The New Face of the Insolvency Regime in The Bahamas

July 18, 2012

By Edmund Rahming
Published in: The Bahamas Investor

Historically, insolvency procedures in The Bahamas have been governed through the application of the Companies Act, 1992 and the International Business Companies Act ,2000. While these laws worked well for many years, there was a need to modernize them given the economic development in The Bahamas and our status as a prominent offshore financial centre.

In December of 2011, the Companies (Winding Up Amendment) Act, 2011 (referred to here as the Law) was enacted, replacing Part VII-the Winding up of Companies provisions of the Companies Act, 1992 and introducing a new Part VllA-the International Cooperation provisions.

In addition to the Law,three complementing rules and regulations are set to be promulgated in 2012. They include the Companies Winding Up Rules, 2012, the Foreign Bankruptcy Proceedings (International Co-operation) Rules,2012, and the Insolvency Practitioners Regulations ,2012.

There are three key areas of improvement that will result when the Law comes into effect this year. They are as follows:

  • Common Nomenclature: The Law is to a degree based on the Cayman Islands Companies Amendment Law 2007, with a few features from the Bermuda and BVI Companies insolvency regimes.This should result in modernization of the insolvency regime in The Bahamas, and more significantly in insolvency practitioners in The Bahamas gaining greater ability to communicate using common nomenclature with their competitors in the financial services industry in the region.
  • International Prospective: The Law now widens the scope of international cooperation to be provided by the Bahamian court. Section 254 provides that upon application the court may make orders ancillary to a foreign proceeding.
  • Greater Flexibility:Section 251 of the Law provides for substantial rule­ making scope to be delegated to a Liquidation Rules Committee. This reduces the need for parliamentary action in the future to keep a pace with developments. Section 186 of the Law also provides relevant regulators (The Central Bank of The Bahamas,the Securities Commission of the Bahamas, and the Insurance Commission) with standing to petition for the winding up of a company whose license is revoked or suspended.

Another two bills addressed tax compliance and cooperation, namely:

  • The Bahamas and the United States of America Tax Information Exchange Agreement (Amendment) Bill, 2011; and
  • International Tax Cooperation (Amendment) Bill, 2011.

Two further bills dealt with modernizing and improving the company liquidation regime (see sidebar) with a bill to repeal and replace Part VII of the Companies Act,which governs  the winding up of companies. The proposed new companies’ liquidation regime will be applied  to International Business Companies  by the companion bill to amend the International Business Companies Act that incorporates the relevant parts of the Companies Act. The existing rules are to be replaced with the following new rules:

  • Companies Liquidation Rules, 2011;
  • Insolvency Practitioners Rules, 2011; and
  • Foreign Proceedings (International Cooperation) Liquidation Rules, 2011.

Wealth Management

Of particular interest to certain members of the financial services sector are the bills to reform the wealth management sector.The Attorney General andlaw officers from the Law Reform and Revision Commission worked closely with the industry to provide four bills that are expected to go far to improve the qua ity and attractiveness of the trust services product offered in The Bahamas. Those bills are:

  • Trustee (Amendment) Bill, 2011;
  • Purpose Trusts (Amendment) Bill, 2011;
  • Rule Against Perpetuities (Abolition) Bill, 20 11; and
  • Executive Entities Bill, 2011

The new legislation helps The Bahamas retain a keen competitive edge in the international arena. “We are entering an important new phase for financial services in The Bahamas,” says Aliya Allen, chief executive officer and executive director of the Bahamas Financial Services Board (BFSB). “This new and revised legislation seeking to

advance our legislative frontier to the

forefront of client solutions is coming into force, concurrent with updates to the regulatory regime. These, we believe, will enhance our ability to service clients in an unprecedented  manner .”

Enhanced  legislative environment

By enhancing the legislative environment, the jurisdiction  can continue to promote itself internationally with confidence and authority. “We are committed to developing The Bahamas brand,” says Delaney. “That brand will be synonymous with a clean environment and good regulation. We believe that in a world where personal wealth, commerce and investments are more mobile than ever, The Bahamas is perfectly positioned to be the smartest, safest and simplest financial centre for connecting the world’s fastest growing economies and for serving those wealthy individuals with them.”

However, regulators must remain vigilant. Speaking on the Rule Against Perpetuities (Abolition) Bill at a legislative seminar held in Nassau earlier this year, barrister and international trust expert David Brownbill cautioned that although the new legislation was a tremendous step forward, the process was ongoing and much work still needed to be done. “If you aim for perfection first time around, then you are never going to finish,” he said. “We may have not done everything right first time. There may be inconsistencies. We may have missed some opportunities. But this is a dynamic process and it doesn’t end here.”

For further details on specific acts visit the government website: www.bahamas.gov.bs.