The Insolvency Act, 2014 (the “Act”) and Insolvency Regulations, 2015 (together, the “New Insolvency Law”) came into operation on January 1, 2015. The objects clause of the Act states that it seeks to create an environment which aids in:
a. The rehabilitation of debtors and the preservation of viable companies, having due regard to the protection of the rights of creditors and other stakeholders; and
b. Fair allocation of the costs of insolvencies with the overriding interest of strengthening and protecting Jamaica’s economic and financial system and the availability and flow of credit within the economy.
The New Insolvency Law addresses issues that had been raised in relation to the previous insolvency regime. Some examples of these are:
1. The previous law was old and contained in various sources. The Companies Act, 2004 contained insolvency provisions that were substantially the same as those in the Companies Act, 1965. The Bankruptcy Act, which came into operation on January 1, 1880 applied only to individuals. Procedural guidelines were provided by Bankruptcy Rules for individuals and Companies (Winding-up) Rules, 1949 of the United Kingdom.
2. Provisions for out of court voluntary arrangements initiated by insolvent companies and sanctioned by the Court with an opportunity to enter into new arrangements with creditors were limited in facilitating the rehabilitation of debtors.
3. Insolvency practitioners were not regulated.
The first issue has been addressed by the fact that the New Insolvency Law seeks to provide for insolvency administration for both individuals and corporate entities.
One significant means by which the second issue has been addressed is the introduction of reorganizations referred to in the New Insolvency Law as “proposals”. The proposal proceedings can be commenced by the filing of an actual proposal, which is the debtor’s reorganization plan, or by filing a notice of intention to make a proposal. The New Insolvency Law allows not only an insolvent person, but a person facing imminent insolvency to file a proposal.
Where a notice of intention to make a proposal has been filed, a statutory stay is triggered wherein no creditor to whom the proposal is made: (i) has any remedy against the insolvent person or insolvent person’s property; (ii) can commence or continue any action, execution or other proceedings for the recovery of a claim provable in bankruptcy. The statutory stay comes to an end when: (a) the debtor files a proposal or (b) the proposal proceeding fails and the debtor becomes bankrupt. There is a 30 day period in which a proposal must be made after the filing of an intention to make a proposal which period can be extended in increments for periods not exceeding 5 months in aggregate. An aggrieved creditor may however apply to the Court for the removal of the stay.
It is also noteworthy that the New Insolvency Law provides for court orders on application by a debtor for interim financing secured by all or part of the debtor’s property and that the security rank in priority over the claim of any secured creditor of the debtor.
In addressing the third issue, the New Insolvency Law contains provisions for the licencing, oversight and discipline of trustees. Trustees play a crucial role in the new regime. For instance they serve as administrators of bankruptcy estates, monitor the business and financial affairs of the debtor in proposal proceedings and can be appointed as receivers.
Oversight of trustees is provided by the Supervisor of Insolvency (the “Supervisor”) who is a public officer designated by the relevant government minister as such. The Supervisor’s functions are wide and include the investigation of the conduct of a trustee.
The licences issued to persons who meet the prescribed qualifications for trustees are valid for five years and subject to cancellation and suspension.
The aforementioned examples of how the New Insolvency Law has sought to address deficiencies in the previous laws relating to insolvency are but a few of the new provisions in insolvency law. The New Insolvency Law creates some of the most profound changes in Jamaica’s credit system within the country’s recent history.
It is too early to assess how well the implementation of the New Insolvency Law will fulfill the underlying purpose described in the objects clause. Given the complex nature of insolvency law, the Act contains the useful provision that it (i.e. the Act) shall be reviewed from time to time by a committee of both Houses of Parliament appointed for the purpose. The first review is to be conducted not later than five years after January 1, 2015.