Finding out that someone has been declared bankrupt is invariably accompanied by a sharp drop in estimation, a mental note never to trust that person with money, particularly your own, and most likely an enduring association with failure and impoverishment. This is what is known as the stigma of bankruptcy. Naturally the only way to rid yourself of such a stigma is to go out and make much more money than you ever lost. But is this characterisation of a bankrupt really fair and more importantly is it an accurate reflection of our economic climate today? While bankruptcy remains undesirable, embarrassing and at best humbling, in our modern economic climate of risky innovative entrepreneurship, the possibility of bankruptcy could be viewed as a calculable risk factor that comes with the territory of starting new businesses rather than an irredemable sign of failure.

If there is a question of whether the stigma associated with bankruptcy might be changing, there is no doubt that the law is moving away from bankruptcy equated with punishment and financial banishment, to bankruptcy as a tool for rehabilitation and refuge against the harsh elements of economic uncertainty, upheaval and risk, all while skilfully balancing the need to protect creditors. Such are the ambitious hopes of our new and improved Insolvency Act 2014. It’s too early to say whether the Act will live up to such lofty expectations, however it certainly has important new elements that could prove very useful to a debtor in a tight spot.

PROACTIVE PROPOSALS

If you find yourself in danger of being insolvent, more simply put, if you find yourself unable to pay your bills when they come due, or if you foresee this happening in the upcoming 12 months, you may want to consider making a Proposal, with the assistance of a licenced Trustee, to your creditors outlining a way to settle your debts without their needing to obtain a bankruptcy order or appoint a receiver. The concept of the proposal is new and it affords a debtor a brief respite from the threat of creditors taking action against him, even secured creditors (in limited circumstances), to enable him to formulate a plan to satisfy said creditors and avoid bankruptcy.

The Act provides for two options:

1. Filing a Notice of Intention to File a Proposal; or
2. Filing a Proposal

Role of the Trustee

Importantly, it is not possible to file either a Notice of Intention to File a Proposal or a Proposal without naming a Trustee, who is licenced by the Government of Jamaica, and therefore qualified to administer a Proposal (or ultimate receivership as the case may be) by ensuring that the rules are adhered to and the correct process is followed. The Trustee is a professional who is duty bound to give the insolvent the best advice possible, but whose overarching responsibility is that of ensuring correct compliance with the law and negotiating fairly between the competing interests of insolvent and creditor. 

Notice of Intention to File a Proposal

If one is not quite ready to file a Proposal, you can file a Notice of Intention to File a Proposal which requires the debtor to:

• Appoint a trustee who will notify all known creditors, within 5 days of the filing, of the debtor’s intention to file a proposal
• Submit a cash flow statement within 2 weeks of filing the notice
• Submit the complete proposal within 30 days.

The Act does permit a debtor to obtain an extension of a further 2 weeks to file the cash flow statement, and also permits extensions of 45 day intervals (up to a maximum of 5 months from the date of filing) to submit the finished proposal. 

Proposal

If moving from a notice of intention, or commencing with a proposal from the outset, a debtor shall submit:

• The written proposal setting out the terms, and particulars in relation to any securities or sureties, if any
• Cash flow statement;
• A statement setting out the financial position of the debtor at the date of the proposal, in the prescribed form;
• Such other particulars as may be required by the prescribed forms

No later than 21 days after the proposal is filed, the trustee shall convene a meeting of creditors to consider the proposal by sending them, inter alia, a copy of the proposal, a statement summarizing the assets and liabilities of the debtor, a list of creditors and their claims, voting forms and a minimum 10 days’ notice of the date, time and location of the meeting.

I’D LIKE TO MAKE YOU AN OFFER YOU WON’T WANT TO REFUSE

Either option will buy some time, but the notice of intention, and the proposal itself are not intended to delay or frustrate creditors indefinitely. Filing a Notice of Intention, and failing to file the requisite proposal thereafter will result in an automatic assignment (essentially a voluntary bankruptcy). Similarly filing a proposal which is not approved by creditors will also result in an automatic assignment. These tools are therefore only as good as their content and while creditors are obliged to consider a proposal, they are not obliged to accept, unless of course it is in their best interest to do so.

The Act sets out some minimum criteria for every notice of intention/proposal, such as the cash flow statement and the report on the status of the financials of the debtor, but it is up to the debtor to formulate a convincing plan that will persuade his creditors, or any sub-class of them, that they might benefit from accepting it rather than moving to appoint a receiver immediately.

CONSEQUENCES FOR SECURED CREDITORS

A stay in proceedings, however brief, may be an annoyance to creditors, but ultimately they remain in control as they hold the power to either accept or reject any proposal put forward by a debtor. Furthermore, the Act provides some exceptions to a stay for secured creditors who:

• have possession of assets before a debtor files a notice of intention or a proposal
• have issued a notice of intention to enforce a security (10) days before a notice of intention or proposal is filed
• have obtained the consent of a debtor to enforce

In addition, where the proposal has been submitted and it does not apply to a specific secured creditor (or class of creditors), that creditor shall not be prevented from realizing or dealing with its security.

In conclusion, our new Insolvency Act gives debtors a brief stay of proceedings to facilitate the formulation of a plan to get out of debt. If well prepared and presented, it could be a first step on the road to financial rehabilitation. For a person facing bankruptcy, even the briefest of stays, can be incredibly valuable. However, like traditional insolvency laws, ultimately, it will still be up to the creditors to either accept a debtor’s proposal or to proceed to receivership.