Insolvency Law Developments In The Caribbean

By Edmund Rahming

Posted: 6th June 2011 22:52

Introduction

The Caribbean is a region comprising over 7,000 islands and cays and consisting of a land area of almost 93,000 square miles.  The region is made up of 30 jurisdictions including sovereign states, overseas territories and dependencies.  Many of the jurisdictions are former or current British colonies and territories.  The legal system of the Caribbean is largely based on the Common Law system with tendencies of reliance on the form, structure, substance and content of the law as expressed in England.  As a result, while insolvency laws and procedures vary from one Caribbean jurisdiction to another, they are generally based on the UK Insolvency Act 1986.  For the purposes of this article when referring to the Caribbean we will be referring to the major Caribbean offshore financial centres including the Bahamas, the British Virgin Islands, Bermuda and the Cayman Islands.  KRyS Global maintains offices in each of these jurisdictions. 

The majority of work undertaken in the Caribbean comprises court-supervised liquidations and forensic accounting engagements.  The insolvency law throughout most of the Caribbean does not provide for a formal restructure or reorganization procedure such as an Administration in the U.K., or US Chapter 11 provisions.  In addition, there is little restructuring work performed in the Caribbean as the majority of work stems from fraud having been committed against the company.  As a result, insolvency practitioners in the Caribbean have vast experience in forensic accounting, investigations and litigation, as they seek to recover losses from responsible parties in a variety of onshore jurisdictions.  Much consideration needs to be given in formulating a strategy that will allow for the maximum recovery against third parties.  Given the cross-border nature of many Caribbean appointments, insolvency practitioners often have to seek recognition of their appointment in onshore jurisdictions to give them standing to pursue third party claims by litigation. 

A typical scenario in the Caribbean involves a foreign owned company which is incorporated in the jurisdiction and has substantial assets and business activities located elsewhere.  Aside from the incorporation of the company, there is little association within the Caribbean offshore jurisdiction.  The financial services industry, from which the majority of appointments are made, is made up of hedge funds, international business companies (IBCs), captive insurance and reinsurance companies, all of which operate in any number of countries globally.  Many matters are complex including the enforcement of foreign judgments, tracing claims, injunctions, contractual and shareholder disputes and professional negligence claims.  Offshore liquidators have to commit a large amount of time and resources immediately following appointment to find the books and records of the company, identify and secure assets and establish a means of correspondence with the creditors/investors.

Trends in the Caribbean insolvency arena

Given that a number of the higher profile insolvency matters in the Caribbean involve cross-border issues, we are finding that a number of the developments in the application of the laws onshore arise from Caribbean-based cases.  Cases like Fairfield Sentry, Saad Finance No. 5, British American Insurance and Condor Insurance provide cutting-edge development in the recognition of foreign liquidators and the use of local statutory remedies through Chapter 15 of the US Bankruptcy Law.  Litigation involving the SPhinX Funds has clarified the area of in pari delicto and the Wagoner doctrine. 

New legislation related to insolvency laws – current and on the horizon

The last ten years have seen updates in the insolvency laws throughout the Caribbean.  The updates have been made to modernize procedures and better facilitate international cooperation.  In the British Virgin Islands, the Insolvency Act 2003 Part 18 includes sections inspired by the UNCITRAL Model Law.  In the Cayman Islands, the Companies Law (2010 Revision) Part 17 was included to facilitate international cooperation.  In early 2011 the Cayman Islands enacted a number of amendments to the Companies Law.  These revisions include flexibility for companies to hold their own shares; refining merger and consolidation provisions to allow more flexibility; and modernizing document execution provisions.  The Bahamas and Bermuda are currently drafting updates to their Companies laws and Insolvency procedure rules to address modernization of insolvency procedures and bring them in line with other jurisdictions in the region.

Insolvency professionals in the Cayman Islands are in the process of forming a local chapter of INSOL International to enhance education and development of the profession and to give the industry a voice in local regulatory reviews and international developments.

Succeeding during recessional times in the Caribbean

Liquidation is always a last resort for a business, and should be taken when all other options fail.  We have found some of the alternative options to include fundraising or alleviating liquidity pressures, particularly as it applies to hedge funds, the suspension of redemptions, implementing “gate” provisions, or transferring bad assets to “side pockets” or separate corporate vehicles.

To assist businesses in navigating through recessional economic periods, we suggest companies firstly identify and assess areas of risk and address them.  Where the business is suffering from lack of liquidity or poor management, it may be possible to find means to enhance profitability, improve performance, and minimize the risk of loss.  Clear strategies to streamline operations and gain control of cash should be formulated.  We propose remedies in the form of improved internal controls, budgetary accountability, integrity tests, sale or transfer of redundant or poor assets, and fraud prevention training to assist businesses.  We would also propose companies ensure that they are up-to-date in assessing risks and areas for exposure, whether regulatory, financial, or environmental, which may affect business continuity. 

High profile engagements

KRyS Global is involved in some of the larger, more complex and unique international and cross-border assignments in the Caribbean.  This demonstrates our reputation for clear, decisive action, creative solutions and impartial advice, which has facilitated the growth of the firm since the onset of recession.  Our larger engagements include SPhinX Group, Fairfield Sentry, and Sextant Funds.  All of these engagements involve elements of fraud, cross-border litigation and highly complex issues requiring highly specialized strategies to recover assets for the benefit of creditors.

 

KRyS Global has over 40 professionals who work from offices in four jurisdictions: the Cayman Islands, British Virgin Islands, Bahamas and Bermuda.  They specialize in providing corporate recovery, fraud investigation and forensic accounting, money laundering investigations, business advisory services, consulting and regulatory compliance services.

Edmund Rahming is the Managing Director of KRyS Global’s Bahamas office.  He has over 13 years of experience in providing insolvency, fraud and forensic accounting investigations, and litigation support services in various industries.

Ed holds a MBA degree from the University of Florida. He is a Certified Public Accountant, a Certified Fraud Examiner and is certified in Financial Forensics by the American Institute of Certified Public Accountants.  He is a member of the Georgia Society of Certified Public Accountants, the Bahamas Institute of Chartered Accountants, the American Bankruptcy Institute and the Association of Certified Fraud Examiners.  He is currently the President of the Bahamas Chapter of Certified Fraud Examiners.

Mr Rahming can be contacted on +1 242 327 1447 or by email at edmund.rahming@KRyS-Global.com.

 


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