House passes insolvency bill
Daraine Luton, Senior Staff Reporter
Nine months after it was first tabled in Parliament, the insolvency bill has been approved in the Lower House by legislators who hailed it as a potential economic game-changer.
Anthony Hylton, industry, investment and commerce minister, in piloting the bill through the House, said it seeks to create an environment for the rehabilitation of debtors and the preservation of viable companies. He argued that the existing bankruptcy and insolvency laws were outdated.
"If we are serious about growing the Jamaican economy, if we want to create jobs, if we are serious about start-ups and to foster entrepreneurship, then changes will have to be made to the existing laws," Hylton said.
Jamaica, under its existing four-year extended fund facility with the International Monetary Fund (IMF), has committed to revamping its bankruptcy and insolvency laws in order to stimulate business on the island. The Bankruptcy Act dates from 1880, and the legislative framework governing bankruptcy and insolvency reflects 1950s reality.
"Under the existing laws, the interest of creditors is given paramount importance above all stakeholders. The existing laws make little or no provision of reorganisation and rehabilitation of the business and affairs of the debtors," Hylton noted.
"We simply cannot go forward with our current insolvency laws if we are serious about enterprise and growth," the minister added.
The bill contains provisions for a person facing imminent insolvency to work out a plan with his creditors in order to avoid being bankrupt if he reasonably anticipates that he will, within a period of 12 months, be unable to meet his obligations as they generally become due.
The person, however, must either reside, carry on business or have property in Jamaica, and have liabilities to creditors amounting to at least $150,000 or to an amount prescribed by the minister.
The bill also allows for banking information of the bankrupt person to be shared with a trustee. It said that where a financial institution has ascertained that an account holder is an undischarged bankrupt, it shall inform the trustee of the existence of the undischarged bankrupt account.
Notwithstanding any provision in any other law, a financial institution is obliged, on request in writing by the trustee, to disclose what sums of money or other financial assets, if any, of the bankrupt are held to the bankrupt credit. The financial institution is duty-bound, upon written request of the trustee, to deliver the same to the trustee.
Hylton said yesterday that the new insolvency bill allows entrepreneurs to take risks and affects the terms on which financial institutions will lend. He said the new regime will allow for a greater return to creditors, for the protection of assets and the saving of jobs.
"Under current arrangements, when you have a bankruptcy proceedings, the creditors as of now will only get pennies on the dollar. With this new bill, they will get an opportunity to ensure that there is a larger stake in that recovery process," Hylton said,
Among other things, Hylton said the existing process is time-consuming and costly. The World Bank, in its Doing Business Report last year, said it took an average 1.1 years to resolve bankruptcy in Jamaica and cost some 18 per cent of the debtors estate. The average recovery for the creditor, the report said, is 64.2 cents on the dollar.
Audley Shaw, the opposition spokesman on finance, said the new bill represents "a major step in the right direction".
He pointed to examples of persons in the United States such as Donald Trump and Henry Ford as successful business people who were able to reorganised their affairs on the "basis that failure is not falling down".
"The ability of this bill alone to give entrepreneur a second chance is very important for the economy. It certainly should enhance the ability of the economy to be more competitive," Shaw said
Meanwhile, Hylton said that "given the complexity of this bill, and the technical nature of it, the IMF has demonstrated flexibility to give us the time" to get it passed.
The last IMF deadline for the passage of the bill was September 30.