TRADITIONALLY, the issue of insolvency law reform, has received little attention in Jamaica, despite clear recognition that the laws in Jamaica are outdated. Jamaica’s insolvency laws are currently comprised in several distinct pieces of legislation dating back to the 19th century: the Bankruptcy Act, 1880 (dealing primarily with individuals) and the Companies Act 2004 (dealing with corporate insolvencies and receiverships) and the UK Winding Up Rules, 1948 (setting out much of the procedure). Although the Companies Act was updated in 2004 the provisions dealing with insolvency were left unchanged from the 1946 Act which it repealed. The view is often expressed that there are little or no votes in insolvency law and therefore the issue often ends up low in the list of priorities for the political directorate.

As times get hard, however, and discussions swirl regarding the bitter pill which Jamaica needs to face, the question of how does one deal with the question of insolvency in Jamaica begins to take on more significance. Insolvency is an issue which could touch anyone, whether big or small, corporate entities or individuals and is a critical area of concern for investors into the Jamaican market who want to know what the impact of insolvency will be on the recovery of their investment. The issue of insolvency law reform therefore is likely to be a focus of some attention in the coming months.

The guiding philosophy for the review of Jamaica’s insolvency laws have been focused on “creating an environment which aids in the rehabilitation of debtors and the preservation of viable companies having due regard to the protection of the rights of creditors and other stakeholders and a fair allocation of the costs of the insolvencies with the overriding interest of strengthening and protecting the country’s economic and financial system”.

One of the major themes underpinning the recommendation for modern legislation for Jamaica therefore is that the new operating environment for insolvency must place primary emphasis on facilitating rescue and rehabilitation. In seeking therefore to extend beyond simply schemes of arrangement, recognised now under existing law but involving significant court involvement, has evolved the concept of “proposals”. An insolvent person, or as recommended, a person facing looming insolvency (so as to ensure that persons do not have to wait until they actually fall off the cliff before seeking rescue), a receiver, liquidator, bankrupt or trustee of the estate of a bankrupt can seek to rehabilitate the insolvent person, looming insolvent or bankrupt by seeking to make a proposal for a composition, extension of time or scheme of arrangement with their creditors generally, either as a group or separated into classes or with secured creditors.

Allowance is made for the filing of a notice of intention to file a proposal to allow for time to prepare the proposal. Once the notice of intention to file, or the proposal itself has been filed, a number of reliefs are extended to the debtor geared at allowing him the time and space needed to see if he will be able to work things out with his creditors: eg prohibition against termination or amendment of the agreement or accelerated payments, restriction against exercise by creditors of certain remedies, preservation of rights to use or deal with certain assets. These restrictions will not apply however to certain financial contracts which it is recognised are of particular importance to the development of the financial markets in Jamaica. It is critical, however, as we contemplate the protection to be extended to these types of contracts, that we ensure that the realities of Jamaica’s capital market, in particular, the realities of the repurchase market in Jamaica are kept in mind as these special clauses are prepared to ensure that, whether such transactions are viewed as outright sales or secured lending, that the right to set off and complete those transactions will not be hindered and result in greater damage to our capital markets.

The creditors’ acceptance of the proposal is critical. However a court must also be satisfied that that the terms are reasonable and calculated to benefit the general body of creditors. The court will therefore reject a proposal if it will not achieve at least 25 cents in the dollar on all the unsecured claims (or such other percentage as the court directs), or does not provide for the payment in priority of all preferential claims or for the payment of employees and former employees.

Most countries faced with modernising their insolvency laws have, like the Committee, sought to “facilitate rescues rather than just process failures” (UK Cork Committee Report on Insolvency, 1982). These countries have, however, each grappled with how to achieve this, particularly in light of the balancing act that such a shift will necessarily require between the implications for creditor rights, the hope that the bankrupt can be rehabilitated and the lingering need to punish. The overwhelming sense, however, is that there needs to be a mechanism which allows action to be taken quickly and early and that by doing so this will benefit not only the debtor, but also the creditor and by extension, the country at large. This will, however, require a change in the way we view a debtor engaged in bankruptcy proceedings, a change in the way creditors operate in dealing with debtors and a change in the way the proceedings are commenced, carried out and completed.

Hilary Reid is a Partner at Myers, Fletcher & Gordon and a member of the Firm’s Commercial Department. Hilary may be contacted at hilary.reid@mfg.com.jm or through https://www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice. It is also an extract from an article which previously appeared in the JAMBAR Journal.