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The introduction of the Banks and Trust Companies Regulation Act, 2020 (the “Act”), which repealed and replaced the Banks and Trust Companies Regulation Act (Ch. 316 of the Statute Laws of The Bahamas, 2000 Revised Edition) and consolidates and modernizes the law regulating banks and trust companies in The Bahamas, was welcomed by the financial services industry in The Bahamas.

Among its most important accomplishments was the enhancement of the powers of the Central Bank of The Bahamas to resolve troubled banks, by modernising the resolution framework for banks in The Bahamas, in line with best international practices.  In the financial sector context, “resolution” is the restructuring of a financial institution which is failing or very likely to fail and aimed at preserving financial stability and ensuring the continuity of the critical functions of the financial system.  The new framework contemplated by the Act falls under three heads: (i) the recovery of banks in financial distress; (ii) the statutory administration of banks; and (iii) the liquidation of banks.

The Recovery of Banks in Financial Distress

Where a bank is under financial distress, the Act empowers (i) the Central Bank, (ii) a statutory administrator appointed by the Central Bank, or (iii) a liquidator appointed by the Central Bank, to take specified actions authorised under the Act to achieve certain objectives; including maintaining financial stability, protecting and enhancing public confidence in the stability of the banking system, and protecting depositors.

Banks in resolution must prepare and submit periodically to the Central Bank a “recovery plan” which provides for the rapid and orderly recovery of such bank, subject to any reasonable revisions to the plan required by the Central Bank to address any deficiencies.  Where a plan is not submitted, the Central Bank may impose rigorous requirements or restrictions on the bank, until a plan is submitted.

The Central Bank itself may prepare a resolution plan for a bank using information and analysis submitted by the bank.

Appointment of a Statutory Administrator

The circumstances under which the Central Bank may appoint a statutory administrator are detailed in the Act, which include (i) where in the opinion of the Central Bank, a bank is engaging in unsafe and unsound practice in a manner which would weaken the bank’s condition, threaten depositors’ interests or dissipate the bank’s assets or that contravenes the provisions of the Act or any law or regulation either in The Bahamas or elsewhere or (ii) where the capital of the bank falls below the Central Bank’s minimum capital requirement or the capital and value of the assets of the bank have, in the opinion of the Central Bank, reached or are likely to reach a level or are eroding in a manner that may detrimentally affect its depositors or creditors, with no reasonable prospects of timely restoration of such capital and value.

All powers, functions and responsibilities of the shareholders, directors and officers of a bank under statutory administration vest in the statutory administrator, including the power to continue or discontinue any or all of the bank’s operations, remove any or all directors and officers, or preserve and safeguard the assets and property of the bank.

A statutory administrator must provide to the Central Bank (i) a written inventory of the assets and liabilities of the bank under statutory administration; (ii) a written assessment of the amount of assets likely to be realized in a liquidation of the bank; (iii) a written report on the financial condition and future prospects of the bank under statutory administration; and (iv) a proposed plan of action to resolve the bank.

On the basis of the resolution plan proposed, the statutory administrator may transfer the bank’s shares or other securities, assets, rights and liabilities to (a) a purchaser; (b) a bridge institution for a temporary period; or (c) an asset management vehicle.   For the purposes of the Act, (i) a “bridge institution” is a company that is incorporated under the Companies Act, owned by the Central Bank; created for receiving a transfer, and effecting a timely disposal, of the assets, rights and liabilities of a bank under statutory administration; and is licensed under the Act; and (ii) an “asset management vehicle” is a company that has been incorporated under the Companies Act; wholly or partially owned by the Central Bank and/or the Government of The Bahamas; and is created to receive some or all of the assets, rights and liabilities of a bank under statutory administration or a bridge institution.

The Liquidation of Banks

Voluntary Winding Up

Before a bank petitions the court for a voluntary winding up, the prior written approval of the Central Bank is required.  Such approval may be granted subject to such terms and conditions, if the Central Bank is satisfied that: (a) the bank is solvent and has sufficient liquid assets to repay its depositors and other creditors in full and without delay; (b) the winding-up has been approved by the holders of at least two-thirds of the issued voting shares of the bank; and (c) there are clear procedures in place for repayment of the bank’s depositors and creditors within three days.  Where such approval is granted, the bank must surrender its license, apply to the Supreme Court for its winding up, cease to do business, repay in full its depositors and other creditors, and wind-up all operations.

Compulsory Winding Up and Appointment of Liquidator

A liquidator may be appointed for a bank where the Central Bank has (a) revoked the licence of a bank, or (b) a statutory administration is terminated, pursuant to the specified provisions of the Act.  Such liquidator will become the sole legal representative of the bank, and will succeed to all rights and powers of the shareholders and directors and officers responsible for the management of the bank, including all of the powers and duties specified in the Act.  Of particular note is the power of the liquidator, within thirty days of the date of his appointment, to repudiate any unfulfilled or partially fulfilled contract, to the extent that the fulfilment of such contract is determined to be burdensome for the bank and the repudiation would promote the orderly administration of the bank’s affairs and protect depositors’ interests.  The compensation of the liquidator must be paid from the assets of the bank.

In any liquidation of a bank, the priority of claims by secured or unsecured creditors, and safeguards for shareholders and creditors are outlined in the Act.

Should you require any further information or legal advice on the Act, please contact a member of the Firm’s Financial Services Practice Group.

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.
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