Towards insolvency law reform in Jamaica

• Author: Celia N Blake
• Position: MA, LLM, Attorney-at-Law and Lecturer in the Department of Management Studies, University of the West Indies, Mona Campus
• Pages: 1-24

TOWARDS INSOLVENCY LAW

REFORM IN JAMAICA

CELIA N BLAKE*

INTRODUCTION

The Bankruptcy Act, which has been in force since 1880, and certain

provisions1 of the Companies Act 1965 have been the principal legislative

sources of Jamaica's insolvency law as it relates to individuals and to companies

respectively These insolvency legislative provisions have not undergone any

rigorous substantial amendments.2 A revised Companies Act which was brought

into effect in February 2005 did not substantively address insolvency law

provisions which are expected to be the focus of separate legislative efforts.

The legislative framework for insolvency has thus remained largely

unchanged since the coming into force of the Bankruptcy Act and the

Companies Act 1965. Particularly over the last 15 to 20 years however the

credit environment has changed dramatically There is now, for example,

relatively easy access to credit card facilities as well as a greater dependency on

commercial credit facilities in an increasingly dynamic financial sector. The

Jamaican financial sector has for a long time been marked by a high interest

rate regime and suffered acute distress in the latter part of the 1990s with

* MA, LLM, Attorney-at-Law and Lecturer in the Department of Management Studies, University of

the West Indies, Mona Campus.

1 Companies Act 1965, ss 198 to 323 dealt with liquidations and ss 324 to 332 contained a few rules

pertaining to receivers and managers. (Unless otherwise specified, subsequent references in this

article to the provisions of the Companies Act will be to the Companies Act 2004 with the

equivalent provisions of the the 1965 Act indicated in square brackets.)

2 The Bankruptcy Act has been amended three times since the start of the decade of the 1980s (in 1982,

1993 and 1995). The 1982 amendment enacted only minimal changes dealing largely with increasing

the threshold of the amount payable as wages to employees in an insolvency and providing for contributions

due under the National Housing Trust Act to be part of the group of preferential debts. The 1993

amendments addressed court jurisdictional issues (which were also addressed by the 1995 amendment),

operational and administrative matters regarding the Trustee in Bankruptcy, an increase in the debt level

which can legally trigger a bankruptcy petition by creditors, as well as minor procedural changes to the

bankruptcy process. The provisions of the 1965 Companies Act (the predecessor of the New Act in

2004) which dealt with winding up and receivers had not been amended since 1980.

Figure 1

Number of Bankruptcies 1986 -

20034

and

Number of Creditor-Initiated Bankruptcies

Figure 2

Approximate Number5 of Windings-up 1986-2003 and

Number of Creditors' Voluntary Windings-up

non-performing loans being

a

significant feature of the distress.3 These factors

suggest the likelihood of an increasing use of, and reliance on insolvency law.

This suggestion is supported by figures captured in the line graphs indicating

the annual number of new cases of bankruptcies and insolvent windings-up.

Figures for personal insolvencies shown in Figure 1 show an increase in

the number of new cases of bankruptcies (i.e. provisional orders made on

petitions for bankruptcy) over the six-year period 1994 to 1999 (59 cases)

when compared with the six-year period prior to 1994 (27 cases). The figures

3 The 2001 Annual Report of Finsac Limited (the government company charged with the task of

intervening and rehabilitating troubled financial institutions in the financial sector crisis of the

1990s),

indicates at page 8 that, as at the end of March 2001, Finsac was managing 25,500 non-

performing loans (demand, mortgage and credit card loans all of which had been acquired by Finsac

from intervened financial institutions) amounting to over J$32 billion. This figure was 64% of the

total value of loans by banking institutions and building societies in the year 2000 and represented

nearly one fifth of the government's budget for the financial year 2000/01 and 9.4% of GDP for

2000/01.