The Companies (Winding up Amendment) Act 2011

April 3, 2013

bulletin header imageOn April 30th 2012, The Companies (Winding Up Amendment) Act 2011 came into effect in the Commonwealth of The Bahamas. Some of the provisions contained in the amendment Act relates to winding up by the court, voluntary winding up, winding up subject to the supervision of the court, shadow directors, clawback provisions and international cooperation.

Section 184 of the Act sets out the different ways in which a Company may be wound. They are as follows:‐

a. compulsorily by order of the court;

b. voluntarily‐

(i) by virtue of a resolution of the company;

(ii) because the event, if any, has occurred, on the consequence of which its articles provide that the company shall be wound up; or

(iii) because the period, if any, fixed for the duration of the company by its articles has expired; or

c. under the supervision of the court.

Also, Section 186 of the Act lists the circumstances in which a company may be wound up by the court, namely:‐

a. the company has passed a resolution requiring the company to be wound up by the court;

b. the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

c. the company is insolvent;

d. the members are reduced in number to less than two;

e. the court is of the opinion that it is just and equitable that the company should be wound up; or

f. a regulator petitions for the winding up of a company over which it has a regulatory authority and whose licence or registration has been suspended or revoked.

The Act defines “insolvent” as a company being unable to pay its debts as they fall due; or the value of the company’s liabilities exceeding its assets.

In addition, the Act lays down the provisions under which a company may be wound up voluntarily:‐

a. when the period, if any, fixed for the duration of the company by its memorandum or articles expire;

b. if the event, if any, occurs, on the occurrence of which the memorandum or articles provide that the company is to be wound up;

c. if the Company resolves by resolutions passed by a majority of less than three –fourths of the members that it be wound up voluntarily; or

d. if the company resolves by resolution that it be wound up voluntarily because it is insolvent.

A voluntary winding up is deemed to commence at the time of the passing of the resolution for winding up; or on the expiry of the period or the occurrence of the event specified in the company’s memorandum or articles, notwithstanding that a supervision order is subsequently made by the court.

Winding up subject to the supervision of the court occurs when a resolution has been passed by a company to wind up voluntarily the liquidator or any contributory or creditor may apply to the court for an order for the continuation of the winding up under the supervision of the court notwithstanding that the declaration of solvency has been made in accordance with section 219 on the grounds that –

a. the company is or is likely to become insolvent; or

b. the supervision of the court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors.

Under the Act a supervision order shall take effect for all purposes as if it were an order that the company would be wound up by the court except that-

a. the liquidation commenced in accordance with section 212; and

b. the prior actions of the voluntary liquidator shall be valid and binding upon the company and its official liquidator.

The Act mentions a new type of director known as a “shadow director”. The Act defines a shadow director in relation to a company, as any person in accordance with those directors or instructions the directors of the company are accustomed to act, but the person is not deemed to be a shadow director by reason only that the directors act on advice given by him in a professional capacity. The Act imposes several responsibilities or liabilities on the shadow director.

The Act also deals with offences of Fraud. Section 228 states that where a company is ordered to be wound up by the court or passes a resolution for voluntary winding up any person who is or was an officer, professional service provider, voluntary liquidator or receiver of the Company and who within the twelve months immediately preceding the commencement of the winding up, has concealed, destroyed, falsified, pawned or pledged any document or property of the company with intent to defraud the company’s creditors or contributories is guilty of an offence and liable on summary conviction to a fine of twenty thousand dollars or to imprisonment for five years or to both.

In addition, the Act allows for the court to make an order under the application of the liquidator of a company if it is satisfied that there was fraudulent or insolvent trading at any time before the commencement of the winding up of the company.

Under the Act a transaction may be considered invalid if it happens within six months of liquidation proceedings at a time when the company is unable to pay its debts and is made with a view to giving a creditor preference over other creditors.

The Act also deals with avoidance of dispositions made at an undervalue. Every disposition of property made at an undervalue by or behalf of a company with intent to defraud its creditors shall be voidable at the instance of its official liquidator. The burden of establishing an intent to defraud for this purpose rests upon the official liquidator. Proceedings for the avoidance of a disposition must be commenced within two years of the disposition complained of. In the event a disposition is set aside and the court is satisfied that the transferee has not acted in bad faith the transferee has a first and paramount charge over the property and the relevant disposition shall be set aside subject to the proper fees, costs, pre‐existing rights, claims and interests of the transferee.

The Act makes provision for international cooperation. Section 254 states that upon the application of a foreign representative the court may make orders ancillary to a foreign proceeding.

The Act brought in significant changes to the process of company liquidation in The Bahamas. It would appear that the provisions assist the creditors and liquidators as it enhances some of their powers. The above mentioned only highlights some of the provisions and is not a summary of all of the provisions of the Act.

The information stated above is not intended to be construed as legal advice in anyway.

Written by Mrs. Adrianna Knowles‐Rahming (Associate) |

bulletin-newsletter FOOTER

Print Friendly, PDF & Email

Filed in: Bulletins