The main source of law relating to corporate insolvency in Jamaica is Part

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1 Jamaica Myers, Fletcher & Gordon and PricewaterhouseCoopers Jamaica Peter Goldson, partner Gina Phillipps-Black, partner Shuana-Kaye A Hanson, associate Myers, Fletcher & Gordon John Wesley Lee, partner Caydion E O Neil Campbell, senior manager PricewaterhouseCoopers The main source of law relating to corporate insolvency in Jamaica is Part V of the Companies Act 2004, which came into operation on February The Companies Act incorporates by reference several sections of the Bankruptcy Act 1880, which applies primarily to personal bankruptcy. The insolvency provisions of the Companies Act are similar to the UK Companies Act 1948 and as such the UK Winding-Up Rules 1949 provide guidelines for company insolvency procedures. In Jamaica, the term bankruptcy is usually associated with individual insolvency and the terms winding-up and liquidation are used in respect of corporate insolvency. 1. The legal framework and the effectiveness of court processes/legal remedies 1.1 Describe the nature and the effectiveness of the following: (a) Debt recovery remedies where the creditor has no security Although unsecured debts are not attached to any of the debtor s assets, depending on the circumstances, an unsecured creditor may: enforce remedies which may have been provided for in contracts or otherwise by agreement between the creditor and the company, such as set-off arrangements; petition the court pursuant to the Companies Act for a winding-up order on the grounds that the company is unable to pay its debt(s); or bring an action in court to enforce the contractual obligation to repay the debt; if successful, the court may issue: an order for seizure and sale of the company s assets; an order for the appointment of a receiver; a charging order; an attachment of debts order; and prior to final judgment of the court, an interim freezing order (or Mareva injunction) preventing the company from using its assets. (b) The enforcement of security Where there is default in the repayment of a debt, the secured creditor may seek to enforce its rights pursuant to the terms of the security instrument and subject to any applicable law relating to its enforcement (eg, a mortgage under the Registration of Titles Act). The security may be in the nature of a floating or a fixed charge on all or some of the property of the company. The charge creates a security over the particular asset identified, such as a mortgage in respect of land or a bill of sale in respect of equipment. The usual practice is for the creditor to secure the appointment of a receiver by the court or by virtue of an express or implied power under the charge. 324 The Americas Restructuring and Insolvency Guide 2008/2009

2 Myers, Fletcher & Gordon and PricewaterhouseCoopers Jamaica The duty of the receiver is to take custody and control of the assets that are covered by the debenture or subject to the charge and to realise them where necessary, using the proceeds to satisfy the debt. Generally, it is not within the receiver s authority to carry on the business of the company. However, especially where there is a floating charge over most or all of the assets of the enterprise, powers of management will be necessary if the security is to be most beneficially realised by its sale while the business is a going concern. It is for this reason that instruments evidencing debt tend to include the express power to appoint a person as receiver as well as a manager, in order to provide the most effective debt recovery mechanism for secured creditors. A receiver appointed by a creditor owes a duty only to the creditor in respect of whose interest it was appointed, and not to the general body of creditors. However, a court-appointed receiver is not an agent of anyone, but rather an independent officer of the court. The overall effectiveness of the receivership depends to a large extent on the ability to appoint a receiver to act quickly prior to the company s assets being dissipated or becoming otherwise unavailable for satisfaction of the creditor s debt. (c) Corporate bankruptcy/liquidation processes Under the Companies Act, either the company (through a general meeting) or its creditors may initiate the winding-up or liquidation process. Provided that all the requirements of the Companies Act are adhered to, the winding-up is effective in liquidating the company s assets and ensuring that the creditors, contributories (including shareholders) or other interested persons receive sums to which they are entitled, to the extent that the company s assets are sufficient to satisfy these. The end result is that the company is dissolved and the company removed from the Register of Companies. Outside the context of a winding-up, according to the Companies Act the registrar of companies may exercise his discretion to strike defunct companies from the register. Where a company has been dissolved, the court may at any time within two years of the dissolution, upon application by the liquidator or any other interested party, declare the dissolution void. However, where the registrar has struck a company from the register, the registrar may restore the company to the register on an application brought by the company, or any member or creditor, within 20 years of publication of the striking-off notice in the Jamaica Gazette. (d) Formal corporate rescue processes The principal formal corporate rescue procedure available under the insolvency regime is a compromise arrangement. The process is cumbersome, dilatory and expensive. It is initiated by a court order summoning a meeting at which a majority of creditors or class of creditors present or voting either in person or by proxy, and representing three-quarters in value of the debt, may agree to a compromise arrangement with the company. A compromise arrangement is usually for less than the actual amount owed and is thoroughly scrutinised and documented by the court; if sanctioned by the court, a compromise arrangement is binding on all (whether agreeing or dissenting) creditors of that class. This provision is geared towards a decisive compromise and pay-out to creditors and may avoid the sale of the company by a receiver or liquidator. The process is more frequently used by a large solvent company to compromise with creditors which are threatening the solvency of the company. The Companies Act also facilitates amalgamation and reconstruction, which in appropriate circumstances may be a useful survival strategy. Court-appointed administrators are not part of insolvency law in Jamaica. Neither of the two processes mentioned above is suitable for small to medium-sized companies because of the expense involved in the process. This often leaves liquidation as the only viable option for these types of company. (e) Informal corporate rescue processes Given the irreversibility of formal insolvency procedures, informal rescues outside the scope of the Companies Act are not uncommon and may be used as the first approach to address pending insolvency. Such rescue strategies include debt restructuring, conversion of debt to equity, moratoriums and informal receiverships. The disadvantage of informal arrangements is that they are not binding on creditors which are not party to the agreement and which are thus at liberty to petition the court to wind up the company. Furthermore, if the company is subsequently wound up, directors may incur unlimited personal The Americas Restructuring and Insolvency Guide 2008/

3 Jamaica Myers, Fletcher & Gordon and PricewaterhouseCoopers liability for fraudulent trading as they would have been trading while insolvency was pending. However, a finding of liability requires proof that the directors were dishonest in continuing to trade (see also section 1.5). 1.2 What are the formal processes to effect a liquidation of the company s assets? There are three main ways to effect formally a liquidation of the company s assets. Compulsory winding-up: An application to the court for the winding-up of a company may be made by petition by the company, a creditor, a member of the company or all of these parties together. The court may order that a company be wound up if: the company resolves that it be wound up in this way; the court is of the opinion that it is just and equitable that the company should be wound up; or the company is unable to pay its debts, which means that a creditor which is owed in excess of J$500,000 (as at December , $1 equalled approximately J$71) has demanded payment and the sum remains unpaid. A copy of the winding-up order made by the court must be delivered by the company to the registrar of companies and it operates for the benefit of all creditors and all contributories of the company. The trustee in bankruptcy plays an active role in this type of winding-up, providing periodical reports in respect of the liquidation process and acting as the liquidator until another may be appointed. The powers of the liquidator are varied: it may bring or defend legal action in the name of the company and may carry on the company s business as is necessary for winding-up. A committee of inspection may be appointed to work in conjunction with the liquidator to oversee the process. After completing the winding-up, if the liquidator applies to the court for the company to be dissolved the court may issue an order to that effect and the company is dissolved accordingly. Voluntary winding-up: A company may be wound up voluntarily if the company resolves by special resolution that the company be wound up voluntarily or by extraordinary resolution to the effect that, by reason of its liabilities, the company cannot continue its business and it is advisable to wind up the company. A voluntary winding-up commences at the time of the passing of the resolution to wind up the company. Notice of the resolution to wind up must be published in the Jamaica Gazette and delivered in writing to the registrar within 14 days of the passing of the resolution. There are two types of voluntary winding-up: Members voluntary winding-up in this type of winding-up the directors are required to make a statutory declaration of solvency stating that they have made a full inquiry into the affairs of the company and are of the opinion that the company will be able to pay its debts in full within 12 months of the commencement of winding-up. A liquidator is appointed by the company in general meeting and is to provide details of the company s accounts and its dealings with the company. If during its tenure the liquidator forms the opinion that the company will be unable to pay its debts during the 12-month period, it is obliged to summon a meeting of the creditors and advise them concerning the assets and liabilities of the company. After the summoning of the creditors meeting, the winding-up becomes to all intents and purposes a creditors winding-up. Creditors voluntary winding-up after the resolution to wind up has been passed, the creditors will meet and consider the liability of the company to each creditor. The creditors and the company have separate meetings, and at the respective meetings a party is nominated to be liquidator. If the creditors and the company nominate different parties, the party nominated by the creditors will be appointed as the liquidator. The creditors may also appoint an inspection committee to supervise the windingup process. After the affairs of the company have been fully wound up, the liquidator will prepare an account showing how the windingup has been conducted and the property of the company disposed of, and summon a meeting of the creditors to discuss the account which is later filed with the registrar. The registrar is to register the account along with particular details concerning the meeting of creditors. Three months from the registration thereof, the company shall be deemed to be dissolved. Winding-up subject to court supervision: After passing a resolution for voluntary winding-up, the court may make an order that the voluntary 326 The Americas Restructuring and Insolvency Guide 2008/2009

4 Myers, Fletcher & Gordon and PricewaterhouseCoopers Jamaica winding-up shall continue subject to the court s supervision. The court may impose such terms and conditions as it thinks fit, with such liberty for creditors, contributories or others to apply to the court. 1.3 What is the effect on debt collection and the enforcement of security of: (a) An adjudication of corporate bankruptcy/liquidation? If, before the presentation of a petition for the winding-up of a company by the court, a resolution had been passed by the company for voluntary winding-up, the winding-up of the company is deemed to have commenced at the time of the passing of the resolution. In all other cases of winding-up by the court, winding-up commences at the time of the presentation of the petition for winding-up. Where there is any action (including an action for debt recovery) pending against the company, a creditor or contributory may apply to the court at any time after the commencement of the windingup proceedings, but before a winding-up order has been made, to restrain further proceedings in the action and the court may stay or restrain the proceedings accordingly. Upon the making of the winding-up order, no action or proceeding may continue or be commenced against the company without the permission of the court. The liquidator, having received the approval of the court, the committee of inspection or the company in general meeting, and having regard to the type of winding-up, may pay any class of creditors in full or make any compromise or arrangement with creditors of the company. In a voluntary winding-up any arrangement entered into between a company about to be or in the course of being wound up and its creditors is binding on the company if approved by an extraordinary resolution, and on the creditors if it is acceded to by three-quarters in number and value of the creditors. A floating charge on the property of the company will be deemed invalid (except to the extent of any cash paid to the company at or after the creation of and in consideration for the charge together with 6 per cent interest on that amount) if it is created within 12 months of the commencement of the winding-up, unless it is proved that the company was solvent immediately after the creation of the charge. (b) The commencement of formal rescue process? Once the court approves a compromise arrangement, all creditors of the class to which the approval relates are bound. Those that are not bound may petition to wind up the company or pursue other enforcement procedures expressly created by a security instrument. See also section 1.1(d). (c) The initiation of an informal rescue process? See section 1.1(e). 1.4 Are insolvency procedures started in another jurisdiction in respect of a corporation incorporated in your jurisdiction recognised? In particular, what would be the impact of bankruptcy proceedings being commenced in the United States? There are no provisions, international conventions or treaties governing the effect in Jamaica of foreign insolvency proceedings on a Jamaican incorporated entity. However, the Jamaican courts would usually regard insolvency proceedings commenced in a foreign court, which relate to a company incorporated in that foreign country, as the primary insolvency proceedings. 1.5 In what circumstances would the directors or officers of a company in financial difficulties face potential liability for continuing to trade? In practice, are any such provisions actually enforced? When a winding-up order is made, the liquidator must take into custody or under control all the property to which the company is entitled. On the appointment of the liquidator, all powers of the directors cease, unless the continuance of the powers is approved by the liquidator or the company in general meeting (in a members voluntary winding-up) or the committee of inspection or creditors (in a creditors voluntary winding-up). Directors of a company in financial difficulties may be held liable in certain circumstances. For example, if on the commencement of winding-up the directors do not deliver up all real and personal property to the liquidator as required by law or if under false pretence that the company is carrying on its business they obtain on credit any property for or on behalf of the company which the company does not subsequently pay for, they will be guilty of an offence. On conviction in the Circuit Court or The Americas Restructuring and Insolvency Guide 2008/

5 Jamaica Myers, Fletcher & Gordon and PricewaterhouseCoopers Resident Magistrate s Court, the directors may be liable to a fine and/or a term of imprisonment. Directors may also be liable to a fine and/or imprisonment if they continue to trade and, by false pretence or fraud, induce any person to give credit to the company. If in the course of the winding-up of a company it appears that any business of the company has been carried on with intent to defraud creditors or for any other fraudulent purpose the court, on application by the trustee in bankruptcy, liquidator, creditor or contributory, may order that the directors who participated in the carrying on of the business in such a manner be held personally responsible, without any limitation of liability, for such debts or other liabilities of the company as the court may direct. In addition, if it is discovered during the liquidation that any of the officers during their conduct of the business has been guilty of criminal conduct, the matter may be referred to the director of public prosecutions (DPP). If the DPP considers that the case is one in which a prosecution ought to be instituted, it may institute proceedings accordingly, and it shall be the duty of the liquidator and every officer and agent of the company (past and present, other than the defendant in the proceedings) to provide assistance in connection with the prosecution. Actions of this nature against directors are rarely taken in Jamaica. 2. What are the advantages and disadvantages of triggering a formal insolvency or corporate rescue procedure? The primary advantages of triggering a formal insolvency or corporate rescue procedure are as follows: It is likely to protect the company s directors from personal liability for fraudulent trading; It facilitates an orderly distribution to unsecured creditors of the assets which are not charged to secured creditors. In addition, the assets available may be swelled by the statutory avoidance of pre-liquidation transfers at an undervalue, preferences, unregistered floating charges and charges given for past consideration; and It protects the company from individual creditors pursuing their rights by converting those rights to prove for a dividend. The major disadvantages from the company s point of view are that it ceases to be the beneficial owner of its assets, there is likely to be a loss in shareholder value and the company will be dissolved. From the creditors point of view, control of the company is transferred from those who mismanaged the assets of the company to a liquidator who has a statutory duty to protect them as a class. However, a potential disadvantage to the creditors may be the cost of the insolvency or rescue procedure. 3. What are the practical options for out-ofcourt restructuring? Some of the practical options are the conversion of debt to equity, moratoriums and informal receiverships for smaller companies, and amalgamation and reconstruction for larger companies. All these options are sometimes accompanied by a restructured board of directors and/or the creation of sub-committees of the board (eg, audit committees) to operate as a check on the directors activities. Section 1.1(e) highlights some of the practical difficulties of informal options. 4. What is the effect on management of a company of: 4.1 An adjudication of corporate bankruptcy/liquidation? Generally, upon the appointment of a liquidator, the powers of the directors cease (see section 1.5) and are assumed by the liquidator. The corporate status of the company continues until it is dissolved, but its assets continue to vest in it rather than the liquidator, though the liquidator may seek a court order vesting the assets in it. The company s powers are exercised by the liquidator with the approval of the court or the committee of inspection or the company in general meeting, as the case may be. In a compulsory winding-up all management contracts or service agreements with the company are repudiated. Conversely, in a members voluntary winding-up management contracts are not automatically terminated and the directors may continue to manage the business to the extent permitted by the company in general meeting or by the liquidator. 4.2 The commencement of a formal corporate rescue process? See section The Americas Restructuring and Insolvency Guide 2008/2009

6 Myers, Fletcher & Gordon and PricewaterhouseCoopers Jamaica 4.3 The initiation of an informal corporate rescue process? This depends on the agreements between the company and its creditors. An informal rescue may impose conditions on the directors as regards remuneration and may compel certain directors to resign (see section 3). 5. Parties in interest/key players 5.1 Who is responsible for the case management control and administration of: (a) A corporate bankruptcy/liquidation? In a winding-up by the court, the court is ultimately responsible for the winding-up process. The trustee in bankruptcy is the liquidator until another liquidator may be appointed, and is responsible for the administration of the liquidation process along with a committee of inspection if one is appointed by the court. The liquidator is required to report to the court its dealings with the assets of the company. In a members voluntary winding-up, in a general meeting the company appoints a liquidator who is responsible for the winding-up process and must report to the company in general meeting. In a creditors voluntary winding-up, the creditors nomination prevails when a liquidator is to be appointed and they may also appoint a committee of inspection to assist in overseeing the process. In each type of liquidation, it is the responsibility of the directors to provide accurate information about the affairs of the company when called upon to do so. The registrar of companies is responsible for recording and registering all reports, accounts and orders made and filed in respect of the company in liquidation. (b) A formal rescue? In a compromise arrangement the party that initiates the procedure (eg, the company, creditor, the member or liquidator) is in control of the rescue, subject to the supervision of the court. The court also has the power to fine the company if the approved arrangement is not filed with the registrar of companies. In an amalgamation and reconstruction the debtor companies involved are in control, subject to the supervision of the court. (c) An informal rescue? This depends on the agreements between the company and its creditors (see section 3.) 5.2 Who is responsible for preparing the restructuring plan in a formal or informal rescue? In a formal or informal rescue procedure the plan may be initiated by either the company, the members, the creditors or the liquidator. In both rescue processes success will usually depend on the consent of the creditors who hold the largest share of the debt or the most extensive powers by virtue of their respective agreements. The liquidator, with the participation of the inspection committee (if any), may propose the terms to be put to creditors in a creditors voluntary winding-up or in a compulsory winding-up. 5.3 Who are the key players? What are their roles and responsibilities? These are: secured creditors that is, fixed and/or floating charge holders, which may appoint a receiver over the undertaking and assets of the company. These charge holders are not responsible to the general body of unsecured creditors and their focus is on the disposal of the charged assets to recover the sum secured; the liquidator, who has a statutory duty to secure the interests of the unsecured creditors as a class; unsecured creditors, which have the power to bring misfeasance proceedings against the liquidator in the event that it commits any act of misappropriation or is otherwise in breach of its duties as liquidator; the court, to which the liquidator may apply for orders at any stage after the commencement of liquidation; the accountants, who act as advisers to the companies (as there are no statutorily constituted insolvency practitioners in Jamaica); and the attorneys at law, who advise the accountants, the companies and the creditors. 6. What financial information is available to creditors? Pursuant to the Companies Act and other industryspecific legislation, companies are required The Americas Restructuring and Insolvency Guide 2008/

7 Jamaica Myers, Fletcher & Gordon and PricewaterhouseCoopers periodically to file documents which are of a financial nature or may contain financial information. Such documents may, in certain cases and subject to rights of confidentiality or the public interest, be available to the public upon payment of a prescribed fee. The circumstances in which financial information may be available to creditors include the following: Prospectus any prospectus or statement in lieu of prospectus filed by public companies. Companies Act under the act, limited companies are required to file annual returns which contain details of stated capital and indebtedness of the company if any. Depending on the type of company, annual returns are accompanied by certified copies of the balance sheet, profit and loss account and directors and auditors reports. By agreement the creditors and the company may agree that regular statements of the company s affairs may be required to be laid before meetings of the creditors or to an individual creditor during the company s business. Other statutory obligations industry-specific legislation requires periodic filing of financial information (eg, banks and other financial institutions under the Banking Act and the Financial Institutions Act, and securities dealers under the Securities Act). In addition, companies listed on the Jamaican Stock Exchange must comply with requirements under the Jamaica Stock Exchange Rules. Winding-up after the commencement of winding-up the creditors are entitled to peruse statements or reports concerning the financial position of the company. These statements or reports include initial statements by the directors on the commencement of winding-up and periodical statements by the liquidator concerning its expenditure, receipts and the general financial status of the company. These reports or statements are filed with the registrar of companies. Creditors are also privy to information which may not strictly constitute financial information, but which may nonetheless assist them to assess the financial status and level of indebtedness of a company for example: particulars of charges filed with the Companies Office of Jamaica as required under the Companies Act; and other details pertaining to companies, including liens against the assets of a company filed with the Island Record Office. 7. Common questions 7.1 Funding and the priority given to new money (a) If an insolvent corporation requires urgent working capital funding, what difficulties are likely to be encountered in the provision of such funding? Working capital extended by a lender in corporate insolvency acquires no priority unless the money is loaned directly to the liquidator or the receiver and manager so that it ranks as an expense of the liquidation or the receivership. If the lender does not advance fresh capital in this way, it should take new security. Unfortunately, new security is unlikely to be available in the case of an insolvent debtor. Alternatively, the lender may enter into an inter-creditor agreement with the existing creditors to share the securities that they hold pari passu. (b) Are lenders providing new money, or debtor-inpossession financing, given any statutory priority? There is no concept of giving priority to new money or debtor-in-possession financing under Jamaican law. See also section 7.1(a). 7.2 Ranking of creditors In what order are creditors paid in a corporate bankruptcy/liquidation? Under the Companies Act, all debts are to be proved and are required to be satisfied in the following order: secured creditors with fixed charges; costs and expenses associated with the winding-up of the company, including liquidator s remuneration; preferential debts, including: outstanding taxes and other debts owed to the government; wages of employees four months before winding-up (not exceeding J$200,000); monies owing under the Workmen s Compensation Act; contributions payable by the company under the National Insurance Act due and payable before the date of a compulsory 330 The Americas Restructuring and Insolvency Guide 2008/2009

8 Myers, Fletcher & Gordon and PricewaterhouseCoopers Jamaica winding-up order or, if it is a voluntary winding-up, at the date of the commencement of the winding-up; redundancy payments; and monies payable under the National Housing Trust Act and which have become due and payable before the date of a compulsory winding-up order or, if it is a voluntary winding-up, at the date of commencement of the winding-up; floating charge holders; unsecured creditors; interest on all debts; and shareholders, according to their entitlements in the company. Any unclaimed assets remaining are to be paid into court by the liquidator. The general principle is that all debts in the same class are ranked pari passu and are to be paid in full (or, if the assets are insufficient to meet them, abated in equal proportion) before payment is made to the next class. 7.3 Avoidance of antecedent transactions Are there any legal provisions that might operate to invalidate the creation of security, the disposal of an asset or the payment of a creditor by a company in financial difficulties? Any conveyance, mortgage, delivery of goods, payments, execution or other act relating to property after the commencement of winding-up of the company in favour of any creditor with a view to giving that creditor a preference over another creditor is invalid. In winding-up by the court, any disposition of property of the company or any attachment, sequestration, distress or execution out in force against the estate or effects of the company after the commencement of the winding-up is void. Generally, where a creditor has issued execution against the goods or land of a company or has attached any debt due to the company, and the company is subsequently wound up, it is not entitled to retain the benefit of the execution or attachment against the liquidator unless the execution or attachment was completed prior to the commencement of the winding-up. However, a person who purchases in good faith under a sale by a bailiff any goods of the company on which an execution has been levied acquires good title to them against the liquidator. See also section 1.3(a). 7.4 Cram-downs What is the position of both unsecured and secured creditors that vote against, do not agree with or do not consent to either a formal or informal rescue plan? See sections 1.1(d) and (e) 7.5 Creditor protection What action can creditors take if they are not satisfied with the conduct of either a formal rescue procedure or a corporate bankruptcy/liquidation? A creditor may apply to the court to determine any question arising in the winding-up of a company. In addition, where a voluntary winding-up has commenced, a creditor may apply to the court for the winding-up to be continued by the court or to be made subject to the court s supervision. During a winding-up of a company, an appeal from any order or decision of the court may be made to the Court of Appeal in the same manner as an appeal from any other order or decision of the court. The Americas Restructuring and Insolvency Guide 2008/