The Anguillan government has published a bill for a new Insolvency Act for public review and consultation.
Reform of Anguillan insolvency law is long overdue. Personal bankruptcy is presently regulated under the Bankruptcy Act (Cap B.15) which is based loosely on the English Bankruptcy Act 1914, but corporate insolvency is given only the most superficial treatment by existing statute law. A number of these difficulties were brought to the fore in the recent high profile bankruptcy of Cap Juluca (in which Harneys acted for the majority creditor group).
The new bill is closely modelled on the Insolvency Act 2003 of the British Virgin Islands (BVI) which was drafted by senior lawyers working in Harneys' BVI office. In many instances the relevant provisions have been copied across word for word, but the Anguillan legislature has also updated and revised certain provisions which had been separately considered for reform in the original BVI template legislation.
The new statute, if enacted, will provide a comprehensive framework for insolvency in place of the current incomplete patchwork of provisions. As well as providing a clear structure for insolvent liquidations, the new regime will introduce creditors' arrangements and administration orders to facilitate rehabilitation of financially distressed companies. These provisions are however carefully circumscribed to protect the rights of secured creditors, although unusually a floating chargeholder does not have the right to block the appointment of an administrator.
The legislation will also reinforce the pari passu system of distribution between creditors on winding up generally, but introduces a new class of "postponed debts." The protection of parity between creditors is further bolstered by a new voidable transactions regime, whereby transactions entered into in the "twilight" period prior to insolvency may be challenged by a liquidator if they constitute an unfair preference, an undervalue transaction, a voidable floating charge or an extortionate credit transaction. The new law will also permit the liquidator to bring proceedings against errant directors for misfeasance, insolvent trading or fraudulent trading.
Under the new regime insolvency practitioners would be licensed, and only licensed practitioners would be able to act as liquidators of insolvent companies, trustees in bankruptcy, supervisors of creditors' arrangements, administrators or administrative receivers. The legislation also regulates receiverships generally (including non-administrative receiverships).
The bill would also confer wide powers to the Anguillan courts to make orders in aid of foreign insolvency proceedings, but – probably wisely – stops short of introducing the UNCITRAL model law on cross-border insolvency.
Certain provisions in the draft appear designed to address issues which arose in cases under the BVI legislation. For example failure to satisfy a statutory demand only gives rise to a rebuttable presumption of insolvency (helping to avoid difficulties highlighted in Trade and Commerce Bank v Island Point), and the legislation makes clear that members with claims against the company as such are still creditors of the company and able to petition and claim as such, albeit subordinated to company's external creditors (avoiding the issues which arose in Somers Dublin v Monarch Pointe).
At present financial netting is regulated under the Netting Act (Cap N.03) which broadly provides that contractual netting will prevail over any other form of set-off. The strong presumption is that this will necessarily remain the case, but in the initial draft of the Insolvency Act there were no cross references to the Netting Act included to clarify the relationship between the two.
Overall the new legislation is likely to be warmly received by the offshore financial sector in Anguilla and its clients around the world.
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