Avia Collinder, Business Writer

Jamaica has seen a rash of business failures in the past five years, some of which were forced into receivership and picked clean of assets by creditors.

Asset recovery specialists say the laws, as they now stand, offer limited protection for vulnerable, indebted companies and are pushing for the pending amendments to insolvency legislation to reflect 'the sanctity' of doing business.

The legislation currently on the books is described by legal practitioners as quasi-criminal in orientation and meant to punish failed operations.

But the focus, according to Wilfred Baghaloo of Pricewaterhouse-Coopers Jamaica, ought to be on saving the business, which means the law should afford failing companies time to put together turnaround plans.

Anthony Hylton, the minister of industry, investment and commerce, will seek the approval of Cabinet for amendments to the bankruptcy law in early 2013, he told Jamaican bankers and think tank experts last week.

He believes the current statutes, one which dates back 132 years, punishes risk taking.

"We don't need a crystal ball to know that we cannot go into the future with the current insolvency law," said Hylton.

"The law has to be more predictable and must be designed to remove the stigma associated with business failure," he said.

Requests to the minister's adviser for more details on the elements of the policy review were unanswered up to press time.

Baghaloo argued Tuesday for a buffer in the law, saying 'good' companies must be "given creditors protection subject to court approval; which is subject to an attainable business or turnaround plan".

He also made what amounts to a pitch for his profession, saying the regulations must facilitate the preparation of a business and turnaround plans by "qualified insolvency practitioners" and ensure that individuals who implement the plans are "properly registered with the requisite experience and insurance protection".

The talent at Pricewaterhouse-Coopers, of which Baghaloo is a director, are among the top picks in the Jamaican market for managing receiverships and selling off companies.

Resolving insolvencies in Jamaica takes one and a half years and costs 18 per cent of the debtor's estate, said Hylton, citing data in the World Bank's 2012 Doing Business Report.

The average recovery rate is 65.3 cents on the dollar, the report said.

Regulations dealing with insolvencies are included in the Bankruptcy Act of 1880 - dealing primarily with individuals; the revised Companies Act of 2004 - dealing with corporate insolvencies and receiverships; and the UK Winding Up Rules.

Hilary Reid, an attorney-at-law employed to Myers Fletcher and Gordon, notes on the law firm's website that although the Companies Act was updated in 2004, the provisions dealing with insolvency were left unchanged from the 1967 Act, which it repealed.

There have been 50 cases of bankruptcy over a five-year span prior to 2011, with the highest numbers reflected in fiscal year 2008-09, marking the onset of the financial crisis when 17 applications were filed, according to Reid quoting numbers reported by the Office of the Trustee in Bankruptcy.

Reid said she first cited those numbers in a presentation in late 2011.

Baghaloo contends that any changes to the law must make it easier for a company to petition the court for protection from creditors while it works on its recovery plan.

Such a court, he said, should be "adequately staffed with experienced commercial judges" and easily accessible.

"The creditors must continue to provide credit to approved petitioned business with normal credit access irrespective of the business' petition for protection. Any supplier that does not provide normal credit after the courts' approval of the business/turnaround plan of the said business would be held in contempt of the court order."

But he also said the petitioner or applicant would be required to prove to the court that the company would "be able to settle all future liabilities incurred".

Reid, in an online forum last year, made the point that the current laws punish the bankrupt.

"For instance, while bankruptcy proceedings are on-going, bankrupts are disqualified from certain types of activities, such as serving on the boards of other companies," the lawyer said.

"Focus must be shifted from punishment to rescue and rehabilitation," she said, while arguing for balance between creditor rights and rehabilitating the bankrupt, as well as change in the way creditors operate when dealing with debtors.

Alex Miller, crisis management and business strategist, venture capitalist and chief executive officer of the Gate Financial Group said Monday that laws regulating insolvent companies should be skewed towards considerations of economic growth and job creation.

"One of many ways to do this is to introduce in the legal framework rescue mechanisms for insolvent entities that would allow for the operating of these entities as going concerns by experienced interim managers while options, which are fair to all stakeholders, are sought short of liquidation," said the recovery specialist.

"These options may include reorganisation, recapitalisation, merger, and or break-up and spin-off," he said.

Other countries are pursuing the sort of reforms that Jamaica is contemplating.

In July 2010, The Philippines enacted a new bankruptcy law that establishes procedures and requirements for court-supervised, pre-negotiated and out-of-court reorganisation and liquidation proceedings.

The systems for resolving insolvency are most efficient in high-income OECD economies, with proceedings taking 1.7 years and costing nine per cent of the value of the total assets of the debtor's estate on average, according to the Doing Business report.

The recovery rate in some OECD countries is as high as 85 cents on the dollar - compared to a global average of 37 cents - and struggling companies are more likely to pursue reorganisation over liquidation and, therefore, have a greater chance of surviving as a going concern.

The bankruptcy culture that prioritises the business' survival tracks with Miller's outlook.

"This approach provides means whereby the devastating social and economic effects of liquidation can be avoided, while an attempt to reorganise the financial affairs of the insolvent entity is made," he said.

Notably, Jamaica does not have the worst record in the region for completing bankruptcy proceedings. Jamaica's average is 1.1 years compared to 3.3 years for the Caribbean and Latin America.

Still, recovery specialist Baghaloo says that "as someone who has practised insolvency more than most in Jamaica, my first concern is the philosophy that drives any change" in the laws.

Citing the United States (US), he said what drives that country is the sanctity of business.

The US offers several options for bankruptcy filings, including protection from creditors, reorganisations and outright liquidation.

"They understood the challenges of starting a business and the possibility of failure and hence the need to reasonably protect such a company from its creditors. They recognised fairly early, the equation of success - to succeed requires failure and nothing is wrong with a reasonable and honest failure," Baghaloo said.

business@gleanerjm.com