COVID-19 – Bahamas Response and Impact on Bahamian Insolvency Law

04/14/2020

In response to the COVID-19 pandemic, the Government of The Bahamas, like many other governments, has declared a state of public emergency. In addition, the Government has issued several Emergency Powers Orders which operate to implement a temporary shutdown of all businesses (save for those providing specific essential services) and a national curfew.

Individuals and businesses have been hit hard and for many of them, COVID-19 has made a bad financial situation worse as it has come on the heels of the devastating Hurricane Dorian, which hit The Bahamas in September 2019. According to the UN Economic Commission of Latin America and the Caribbean, Hurricane Dorian caused about $3.4 billion in damages and losses primarily in the private sector.

In an effort to ease the negative economic impact of COVID-19, the Government has implemented or facilitated several legislative and other initiatives, which include:

  • A special unemployment assistance programme for self-employed persons who would not qualify for the usual unemployment benefit available under the country’s national insurance programme.
  • Arrangements between the Central Bank of The Bahamas and domestic banks and credit unions under which a 3-month deferral of repayments on credit facilities is available to businesses and individuals that have been negatively impacted by the pandemic. The deferral will be revisited in June 2020 and might be extended.
  • A Business Continuity Loan Program to help businesses survive this period of uncertainty; in addition to a $20 million COVID-19 stimulus package earmarked to provide loans to small businesses, with a payment grace period of four months. These loans are specifically for operating costs such as salaries, rent, insurance, utilities and inventory/supplies.
  • A Tax Credit and Tax Deferral Employment Retention Programme which provides businesses with payroll support in an effort to retain up to 10,000 jobs. Under this programme, qualifying businesses may defer the payment of certain taxes and to benefit from a tax credit, up to $300,000 in each instance. This accommodation is specifically to provide businesses with the cash flow to preserve current employment levels.

The above mentioned measures are undoubtedly welcome and will help to alleviate the financial pressure of persons who are able to take advantage of them. In spite of this, however, many individuals and businesses will continue to be at risk of bankruptcy or insolvency proceedings, as the regime relating to such proceedings remains unchanged.

First, there is currently no restriction on the filing of winding up petitions or bankruptcy petitions. Additionally, there has been no increase of the prescribed statutory minimum for a debtor’s summons under the Bankruptcy Act or a statutory demand under the companies legislation; and no extension of the timeframe within which the debtor is required to respond. It therefore remains the case that a Bankruptcy Petition may be filed against an individual if he is served with a debtor’s summons requiring payment of a debt of at least $200 and fails to respond within three weeks. Similarly, if a company who fails to respond to statutory demand (which must relate to a debt of at least $1,000.00) within three weeks may find itself the subject of a winding up petition.

It is also important to note that there has been no extension of the “clawback” period from the onset of insolvency during which a voidable preference or a disposition at an undervalue may be set aside. Under the companies legislation, every conveyance or transfer of property, or charge thereon, and every payment obligation and judicial proceeding, made, incurred, taken or suffered by any company in favour of any creditor at a time when the company is unable to pay its debts with a view to giving such creditor a preference over the other creditors shall be invalid if made, incurred, taken or suffered within six months immediately preceding the commencement of liquidation. In addition, every disposition of property made at an undervalue by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of such company’s official liquidator who must commence any action to set aside the disposition within two years after the date of the disposition.

Bahamian insolvency laws pre-COVID-19 relating to directors’ liability for insolvent trading also remains unchanged and there is no “safe habour” for directors who may be grappling with an unprecedented change in the company’s business conditions and financial health as a result of the pandemic. If a company enters the “zone of insolvency”, its directors must be mindful of their common law fiduciary and statutory duties. Furthermore, where the directors know or ought to know that there is no reasonable prospect that the company will avoid insolvent liquidation, they must take every reasonable step to minimise loss to the company’s creditors. A failure to do so may result in personal liability, whereby, on the application of the liquidator, the director is required to contribute to the assets of the insolvent company.

From an insolvency perspective, there are many legal implications of COVID-19. Higgs & Johnson is a market leader in providing cross-border restructuring and insolvency advice. For further information you may contact Tara Cooper Burnside

About the Author
Tara Cooper Burnside is a partner in the firm’s Insolvency & Restructuring practice group. She has detailed knowledge of the Bahamian insolvency regime and has worked on a number of cross-border insolvencies and restructurings. She is a Fellow of INSOL International.

*Previously published in INSOL International, News Update – April 2020

The information contained in this article is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases.
Copyright ©2020 Higgs & Johnson. All rights reserved.

 

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