Insolvency Reform, a Lifeline for Ailing Businesses and Individuals

Administrator on October 26, 2014, 4:52 pm 1088 3
Insolvency Reform, a Lifeline for Ailing Businesses and Individuals

For a long time in Jamaica businesses and individuals facing bankruptcy have had a terrible time unraveling the financial tangles they have found themselves in against the background of an insolvency regime that was designed to treat bankrupts as failures. The recent passage of the new Insolvency Act in both Houses now clears the way for individuals and businesses facing bankruptcy to restructure themselves and recover financial health and viability. Although Jamaica has been looking at its insolvency laws for some time, it took the Extended Fund Agreement with the International Monetary Fund (IMF) to spur the government onward toward insolvency reform.

Investors looking to Jamaica have always been concerned about the effect of current insolvency laws on their investments. The Office of the Trustee in Bankruptcy, the agent under the Ministry of Justice that is responsible for winding up companies that have become insolvent, and repaying creditors on behalf of individuals who became bankrupt, reported that during the last five years approximately 50 new bankruptcy cases were handled by that office. In the harsh economic climate that is the direct result of recession, there is a strong likelihood of more companies becoming insolvent, and individuals becoming bankrupt. The reform of insolvency legislation therefore comes as a welcome relief to businesses and individuals facing the awful prospect of bankruptcy.

Under current Jamaican insolvency legislation consisting of the Bankruptcy Act of 1880 and the Companies Act 2004, individuals are punished for becoming bankrupt and are disqualified from participating in certain activities such as becoming members of boards, and holding certain offices. This 19th century Bankruptcy Act represents a death knell for individuals who are never allowed to restore their pre-bankruptcy status. Bankrupt individuals are forced to live with the stigma and shame of being a bankrupt and their lives never returned to success. For companies that have become insolvent and subject to winding up proceedings no hope for their recovery is entertained. Once a company becomes insolvent, it is literally killed and wound up. It's assets are then sold and divided among creditors who have lined up for their share of the company's debt that is usually sold for cents to the dollar.

Now, with the new insolvency law, there is more breathing room for companies and individuals who have to wrestle with this terrifying prospect of bankruptcy. Arrangements can be made for companies and individuals to restructure their debts and other obligations to the satisfaction of their creditors. More time is provided for such individuals and entities to recover their financial viability and engage in the productive and investment sectors once again. Individuals can still purchase property, access financing, and engage in formerly restricted activities even as they undergo the processes of debt restructuring and management. The paradigm shift driving the reform of insolvency laws in Jamaica and other countries is the need to rescue and rehabilitate the debtor while ensuring the redress to creditors. Quick and early action toward recovery is also facilitated within the reformed insolvency law to benefit the creditor, the debtor and by extension the nation as a whole.

Industry players like the Jamaica Chamber of Commerce have embraced the changes contained in the new insolvency law which have the potential of restoring the financial health of businesses and individuals that were ailing instead of speeding up their demise. The court has also been given a significant role in the bankruptcy process and it is expected that this important institution will operate credibly and transparently. One area that may need close monitoring is the ability of unregulated advisers including attorneys-at-law to exasperate the pain of ailing individuals and companies with exorbitant fees and charges. Certainly, it would not be prudent to add to the pain of bankruptcy impossible fees that stunt debtor's ability to service debt and repay creditors. Once the House of Representatives approves the amendments made by the Senate the new Insolvency Act will be presented to the Governor General for Assent and then Gazetted.

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