay any pending proceedings against the company.
If an action is pending against the company in a foreign court, the company or any creditor may apply to the court for an injunction to restrain further proceedings. Once a winding-up order is made, any attachment, distress or execution put in force against the company’s estate or effects after the commencement of the winding up is void.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
Upon commencement of a compulsory winding up, the directors and other officers of the company remain in office, but cease to have any duties, functions or powers, other than those required or permitted by the statute.
The company ceases to carry on business from commencement of the winding up, although its corporate state and status continue until it is dissolved. Directors’ involvement in liquidation procedures is therefore limited, as the powers exercisable by the liquidator mostly supersede the directors’ powers and liquidators may commence legal proceedings against directors if necessary.
Shareholders Shareholders’ rights are subordinated to creditors’ rights in a winding up.
In a voluntary winding up, shareholders may call contributories’ meetings. Contributories are notified of the winding-up proceedings and have the right to be heard. Where there is a solvent liquidation, a liquidation committee is also appointed at the first contributories’ meeting.
Liquidators report to contributories on the affairs of the company and the manner in which it has been wound up. Liquidators or contributories may convene contributories’ meetings.
Contributories may also be part of the liquidation committee where a company is of doubtful solvency.
What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?
Restructuring procedures in the Bahamas are limited to companies incorporated under the Companies Act and the International Business Companies Act. As described below, restructuring procedures are based solely on a reorganisation of a company’s share capital, merger with a subsidiary company or consolidation with a foreign company.
There is no restructuring procedure in the form of a corporate rescue (eg, US Chapter 11 proceedings) in the Bahamas.
In specific circumstances, a Bahamian company in liquidation through its provisional liquidators has previously cooperated with US courts through cooperation with a Chapter 11 trustee, but the use of such procedures to facilitate corporate restructuring remains limited.
However, liquidators appointed in the Bahamas have a statutory duty to consider whether to enter into international protocols with foreign officeholders where:
- a Bahamian company in liquidation is the subject of a concurrent bankruptcy proceeding under the law of a foreign country; or
- the assets of a company in liquidation located in a foreign country are the subject of a bankruptcy proceeding or receivership under the law of that country.
The duty to cooperate may facilitate greater flexibility for restructuring procedures in the future.
No entities are expressly barred from initiating such procedures.
What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?
The primary restructuring procedure is an arrangement involving the reorganisation or reconstruction of a company, or the separation of two or more businesses carried on by a company, where:
- the directors of the company determine that it is in the best interests of the company; or
- the creditors, members or directors by resolution approve a plan of arrangement containing details of the proposed arrangement.
This is distinct from a scheme of arrangement, which is available in some other jurisdictions.
How are restructuring plans formally approved?
Restructuring plans are formally approved by the directors, who may by resolution approve a plan of arrangement containing details of the proposed arrangement. Upon approval of the plan, the company applies to the court for approval of the proposed arrangement. The plan of arrangement is then executed with the articles.
What effects do restructuring procedures have on existing contracts?
When an arrangement is carried out, any transfer of a contract is treated as a transfer by law. Transfers by law do not constitute breach of contract, as arrangements will also be approved by the court.
What is the typical timeframe for completion of restructuring procedures?
A few months, provided that significant court involvement is not required and there is no significant dispute by dissenting shareholders.
What is the extent of the court’s involvement in restructuring procedures?
In the case of an arrangement, the company applies to the court for approval of the arrangement. The court may make an interim or final order and determine:
- what notice (if any) of the proposed arrangement must be given to any person;
- whether approval of the proposed arrangement by any person should be obtained and the manner of obtaining it; and
- whether any holder of shares, debt obligations or other securities in the company may dissent from the proposed arrangement and receive payment of the fair value of shares, debt obligations or other securities.
The court may conduct a hearing and permit any interested persons to appear. It may approve or reject the plan of arrangement as proposed or with amendments.
What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?
Creditors may be notified of the proposed arrangement and are permitted to appear and approve or reject the plan of arrangement as proposed.
Under what conditions may dissenting creditors be crammed down?
This is not applicable.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in restructuring procedures?
Members may dissent from any proposed arrangement and may be entitled to payment of the fair value of their shares upon dissenting from a merger, consolidation, sale, transfer, lease exchange or other disposition of more than 50% of the company’s assets or business.
Directors are responsible for submitting any relevant plan of arrangement once the resolution has been passed.
Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?
Informal work-outs are available, to the extent that provisional liquidation and receiverships are available. A provisional liquidator may be appointed to present a compromise or arrangement to creditors, while a receiver may continue to carry on the business and seek to arrange a sale of the company or its secured assets.
Some creditors may also reach a compromise with the company, rather than commence liquidation proceedings.
Setting aside transactions
What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?
The Companies Liquidation Rules and the Companies Winding-Up Amendment Act govern the setting aside of an insolvent company’s transactions.
A transaction which may be set aside is a voidable preference. A ‘voidable preference’ is a conveyance or transfer of property, or charge, payment obligation or judicial proceeding, which is made, incurred, taken or suffered by a company in favour of a creditor at a time when the company is unable to pay its debts, to give the creditor preference over other creditors, within the six months before the commencement of liquidation. Such transactions may be deemed invalid.
Transactions made at an undervalue can also be set aside if it is found that the transaction amounts to a disposition of property made at an undervalue by or on behalf of the company with intent to defraud its creditors.
The burden of establishing intent to defraud rests with the official liquidator.
After investigating the company’s affairs, the official liquidator can challenge such transactions.
Operating during insolvency
Under what circumstances can a company continue to conduct business during an insolvency procedure?
A company can continue to conduct business during an insolvency period where it could be considered that carrying on the business would be beneficial for the company’s winding up.
Stakeholder and court involvement
To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?
From the commencement of insolvency proceedings, directors and other officers remain in office, but their functions, duties and powers cease, except for limited purposes (eg, to transfer share capital with leave of the court). The liquidator therefore assumes the role and responsibility of conducting the company’s business, unless the directors’ approval is necessary to perform some functions on behalf of the company.
Shareholders cannot exercise powers under the company’s memorandum and articles of association, unless pursuant to the Companies Winding-Up Amendment Act, and only the court can permit certain alterations to be made to the company’s share capital.
Creditors may be involved to the extent that their approval may be sought if the company is to continue to carry on business, if it is believed that this could result in some surplus to creditors.
Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?
Yes – a liquidator can exercise this power if approved by the court. The court may consider whether this would be for the benefit of the company and its creditors, and whether due diligence should be exercised by the liquidator.
Effect of insolvency on employees
How does a company’s insolvency affect employees and the company’s legal obligations to employees?
Employment contracts are automatically terminated by the onset of insolvency proceedings. In the case of a voluntary winding up, the company will cease to carry on its business from the commencement of winding up, except insofar as it may be beneficial for its winding up. Some employees may therefore be retained if necessary for the winding up of the company.
Recognition of foreign proceedings
Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?
The Bahamian court will recognise a ‘foreign representative’ (defined as a trustee, liquidator or other official appointed in respect of a debtor for the purposes of a foreign proceeding) appointed in a foreign proceeding – including an interim proceeding – in a relevant foreign country, pursuant to a law relating to liquidation or insolvency, in which the property and affairs of the ‘debtor’ (defined as the foreign corporation or other foreign legal entity subject to foreign proceedings in the country in which it is incorporated or established) are subject to control or supervision by a foreign court, for the purpose of reorganisation, rehabilitation, liquidation or bankruptcy of an insolvent debtor.
The Bahamian court may make an order recognising the right of a foreign representative to act in the Bahamas on behalf of or in the name of a debtor and, in the court’s discretion, to do so jointly with a qualified insolvency practitioner. Once recognised, the court may also make ancillary orders, such as:
- granting a stay of proceedings or enforcing a judgment against a debtor;
- requiring certain persons with information concerning the debtor’s business or affairs to be examined or to produce documents; or
- ordering the turnover of the debtor’s property to the foreign representative.
Winding up foreign companies
What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?
The court has jurisdiction to make winding-up orders in respect of:
- an existing company;
- a company incorporated and registered under the Companies Winding-Up Amendment Act;
- a body incorporated under any other law; and
- a foreign company which:
- has property located in the Bahamas;
- is carrying on business in the Bahamas; or
- is registered as a foreign company in accordance with the Companies Act.
Centre of main interests
How is the centre of main interests determined in your jurisdiction?
The centre of main interests is determined by the company’s place of incorporation and the location of its registered office. The court may also consider the expectations of creditors which may contemplate the opening of insolvency proceedings in the Bahamas.
What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?
The Bahamian courts seek to encourage international cooperation and can grant recognition to foreign representatives appointed in foreign proceedings in 142 countries.
Liquidators have a statutory duty to consider whether to enter into international protocols with foreign officeholders where:
- a Bahamian company in liquidation is the subject of a concurrent bankruptcy proceeding under the law of a foreign country; or
- the assets of a company in liquidation located in a foreign country are the subject of a bankruptcy proceeding or receivership under the law of that country.
Law stated date
Correct as of
Please state the date of which the law stated here is accurate.
January 2 2017.