The legislation and practices surrounding corporate insolvencies are diverse and can be difficult to interpret, with different rules applying to each type of insolvency proceedings.
In this article Deloitte & Touche identifies the main differences between the types of corporate insolvencies highlighting the circumstances surrounding the appointment, the effect of the appointment, and the duties and power of the liquidator or receiver.
This article has been written for investors, bankers and legal advisors of companies in financial distress and formal insolvency proceedings. Deloitte & Touche would be pleased to advise on any problem that may arise.
Deloitte & Touche in The Bahamas is a full member of Deloitte Touche Tohmatsu International. Deloitte Touche Tohmatsu International is one of the world's largest providers of professional services, with over 59,000 partners and professional in 125 countries and offices in every major business center in the world. Deloitte & Touche in The Bahamas has offices in Nassau, Freeport and the Turks & Caicos.
THE PROBLEM COMPANY
The following table illustrates the various options available to directors, bankers and creditors, the details of which are explained under the heading "Comparision Of Liquidations And Receiverships In The Bahamas".
DECISION MAKERS RECOVERY SERVICES LAST RESORT Directors and Viability Study, Voluntary Liquidation Shareholders Monitoring Plan Bankers or Viability Study, Receivership other Charge Monitoring Plan Holders Unsecured - Court Liquidation Creditors
REORGANISATION AND INSOLVENCY PERSONNEL
The reorganization and insolvency practice of Deloitte & Touche provides services both internationally and locally. We have acted as liquidators or receivers for a wide range of companies including offshore and commercial banks, investment and finance companies, real estate development companies, hotels, retail and service companies including those traded on the international stock exchange.
COMPARISION OF LIQUIDATIONS AND RECEIVERHSIPS IN THE BAHAMAS
CIRCUMSTANCES GIVING RISE TO A WINDING UP
LIQUIDATIONS - Court Ordered
- Where the company has passed a resolution requiring the company be wound up by the Court.
- When the company does not commence business within a year from its incorporation, or suspends its business for one year.
- When the members are reduces to less than two.
- When the company is unable to pay its debts.
- When the Central Bank petitions for winding up of a bank whose license has been suspended.
- Where the Court is of the opinion that it is just and equitable that the company be wound up.
LIQUIDATIONS - Shareholders' Voluntary
- Where a shareholders' resolution has passes requiring the company be voluntarily wound up in one or more of the following circumstances:
- The company was established for a limited duration or until the occurrence of a specific event and the period has expired or the event has occurred.
- The resolution was passed by majority shareholders in properly constituted general meeting.
- The resolution is passed to the effect that the members are satisfied that the company cannot continue in business and it is advisable to wind up.
LIQUIDATIONS - Court Supervised
- When a company has passed a resolution to wind up voluntarily, the court may at any subsequent time direct that the voluntary liquidation continue under the supervision of the court.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- Debenture or Mortgage holder wishes to exercise control over and/or realise its security
RECEIVERSHIPS - Receiver Court Appointed
- Creditor(s) wish to exercise control over assets of a debtor for the purpose of satisfying the obligations owed by the debtor to the creditor.
METHOD OF INITIATING A WINDING UP
LIQUIDATIONS - Court Ordered
- By petition to the Supreme Court by the company, a director, one or more creditors, a contributory or a combination thereof. The Court may appoint a provisional liquidate at any time after the presentation of the petition and before the appointment of the official liquidate. The liquidate is usually the nominee of the Petitioner.
LIQUIDATIONS - Shareholders' Voluntary
- Initiated by directors or shareholders with on court involvement. Company may be solvent or insolvent.
LIQUIDATIONS - Court Supervised
- Initiated by shareholders, creditors or the liquidate. The winding up having commenced as a voluntary liquidation, the courts' supervision may then by applied for by any of the above petitioners or may be imposed by the court itself.
METHOD OF APPOINTING A LIQUIDATOR/RECEIVER
LIQUIDATIONS - Court Ordered
- By order of the Court after nomination of candidates by interested parties and the Court is satisfied as to the fitness of the nominee(s).
LIQUIDATIONS - Shareholders' Voluntary
- Shareholders' meeting must by held. No creditor meeting is required.
LIQUIDATIONS - Court Supervised
- After commencement of voluntary liquidation, the procedure is the same as in a court ordered liquidation.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- To become exercisable, the appointment of a receiver must by made in accordance with the terms of the debenture.
RECEIVERSHIPS - Receiver Court Appointed
- By application to the court.
WHO SHOULD BE APPOINTED?
LIQUIDATIONS - Court Ordered
- Official liquidate, being an insolvency professional and usually a Chartered Accountant.
LIQUIDATIONS - Shareholders' Voluntary
LIQUIDATIONS - Court Supervised
- A liquidate, being an insolvency professional, and usually a Chartered Accountant.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- Technically, anyone can by appointed, but usually a Chartered Accountant or seasoned business professional is appointed. A body corporate, bankrupt or person disqualified under a trust deed executed by the company may not be appointed.
RECEIVERSHIPS - Receiver Court Appointed
- As per an appointment under instrument.
IS LEGAL COUNSEL REQUIRED?
LIQUIDATIONS - Court Ordered
- Legal counsel is required for all applications to the Court.
LIQUIDATIONS - Shareholders' Voluntary
- At liquidator's discretion.
LIQUIDATIONS - Court Supervised
- Legal counsel is required for all applications to the Court.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- Not necessarily, but it would be prudent.
RECEIVERSHIPS - Receiver Court Appointed
- Yes
LIQUIDATORS REMUNERATION
LIQUIDATIONS - Court Ordered
- As set by court.
LIQUIDATIONS - Shareholders' Voluntary
- As set by the shareholders.
LIQUIDATIONS - Court Supervised
- As approved by or set by the shareholders at the meeting resolving that the company be wound up, however, such remuneration can be sanctioned by the Court.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- As approved by or set by the Debenture or Mortgage holder.
RECEIVERSHIPS - Receiver Court Appointed
- As specified by order of the Court
NOTICE REQUIRED
LIQUIDATIONS - Court Ordered
- Official Gazette.
LIQUIDATIONS - Shareholders' Voluntary
- Official Gazette.
LIQUIDATIONS - Court Supervised
- Official Gazette.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- Notice must be given to the Registrar within ten days of an appointment and of a release. Notice must be exhibition on every invoice, letterhead and on every other document on which the company's name appears.
RECEIVERSHIPS - Receiver Court Appointed
- Same as in the case of an appointment under instrument.
PROPERTY COVERED BY THE APPOINTMENT
LIQUIDATIONS - Court Ordered
- All the assets of the company are divisible save to the extent any are encumbered as security in favour of a secured creditor.
LIQUIDATIONS - Shareholders' Voluntary
- As per court ordered liquidation.
LIQUIDATIONS - Court Supervised
- As per court ordered liquidation.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- As specified by order or by instrument.
RECEIVERSHIPS - Receiver Court Appointed
- As specified by order of the Court.
DUTIES AND POWERS OF APPOINTEE
LIQUIDATIONS - Court Ordered
- The duties of the provisional liquidate are:
- To secure the assets of the company by taking the management and control of the company away form its directors pending hearing of the petition. The provisional liquidate must act strictly in accordance with the terms of his appointment.
- The duties of the official liquidate are:
- To bring or defend actions, carry on business, if this is deemed prudent and is beneficial to the winding up. Realize the assets, prove and ranks claims, pay dividends and do all other things required to wind up the company.
LIQUIDATIONS - Shareholders' Voluntary
- As per court ordered liquidation.
LIQUIDATIONS - Court Supervised
- As per court ordered liquidation.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- A receiver may receive income from a property and pay liabilities but may not carry on the business of a company. A receiver-manager may carry on the business of a company to protect the security interest of those on behalf of whom he is appointed. It should be noted also, that a receiver appointed under instrument has a duty to follow all directions given by the Court.
RECEIVERSHIPS - Receiver Court Appointed
- As per an appointment under instrument.
EFFECT OF COMMENCING A WINDING UP
LIQUIDATIONS - Court Ordered
- No suit, action or other proceedings can continue to be brought against the company except with the approval of the Court. The company must cease carrying on business except to the benefit of the winding up. All employment contracts are terminated, and the power to manage the affairs of the company is transferred to the liquidate(s). The company's ability to dispose of its assets comes to an end (save in the course of the liquidation) and any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property as would be done by way of undue or fraudulent preference is void. Property is to be applied to cover debt and any residue distributed to the shareholders.
LIQUIDATIONS - Shareholders' Voluntary
- Generally the same as in a court ordered winding up except that there is no automatic stay of suits against the company, nor is the court's approval required before commencement of suite against the company.
LIQUIDATIONS - Court Supervised
- As per court ordered liquidation.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- The assets in question come under the control of the receiver.
RECEIVERSHIPS - Receiver Court Appointed
- The assets in question come under the control of the receiver.
TERMINATION OF APPOINTMENT
LIQUIDATIONS - Court Ordered
- Produce final accounts, present same to Court and apply for discharge.
LIQUIDATIONS - Shareholders' Voluntary
- The liquidate should call a final meeting, present final accounts and resign. The liquidate must them file accounts and give notice to the Registrar.
LIQUIDATIONS - Court Supervised
- Produce final accounts, present same to Court and apply for discharge.
RECEIVERSHIPS - Receiver Appointed Under Instrument
- Resignation.
RECEIVERSHIPS - Receiver Court Appointed
- Discharge by the Court.
OFFENSES UNDER THE ACT
Any person being a past or present officer, director, manager, official or other liquidate of the company commits an offense when he fails to turn over or disclose the existence of property to the liquidate and to disclose to whom, for what consideration, and when the company disposed of any property other than in the ordinary course of business, fails to deliver up all books and records, fails to divulge a false claim and hindering the liquidate form fulfilling his duty.
PENALTIES UPON CONVICTION
A fine of $50,000 or two years imprisonment or both.
SOURCE: COMPANIES ACT, 1992
- The legislation practices and procedures surrounding corporate insolvencies and receiverships are diverse and can be difficult to interpret.
- In this article, Deloitte and Touch identifies the main differences between the type of insolvencies highlighting the circumstances surrounding the appointment, duties and powers of the person(s) appointed.
- This article has been prepared for the information of bankers, investors, creditors, and financial advisors of organizations in distress or those having dealings with such organizations. Deloitte & Touche would be pleased to advise on any problems that may arise.
- The winding-up and dissolution rules with regard to International Business Companies (IBCs) as contained in the IBC Act, 1989 are not significantly dissimilar to those noted above.
- Please contact Mr Anthony Kikivarakis at our Nassau, Bahamas Office for assistance relating to insolvencies of IBCs and other companies incorporated in The Bahamas and the Turks & Caicos Islands
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
