Vol 12 (2015) - Issue 2

Article preview

Insolvency Act 2011: Reform of Corporate Insolvency Legislation in Gibraltar

Introduction
Since 1930, corporate insolvency proceedings in Gibraltar have been governed by Part VI of the Companies Act and the English Winding-Up Rules 1929.
A complete legislative reform of the Insolvency regime in the form of the Insolvency Act 2011 and comprehensive subsidiary and associated legislation took effect on 1 November 2014. The new legislation makes provision for liquidation, as well as for various rescue and recovery regimes for the first time under Gibraltar law, including creditor voluntary arrangements, receivership and administrative receivership. The new Act also deals with individual bankruptcy which is outside the scope of this article.

Specific rescue and recovery for creditors
The introduction of new insolvency regimes within the Insolvency Act 2011 ('the IA') now means that companies in Gibraltar are given every opportunity to turn around their fortunes whilst ensuring that creditors are able to ensure a maximum return on debts owed to them. The IA provides a balanced approach between these two positions.

Company Voluntary Arrangements
The directors of a company (or a liquidator / administrator) may, if they believe that the company is insolvent or likely to become insolvent, propose an arrangement to the company's creditors under Part 2 of the IA; this is known as a Company Voluntary Arrangement ('CVA'). An arrangement may cancel all, or any part of, a liability of the company and/or may vary the rights of the creditors or the terms of a debt.
The process is supervised by an Interim Supervisor who must be an eligible insolvency practitioner. The Interim Supervisor must prepare a report on the proposal for the creditors and call a creditors' meeting at which the creditors can either decide to approve, amend or reject the proposal.
A proposal, approved by 75% (in value) of the creditors present and voting on the CVA, is binding on the company and on each member and each creditor of the company as if he was a party to the arrangement whether that creditor attended the creditors' meeting or not.
Following approval and subject to his agreement, the Interim Supervisor is appointed as Supervisor who has such powers and functions as provided for in the proposal. A Supervisor may be replaced by the court, upon an application being made, where he has failed to comply with his duties. The Court also has the discretion, following an application, to give any direction to the Supervisor and can also confirm, reverse or modify any decision made by Supervisor.

Administration
The Administration provisions are found in Part 3 of the IA. These provisions can be described as companyfriendly in that they give the company a window of opportunity in which to try to rescue its ailing business during a period when the company structure is effectively preserved and creditors are prevented from taking any legal steps against the company.
Generally, an Administrator is appointed by an Administrative Order made by the Court. In making the order the Court must be satisfied that the company is, or is likely to become, insolvent and that the appointment will assist in the rescue of the company or that it will achieve a better result for the creditors as a whole than would be likely if the company were to enter into liquidation.
Upon the appointment, the Administrator takes custody and control of all the company's assets and he will manage the business affairs of the company in furtherance of the objectives. Unlike liquidation, the powers of the directors continue so long as they do not conflict with the Administrator's powers. The Administrator is required to formulate proposals for consideration by the company's creditors who may approve, amend or reject the proposal at a creditors' meeting.