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 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). The liability of the Debtor exceeds their assets (the balance sheet test).

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

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

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

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

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

8. Receiverships, continued Receiver Receiver Receiver and Manager 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. 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 For a just distribution of the net assets of the company Termination of a Company’s existence. 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. The company’s assets transfer to the control of the practitioner. Rights of unsecured creditors are frozen. Rights of unsecured creditors are frozen. Possible able to claw back some advantages received by other litigious creditors Possible able to claw back some advantages received by other litigious creditors Can call the officers and directors to account for their conduct. 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. Members’ resolution by passing a special resolution at a general or special meeting. Creditors liquidation through members’ resolution as above. Creditors liquidation through members’ resolution as above. Officers and Directors powers cease. 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. 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. 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. 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. Jurisdiction is with country or state of incorporation of the company or its parent. Co-operations between courts and International comity Co-operations between courts and International comity Need for tracing assets. Need for tracing assets. Mareva Injunctions Mareva Injunctions

14. Tracing Assets May be subject to tracing where fraud or other impropriety is suspected. 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. 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. Proof of debt. Time certain for accessing claims. Time certain for accessing claims. Contact secured creditors Contact secured creditors

16. Identifying Assets Audited financial statements Audited financial statements Interim financial statements Interim financial statements General Ledger General Ledger Other specifically maintained asset registers (e.g.. investments, receivables, fixed assets or bank accounts) 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. All correspondence should clearly indicate that the company is insolvent. Meeting and accounts Meeting and accounts Realization of assets (power of sale) Realization of assets (power of sale) Tracing of assets if necessary Tracing of assets if necessary Identifying creditors Identifying creditors Litigating if required Litigating if required Suggest Court Order for any major decisions especially sale or disposal of major assets. 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 Distribution to creditors (interim or final) dividends or return of capital

18. Marshalling & Distribution of Assets Cost & expenses including Insolvency Practitioner remuneration. Cost & expenses including Insolvency Practitioner remuneration. Preferred creditors Preferred creditors Ordinary creditors Ordinary creditors Members 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. 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. Defines who is qualified to perform insolvency services. Specify details guidelines and code of conduct for Insolvency Practitioners. Specify details guidelines and code of conduct for Insolvency Practitioners.

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

21. Relationship with Attorneys Need to retain a psychiatrist first. Need to retain a psychiatrist first. Need to retain a spiritual advisory second. Need to retain a spiritual advisory second. Stay away from the devil, Attorneys are his agents. 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. 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. Seek to disrupt the Insolvency Practitioner job and try to control the Insolvency to their clients advantage.

22. Relationship with Regulators None None Communicate out of courtesy. Communicate out of courtesy.

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

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

25. Engaging The Insolvency Practitioner Normally by Board or Members Resolution Normally by Board or Members Resolution Legal document prepared by the Petitioner’s attorney. Legal document prepared by the Petitioner’s attorney. Court Petition 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. 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 Indemnification Reasonable retainer Reasonable retainer

26. Professional Responsibility & Liability of The Insolvency Practitioner Great exposure for personal liability. Great exposure for personal liability. Liability limited for your action that may be in bad faith and breaches of fiduciary duties. 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. 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? Who is your Client? The Petitioner? The Petitioner? The Creditors? The Creditors? The Shareholders? The Shareholders? The Court? The Court? The Regulator? The Regulator?

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

29. Reporting & How Often Court appointed required more frequent reporting Court appointed required more frequent reporting Non-Court appointed depends on your terms of engagement. 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. 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 Call final meeting of Creditors Distribute any final dividends or returns to members Distribute any final dividends or returns to members Present Final Report Present Final Report File Report with Court in Case of Compulsory or Court Supervised Insolvency File Report with Court in Case of Compulsory or Court Supervised Insolvency File Report with Registrar of Companies with Minutes of final meeting File Report with Registrar of Companies with Minutes of final meeting Get paid Get paid Vacate office Vacate office