Corporate Recovery Insolvency Services

1. Corporate Recovery & Insolvency Services A Presentation to The Bahamas Institute of Chartered Accountants By Jeffrey Beneby, CA Principal Beneby & Company November, 2004

2. Definition of Insolvency The Debtor is unable to pay their debts as they fall due (the cash-flow test). The liability of the Debtor exceeds their assets (the balance sheet test).

3. Pre-Insolvency Decisions Find new money from: Increase capital Make voluntary arrangements with creditors, extend credit, reduce interest rate and payment terms. Find new investors. Merge or split the company. Sell off certain activities. Increase in-going cash flow or decrease costs.

4. Pre-Insolvency Decisions, continued Alternatively Replace the management Replace shareholders (Management buy-out) Appoint a Receiver Go into voluntary liquidation

5. Laws & Rules Governing Insolvency The Company’s Act Conveyance & Law of Properties Act Rules of the Supreme Court Case Law

6. Who can place a company into Insolvency! Members? Creditors? Regulators?

7. Receiverships Members-voluntary Members-Court Supervised Secured creditor

8. Receiverships, continued Receiver Receiver and Manager Powers of Officers and Directors continued in a general way, but not to interfere with the authority granted to the Insolvency Practitioner.

9. Liquidations The main purpose: For a just distribution of the net assets of the company Termination of a Company’s existence.

10. Liquidations, continued Upon execution of instruments of an Insolvency Practitioner’s appointment: The company’s assets transfer to the control of the practitioner. Rights of unsecured creditors are frozen. Possible able to claw back some advantages received by other litigious creditors Can call the officers and directors to account for their conduct.

11. Voluntary Liquidations Members’ resolution by passing a special resolution at a general or special meeting. Creditors liquidation through members’ resolution as above. Officers and Directors powers cease.

12. Compulsory Liquidations Winding up by the Supreme Court as a result of a formal petition by members or creditors. Powers of officers and directors cease and all employments contracts are terminated.

13. Cross-Boarder Insolvencies Where assets and or subsidiaries operate in other jurisdictions away from the home country. Jurisdiction is with country or state of incorporation of the company or its parent. Co-operations between courts and International comity Need for tracing assets. Mareva Injunctions

14. Tracing Assets May be subject to tracing where fraud or other impropriety is suspected. E.g.. A dishonest company director, misappropriate company assets by transferring them to dummy company that he controls in return for an illusory consideration. Funds are electronically transferred between various jurisdiction and some may be utilize for personal expenses or purchase personal property in the original jurisdiction.

15. Identifying Creditors Proof of debt. Time certain for accessing claims. Contact secured creditors

16. Identifying Assets Audited financial statements Interim financial statements General Ledger Other specifically maintained asset registers (e.g.. investments, receivables, fixed assets or bank accounts)

17. Conducting of the Insolvency All correspondence should clearly indicate that the company is insolvent. Meeting and accounts Realization of assets (power of sale) Tracing of assets if necessary Identifying creditors Litigating if required Suggest Court Order for any major decisions especially sale or disposal of major assets. Distribution to creditors (interim or final) dividends or return of capital

18. Marshalling & Distribution of Assets Cost & expenses including Insolvency Practitioner remuneration. Preferred creditors Ordinary creditors Members

19. Need For Insolvency Act Can give relief to individual as well corporations to make voluntary arrangement (legal contracts) for the satisfaction of debts, which upon being accepted is binding upon all creditors and controlled by an Insolvency Practitioner. Defines who is qualified to perform insolvency services. Specify details guidelines and code of conduct for Insolvency Practitioners.

20. Compensation of Insolvency Practitioners Depends You and your staff hourly rates. Premium rates depending on complex legal or cross-border issues. 2% of assets recovered. Engagement letter is recommended but is not the norm.

21. Relationship with Attorneys Need to retain a psychiatrist first. Need to retain a spiritual advisory second. Stay away from the devil, Attorneys are his agents. Adversaries are seeking to maximize their fees and will seek any opportunity to write or e-mail or file frivolous law suits that they know they cannot win. Seek to disrupt the Insolvency Practitioner job and try to control the Insolvency to their clients advantage.

22. Relationship with Regulators None Communicate out of courtesy.

23. Importance of Case Law Very important. The Law surrounding Insolvencies consist a great deal on legal precedent. Almost every situation you encounter you can find at least one case to support it.

24. Working Papers Basically this is your call You have to keep records of creditors names and addresses and claims. Records of your collection and disbursements. Statement of Affairs Record of Dividend or return of capital payments No time set. But in the U.K. this is 10 years.

25. Engaging The Insolvency Practitioner Normally by Board or Members Resolution Legal document prepared by the Petitioner’s attorney. Court Petition Recommend preparing a separate engagement letter defining scope, fees, frequency of payments, dispute resolution, termination, frequency of communications with client, frequency of reporting, etc. Indemnification Reasonable retainer

26. Professional Responsibility & Liability of The Insolvency Practitioner Great exposure for personal liability. Liability limited for your action that may be in bad faith and breaches of fiduciary duties. Liability should not be personal except for above and should be a charge against the company’s assets.

27. Insolvency Practitioner-Responsible To Whom? Who is your Client? The Petitioner? The Creditors? The Shareholders? The Court? The Regulator?

28. Library Resources a Must Kerr on Receivership The Companies Act The Conveyance and Law of Property Act The Supreme Court Rules Tolley’s Corporate Insolvency Loose on Liquidators Resue of Companies-AIJA Law Library International Tracing of Assets by Michael Ashe, QC and Barry Rider Cross-Border Insolvency by Butterworths Nexus

29. Reporting & How Often Court appointed required more frequent reporting Non-Court appointed depends on your terms of engagement. When something major has occurred such as the sale or recovery of significant assets or payment of dividends or returns to members.

30. Concluding The Engagement Call final meeting of Creditors Distribute any final dividends or returns to members Present Final Report File Report with Court in Case of Compulsory or Court Supervised Insolvency File Report with Registrar of Companies with Minutes of final meeting Get paid Vacate office