DEBTORS may have another avenue out of insolvency or indebtedness if a new regime which provides greater protection for those individuals or corporations is adopted under the Insolvency Act, 2022.

The Act, which is now under review by a joint select committee of Parliament, will aid 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.

Speaking at Thursday’s committee meeting, Supervisor of Insolvency Ferdinand Smith explained that part three of the Act is critical as it introduces a proposed regime for debtors which is new to this jurisdiction.

“This regime is very interesting because the debtor may make [a] proposal or arrangement with creditors and if that proposal succeeds, then the debtor comes out of indebtedness or insolvency and can start afresh,” he said.

Financial media website Investopedia explains that insolvency is when an individual or company can no longer meet their financial obligations to lenders as debts become due, while bankruptcy is a legal proceeding initiated when a person or business is unable to repay outstanding debts or obligations.

Smith noted that one of the key provisions of the proposed regime is that when a notice of proposal is filed, all proceedings against the debtor are stayed. The debtor then has up to six months with his trustee to file a proposal.

In response to committee chair Senator Aubyn Hill’s question as to who has the right to initiate the proposal, Smith noted that Section 11 of the Act gives a list of individuals who may initiate the proposal. However, all of those people are connected somehow to the debtor, like a receiver. But there was a recommendation to expand that list.

“We are asking that the creditors be added to that list and this is a recommendation from the World Bank. It has been said that jurisdictions which allow creditors to make or to initiate proposals, that they have a very strong credit market and that is attractive to entrepreneurs,” Smith said.

Hill later explained to committee members that the process can only be initiated by either the creditor or the debtor if insolvency has been reached.

“So the creditor is not going to put the debtor in insolvency,” he said.

Smith said experience has shown that many debtors could have been saved from bankruptcy if there was tenuous intervention, “and we think that a creditor, provided that the debtor is insolvent, then it might be helpful to the debtor for a creditor to intervene with the proposal”.

Smith said part six of the Bill is also an innovative provision as it provides for assignment, where the debtor may go into bankruptcy without the intervention of the court.

“He comes to the supervisor and applies for an assignment, that is, all his property to be assigned to a trustee for distribution to the creditors,” he explained.

Opposition committee member Anthony Hylton said the amendments proposed are very interesting, particularly in relation to the creditor being able to initiate proceedings.

“The initiative, as it was originally proposed, sought to give a measure of protection to the debtor and the extent to which the creditor now is able to initiate the proceedings. There are a number of questions in terms of the direction in which that goes because… what was innovative about this [proposed] amendment to the Act was the ability to enter into a scheme of arrangements without going into receivership and bankruptcy, which then has a potential of destroying the business. So I would be very interested to know and understand,” he said.

The Insolvency Act, which was enacted in 2015, provides for the regulation of insolvency for both individual and businesses. It also ensures the fair allocation of the costs of insolvency with the overriding interests of strengthening and protecting the country’s economic and financial system and the availability of flow of credit within the economy.

The Act is administered by the Office of the Supervisory of Insolvency (OSI), a department of the Ministry of Industry, Investment, and Commerce.

The OSI regulates the licensing of insolvency practitioners, inspects or investigates the administration of states by the trustees, records complaints regarding the administration, and intervenes in court proceedings where it is expedient to do so.