Insolvency law to improve business environment
Published:Wednesday | December 4, 2013 | 12:00 AM
Actions towardS parliamentary passage of an Insolvency Act are proceeding as planned as part of the growth-enhancing structural reforms being established to improve the business environment in Jamaica, according to the October 2013 report of the International Monetary Fund (IMF).
The Government has agreed that improvement to the insolvency framework is one of the pieces of legislation it expects to finalise before the end of the year.
The Government has not elaborated, in the last two reports submitted to the IMF, on the wider objectives of a new insolvency regime.
However, in an article based on a report published by the IMF's legal department, titled Promoting Orderly and Effective Insolvency Procedures, the fund said that effective insolvency systems facilitate the rehabilitation of enterprises and provide an efficient mechanism for the liquidation of those enterprises that cannot be rehabilitated.
The IMF said the reform of the insolvency system has become an important component of its economic support programmes in many countries because of the impact it has on a country's economic and financial system.
"An effective insolvency system can also enable financial institutions, in a country whose financial sector is in distress, to curtail the deterioration of their assets by providing them with a means of enforcing their claims," the report said.
"It can also bring about the deepening and broadening of capital markets, for example, by stimulating the development of a secondary market in debt instruments that allows financial institutions to transfer their loans to entities specialised in the workout process," it added.
In circumstances where the corporate sector is in distress because of an international financial crisis, an effective insolvency law can ensure that private creditors contribute to the resolution of the crisis.
"For example, rehabilitation procedures may allow the courts to impose restructuring agreements over the objections of creditors, not only reducing the public cost of the crisis and relieving external financing needs but also buttressing the stability of the international financial system by forcing creditors to bear the costs of the risks they have incurred," the IMF report said.
The Jamaican Government has for sometime envisaged updating the insolvency and bankruptcy laws, which Minister of Industry, Investment and Commerce Anthony Hylton acknowledged in a report published in The Gleaner in September 2012 was outdated and ill-suited for modern commerce.
Hylton said then that it was having a negative impact on development and promised that reforming those laws would be prioritised.
"If we want to grow this economy, create jobs, encourage new business and foster entrepreneurship, changes must be made to the existing laws. We cannot go into the future with the current laws," said the minister.
The IMF has not set the reform of the insolvency legislation as a structural benchmark under the four-year Extended Fund Facility with Jamaica. However, the Jamaican Government has committed itself, as part of the agreement, to put legislation in place by the end of this month.
World bank report
Notwithstanding, there is as yet no indication that an insolvency or bankruptcy bill has been tabled in Parliament.
Leader of Government Business Phillip Paulwell said last week that in order not to stumble at the next quarterly review under the IMF programme, members of the Jamaican Parliament should be prepared to work up until December 17 or later.
According to the 2013 World Bank's Ease of Doing Business, resolving insolvencies in Jamaica takes 1.1 years or 13 months, down from 18 months in 2012. Like last year, resolving insolvencies cost 18 per cent of the debtor's estate, with a recovery rate of 63.1 cents in the dollar, down from 65.3 cents a year ago.
Jamaica's existing law on personal bankruptcy is found in the Bankruptcy Act of 1880, while the corporate insolvency provisions in the Companies Act 2004 are based on the provisions of the United Kingdom Companies Act of 1948.
Proponents of changes to the law argue that it is skewed towards punishing the bankrupt rather that rehabilitating them.