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Dave Waithe Lex Caribbean Law Offices Christ Church Bankruptcy Proceedings in Barbados The Bankruptcy and Insolvency

Act (the Act) came into force in 2002 and is modeled on the 1992 Canadian Bankruptcy and Insolvency Act. It repeals and replaces the old Bankruptcy Act (Cap. 303) and affects bankruptcy and insolvency proceedings begun after the Act came into force. Types of proceedings Under the Act the following actions can be taken in relation to an insolvent person: a creditor of the insolvent person can file in court a petition for a receiving order; the insolvent person can file an assignment with the supervisor of insolvency (the government authority responsible for the administration of all estates and matters to which the Act applies) and, with the leave of the court, make an assignment of all their property for the general benefit of creditors; and the insolvent party can make a proposal to its creditors, or file a notice of intention to do so with the supervisor of insolvency before proceeding to make a proposal. Receiving orders and assignments are referred to as the bankruptcy proceedings, because a bankrupt under the Act means a person who has made an assignment or against whom a receiving order has been made. Receiving orders A creditor can file in court a petition for a receiving order against a debtor. The creditor must prove that: (i) the debt owing to the petitioning creditor amounts to at least $4,000; and (ii) the debtor has committed an act of bankruptcy in the six months immediately before the petition was filed. For the purposes of the Act, creditor means a person with a claim (unsecured, preferred or secured) that is provable as such under the Act. Debtor includes an insolvent person and any person who at the time an act of bankruptcy was committed, resided or carried on business in Barbados and, where the context requires, includes a bankrupt. An act of bankruptcy occurs if the debtor, among other things: (i) either in Barbados or elsewhere makes an assignment of their property to a trustee for the benefit of their creditors generally, whether it is an assignment authorized by the Act or not; (ii) either in Barbados or elsewhere makes a fraudulent conveyance, gift, delivery or transfer of property or of any part of that property; (iii) permits any execution or other process issued against the debtor under which any of the debtors property is seized, levied on or taken in execution to remain unsatisfied for 21 days; (iv) gives notice to any creditors that they have suspended, or are about to suspend, payment of their debts, or makes a

submission of their inability to pay their debts at any creditors meeting; or (v) ceases to meet their liabilities generally as they become due. At the petition hearing the creditor must prove the facts alleged in the petition and of the service of the petition. If the court is not satisfied with the proof of facts alleged in the petition or of the service of the petition, or is satisfied by the evidence of the debtor that they are able to pay their debts, or that for other sufficient cause no order ought to be made, the court must dismiss the petition. If, however, the court is satisfied with the proof, it can issue a receiving order. Once it has issued a receiving order, the court appoints a trustee of the bankrupts property. The trustee liquidates the property and distributes the proceeds to the bankrupts creditors. Assignments Under the Act an insolvent person can, with the leave of the court, make an assignment of all their property for the general benefit of their creditors. The assignor must be an insolvent person. The Act defines an insolvent person as a person who is not bankrupt and who resides, carries on business or has property in Barbados, whose liabilities to creditors provable as claims under the Act amount to at least $4,000, and: (i) who is for any reason unable to meet their obligations as they generally become due; (ii) who has ceased paying their current obligations in the ordinary course of business as they generally become due; or (iii) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all their obligations, due and accruing. The assignment must be offered to the supervisor of insolvency. Where the supervisor accepts the assignment, they appoint a trustee in bankruptcy and name the trustee as the grantee in the assignment document. The trustee makes a court application accompanied by a sworn statement showing: (i) the debtors property divisible among creditors; (ii) the names and addresses of all the insolvents creditors; and (iii) the amounts of the creditors respective claims and the nature of each claim (secured, preferred or unsecured). Where the court grants leave to make the assignment, the bankrupts property vests in the trustee, who liquidates the property and distributes the proceeds to the bankrupts creditors. General effect of receiving orders and assignments Under the Act, on a receiving order being issued, or an assignment being filed with the supervisor, a bankrupt no longer has the ability to dispose or otherwise deal with their property. This will, subject to the provisions of the Act and to the rights of secured creditors, pass to and vest in the trustee named in the receiving order or assignment. If the trustee changes, the property passes from trustee to trustee without any conveyance, assignment or transfer.

Also, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtors property or can commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy, until the trustee has been discharged. This stay however does not prevent a secured creditor from realising or otherwise dealing with their security. For the purposes of the Act, a secured creditor means a person holding a mortgage, pledge, charge or lien on or against the property of the debtor or any part of it as security for a debt due or accruing due to them from the debtor, or a person whose claim is based on, or secured by, a negotiable instrument held as collateral security and on which the debtor is only directly or secondarily liable. The court can, however, postpone the secured creditors right to realise security but not for more than six months from the date of the receiving order or assignment. In a case where the date at which the debt secured by the security only becomes payable after six months from the date of the receiving order or assignment, the court can postpone the secured creditors right to realise the security to the date the debt becomes payable, but only if all installments of interest that are more than six months in arrears are paid and all other defaults of more than six months standing are cured, and then only so long as no installment of interest remains in arrears or defaults remain uncured for more than six months. An unsecured creditor that is affected by the stay may apply to the court for a declaration that the stay no longer applies to them on the grounds that the creditor is likely to be materially prejudiced by the continued operation of the stay or that it is equitable on other grounds to make the declaration. Role of the trustee in bankruptcy As noted above, a trustee in bankruptcy is appointed by the court once it has made a receiving order or by the supervisor on accepting an assignment. However, the creditors can, at any creditors meeting, by special resolution appoint or substitute another trustee for the trustee named in an assignment or receiving order, or otherwise appointed or substituted. The Act introduces a new licensing regime, which requires all trustees to be licensed on application to the supervisor of insolvency and payment of the prescribed fee. The trustee is also required to pay an annual licence fee. A body corporate may hold a licence as trustee only if a majority of its directors and a majority of its officers hold licences as trustees. The consent of the supervisor of insolvency is required if a company is incorporated with the intention of being licensed as a trustee. The role of the trustee is generally to administer the estate, which includes receiving and dealing with the bankrupts property, settling any debts owed to the bankrupt, collecting all monies received for the estate and paying any dividends to the bankrupts creditors. The trustees administration of the bankrupts estate is supervised by the supervisor of insolvency and the inspector(s) appointed by the creditors. The supervisor is generally

responsible for the licensing of trustees, inspecting or investigating the bankrupts or insolvents estate and examining the trustees accounts of receipts, disbursements and final statements. The inspectors are essentially the trustees watchdogs; it is their function to instruct the trustee to take whatever steps they consider appropriate to protect the estate and the creditors.