How the Changes in the Insolvency Act of Mauritius in 2009 Have Changed How Mauritius Handles Bankruptcy and Insolvency?
Insolvency is having more debts then assets that are available to pay them. Insolvency is also determined when a bankruptcy court decides that a person or a business cannot earn the needed funds to pay off all of their debts. The court can then choose to discharge some or all of the debts. This leaves the creditors not getting the money that they are owed. In many cases the insolvent is permitted to retain a few assets.
The changes brought to the insolvency act of Mauritius in 2009 have modernized the way Mauritius deals with bankruptcy and insolvency. This was a necessary step in order to complete with the world market. In 2004 The World Bank turned in the “report on the observance of standards and codes (ROSC) of insolvency and creditor rights and systems for Mauritius. Later in 2004 there was a seminar held at which a number of bankers, accountants, lawyers and other professionals were in attendance. There were a number of recommendations made regarding policies. Many of which were included in the final draft. The Act was created in collaboration with the World Bank and Mauritius Shareholders. The original proposal or Consultative Paper was issued in 2007. This paper had a list of the countries proposals.
Schedule 4 The Priority of Claims in Liquidation
The law ensures that employees have greater protections. This is done at the same time that the creditors are putting in procedures to protect the priority of the creditors. The bill gives greater importance to the unpaid salaries of the employees then the creditors. This is because it is necessary for the government to do what they can to help minimize the suffering that can result from a lack of stable wages. The Bill also works to give companies alternatives to liquidating their companies. Saving the company in seen as the best way to ensure the continued stability and financial protection of a company’s employees. The government cannot claim more than a restricted amount in one year.
Schedule 4 Part II- subpart IV Setting in place alternatives to bankruptcy
The Insolvency Bill corrected the biases against struggling companies by providing the company with alternatives to liquidation. These alternatives can include ways for the company to rehabilitate itself while still providing protection to the creditor. This can be done by creating a business structure that allows for the implementation of a commercial plan. This commercial plan would then permit the creditors in favor of the plan to vote to have the plan implemented. The Bill does the by providing the following two alternatives (1) workouts (2) voluntary administration
Workouts
Workouts are out of court restructuring of a company that is about to be liquidated because of the debts that the owe to creditors. Workouts which are handled by restructuring practitioners tend to be less expensive then bankruptcies. This allows companies to reduce of renegotiate their negative debts in an attempt to gain enough capital to improve their financial position and be able to continue operating their company.
The remodeling of the company’s structure allows for the company to be able to continue their business giving it the opportunity to remedy its debts in due time. The Bill allows for directed workouts by prescribed companies. These companies are such that the loss of them would have a negative impact on the national economy. The Bill also created the Companies Supervisory Committee of which one member is appointed be the FSC, one is appointed by the BOM and three members are appointed by the Minister of a private sector and the Registrar of Companies. This committee is given the power to review the activities of the companies in question and take reasonable steps to improve the companies in regards to their financial situation.
Schedule 4 Part III, Subpart IV-s215-s303 Voluntary Administration
Voluntary Administration is when (1) the company’s directors are able to keep their positions but are not able to apply any of their powers without gaining written consent from the Administrator. (2) The only transactions that are legitimate in respect to the company’s property are those made with the consent of the Administrator or by permission of the Court. (3) there is a cessation placed on the rights of the owners of the property that is in possession of the company. (4) all of the proceeding against the company prior to Voluntary Administration are frozen. Creditors can still elect to liquidate the company (5) The Administrator is now in charge of the management and control of the company. They may elect to terminate the company, remove directors or implement any change that is needed for the financial improvement of the business. (6) The Administrator can sell property that is subject to a charge. This must be done with the permission of a court or in the ordinary discourse of business. The Creditors can still enforce their security even when an Administrator is appointed.
The Administrator must investigate the state of the company within 21 days of being appointed and hold a meeting with the creditors to inform the as to the state of the company and to give them his suggestions for going forward. The creditor can either agree to this and enter into a “Deed of Agreement” end the services of the Administrator or terminate the company. Liquidation only takes place when there is no chance of the company being restored. According to the Bill a liquidator must be registered with the Insolvency Service and there are certain powers and duties that are attributed to the liquidator. The fees are not permitted to exceed 15% of the proceeds of the company.
Schedule 4 Part V- Clauses 338-363
The Bill also covers the implementation of laws that deal with netting provisions in financial contracts. Providing the netting of financial contracts helps to relate the rules to the laws that are applied to the intermediaries. This is done in relation to maintaining the company’s security accounts. The intermediary is defined as an individual who maintains the securities accounts for others. Money Market Managers, investment bankers, and futures dealers would fall under this description.
These rules are relevant to the number of transactions that a company can take. This is especially vital in international transactions where the parties involved are subject to payment or delivery commitments at some point in time. When the positions are closed the parties involved will sell off their obligations. This can cause a problem if one of the parties has become insolvent and cannot keep up their end of the netting agreement.
In these cases, it is important to have payment systems in place, especially because situations like these can have a negative effect on the company’s transactions. The Bill also provides directors of companies with additional duties. This includes procedures and directors being publically examined in the course of their duties. Directors and Debtors can also be examined by the Court to prevent a repeat occurrence of defaulting on a debt.
Works Cited
African Development Bank Appraisal Report: Mauritius. (2009). 1st ed. [ebook] African Development Bank. Available at: http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Mauritius_-_The_Competitiveness_and_Public_Sector_Efficiency_Programme__CPSE__-_Appraisal_Report.pdf [Accessed 4 Apr. 2016].
Doingbusiness.org. (2016). Resolving Insolvency in Mauritius - Doing Business - World Bank Group. [online] Available at: http://www.doingbusiness.org/data/exploreeconomies/mauritius/resolving-insolvency/ [Accessed 4 Apr. 2016].
Jugnauth, A. (2009). Insolvency Act 2009. 1st ed. [ebook] Mauritius: The National Assembly of Mauritius. Available at: http://www.investmauritius.com/media/37757/Insolvency-Act.pdf [Accessed 4 Apr. 2016].
Mondaq.com. (2016). Mauritius Insolvency Law In 60 Seconds - Insolvency/Bankruptcy - Mauritius. [online] Available at: http://www.mondaq.com/x/449376/Insolvency+Bankruptcy/Mauritius+Insolvency+Law+In+60+Seconds [Accessed 4 Apr. 2016].
Noel, G. (2011). Recovery Options Against Mauritius Incorporated Entities. Resolution Offshpore. [online] Available at: http://www.applebyglobal.com/articles-2011/recovery-options-against-mauritius-incorporated-entities-%28gilbert-noel%29-october-2011.pdf.
TheFreeDictionary.com. (2016). insolvency. [online] Available at: http://legal-dictionary.thefreedictionary.com/insolvency [Accessed 4 Apr. 2016].
