Chapters in this guide
20
Belize has seen significant recent developments to its insolvency and restructuring laws with the 2022 introduction of the Belize Companies Act 2022 (“the Act”). Like many other Commonwealth Caribbean countries, Belize has historically had a statutory regime rooted in English law. With the introduction of the Act, Belize ushered in modern company law, bringing its legislative framework in line with many jurisdictions in the Caribbean region.
As insolvency and restructuring framework in the new Act is increasingly used – and undoubtedly litigated – Belize will be “one to watch” for the development of jurisprudence and practice in this area of company law.
Under the Act, the most commonly used corporate insolvency procedures available are:
- court-order liquidation, where the court appoints an official liquidator to oversee the winding-up process of the company;
- provisional liquidation, where a provisional liquidator is appointed by the court when a winding-up petition is being considered; and
- compromise or arrangements where the company seeks to restructure its debts with its creditors.
The Act and Belize Companies Regulations, 2022, create the statutory framework for restructuring and insolvency of companies in Belize, while the Bankruptcy Act applies to individuals.
Under the Act, there are a variety of protections available to debtors pending and during a restructuring process, including the appointment of a provisional liquidator as well as the compromise or arrangement processes discussed in Question 3, below.
A compromise or an arrangement are pre-insolvency processes that facilitate the compromise of debt or equity claims with the consent of a collective group of stakeholders.
3.1 What are the conditions to entry?
A compromise or arrangement can be proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them.
On the application of the company, a creditor of the company, a voluntary liquidator (if the company is in voluntary liquidation) or liquidator (if a liquidation order has been issued), the court will order a meeting of either creditors or class of creditors, or the members or class of members.
If the proposal is approved by a majority representing 75% in value of the creditors or class of creditors, members or class of members present and voting, it will be sanctioned by the court and be binding on all the creditors or class of creditors, members or class of members.
The appointment of a provisional liquidator can facilitate the entry of a compromise or arrangement. Such an application can be made by the company ex parte on the grounds that the company is unable to pay its debts, and the company intends to present a compromise or arrangement to its creditors.
3.2 Can creditor claims be compromised “within a class”?
Yes, creditors’ claims can be compromised within a class. The Act provides for arrangements that allow for compromise between a company and its creditors, which can be structured within specific classes of creditors.
If a majority in number representing 75% in value of the creditors or class of creditors present and voting (either in person or by proxy) agree to a compromise, that compromise, if sanctioned by the court, is binding on all the creditors or class of creditors. It will bind those creditors who did not vote in favour it.
3.3 Is there a “cross-class cramdown”?
Yes, the Act provides for a mechanism that allows for a “cross-class cramdown”. As discussed in Question 3.2, above, the court can sanction a compromise that affects multiple classes of creditors, including those creditors who do not form part of the requisite majority who voted in favour it.
3.4 Can shareholder claims be compromised?
Yes, shareholder claims can be compromised. The Act provides for a compromise between a company and its members (shareholders).
3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?
Yes, secured creditors’ claims can be compromised, as discussed in Question 3.2, above. Under the Act, the term “creditors” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder.
Deficiency claims arise when the value of the collateral is less than the amount owed. These claims are classed as unsecured claims and rank lower in priority compared to secured claims. The Act does not explicitly detail the treatment of deficiency claims — as they are unsecured claims, it can be inferred from the Act that any compromise or arrangement involving such claims would also need to be sanctioned by the court to be binding, as discussed in Question 3.2, above.
3.6 Can creditors propose competing plans?
Yes, creditors can propose competing plans. This allows multiple plans to be presented during the restructuring process. The Act empowers the court to order meetings of creditors or class of creditors to discuss the proposed compromise or arrangements following an application made by creditors of the company.
This demonstrates that creditors can present their own plans during these meetings. Creditors or a class of creditors can submit their own plans for consideration at meetings ordered by the court. Ultimately, the court will decide which plan to sanction based on the interests of creditors and the company, ensuring that all stakeholders have a say in the restructuring process.
3.7 What level of court or other third-party supervision is there of the process(es)?
The Act incorporates significant court supervision at various stages in the restructuring and insolvency process, including approving plans and facilitating meetings among creditors.
A provisional liquidator will also play a supervisory role, where they are appointed, on the basis that the company is or is likely to become unable to pay its debts and the company intends to present a compromise or arrangement to its creditors. However, their involvement and to a greater extent their powers would be limited by the court order appointing them.
The Act does not contain any explicit provision for clawback claims, such as undervalue and preference transactions entered by the company prior to winding up. However, clawback claims are available under the Act with respect to distributions and fraudulent acts in anticipation of winding up.
4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?
Where a distribution is made to a member (shareholder) at a time when the company did not, immediately after the distribution, satisfy the solvency test, the distribution may be recovered by the company from the members.
The Act also deals with antecedent transaction claims concerning fraudulent acts in anticipation of winding up involving a number of individuals, including any person who was an officer (which includes a shadow director), professional service provider, voluntary liquidator or controller of the company.
4.2 What are the relevant “look-back” periods for claims?
For distributions, the look-back period is 12 months after the date on which solvency and liquidity test is considered.
The relevant look-back period is 12 months immediately preceding the commencement of the winding up for fraudulent acts in anticipation of winding up.
4.3 Who can pursue the claims?
In the case of distributions, a claim can be brought by the company against the directors or members for the repayment of the distribution that it was not able to recover from members.
Where there have been fraudulent acts committed by the individuals mentioned in Question 4.1, above, a claim can be brought against them by the liquidator. Where a winding-up order is made by the court, the liquidator is empowered to investigate whether the company has failed and the cause of the failure. In addition, the liquidator is also empowered to generally investigate the promotion, business, dealing and affairs of the company, and to make a report, if any, to the court as they think fit.
The liquidator is empowered to:
- assist the competent regulatory and licensing authorities and the Belize Police Department to investigate the conduct of certain persons; such persons include:
- persons who are or have been directors or officers of the company;
- persons who are or have been professional service providers of the company; and
- persons who are or have been employees of the company, during the period of one year (12 months) immediately preceding the relevant time; and
- institute and conduct a criminal prosecution of the above-mentioned persons.
4.4 What remedies are available and how do they operate in practice?
As mentioned in Question 4.3, above, criminal prosecution can be instituted against such persons who have committed fraudulent acts.
Concerning distributions, as mentioned in Question 4.3, above, a claim can be brought by the company against directors or members for the repayment of the distributions that it was not able to recover from members.
4.5 What defences are available?
Under the Act, a director, when exercising their powers or performing their duties, is entitled to rely upon the register of members and upon books, records, financial statements, and other information prepared or supplied, and on professional or expert advice given, by the following:
- An employee of the company. This applies if the director believes, on reasonable grounds, that the employee is reliable and competent in relation to the matters concerned.
- A professional advisor or expert. This applies to matters which the director believes, on reasonable grounds, to be within the person’s professional or expert competence.
- Any other director or committee of directors. This applies to matters within that director’s or committee’s designated authority, provided the relying director did not serve on that committee.
Where a director relies on such information or advice, they will have a defence if they meet the following conditions:
- they acted in good faith;
- they conducted proper inquiries where the circumstances warranted such inquiries; and
- they had no knowledge that their reliance on the register of members, books, records, or expert advice was not warranted.
In the case of a distribution, a member would have a defence against recovery of the distribution made when the company did not satisfy the solvency test in the following circumstances:
- the member received the distribution in good faith and without knowledge of the company’s failure to satisfy the solvency test;
- the member has altered his position in reliance on the validity of the distribution; and
- it would be unfair to require repayment in full or at all.
4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?
Yes, the Act provides a general right of action in respect of transactions that defrauded creditors.
The Act provides a general right of action to challenge transactions defrauding creditors, particularly within the context of a company’s winding up.
The Act permits any creditor or creditors (including any contingent or prospective creditor or creditors) to make an application to the court (by petition) for the winding up of the company. This initiates the insolvency process during which fraudulent transactions can be addressed.
A crucial civil mechanism comes into effect once a winding-up order has been made by the Court. In Belize, similar to other common law jurisdictions, any disposition of the company’s property after the commencement of the winding up (which typically relates back to the date the winding-up petition was presented) is generally void unless the court otherwise orders. This empowers the liquidator to challenge and reverse such dispositions, effectively recovering assets for the benefit of all creditors, regardless of whether a specific intent to defraud existed at that precise point.
It is important to note that there is a criminal provision under the Act, which provides that where a company is ordered to be wound up, any officer or professional service provider who conceals or removes any part of the company’s property with intent to defraud creditors or contributories commits an offence and is liable on indictment to a fine and to imprisonment for five years. This provision creates a criminal penalty for fraudulent conduct, and it serves as a strong indicator of the legislature’s intent to condemn and deter actions that defraud creditors. This criminal deterrent complements the civil mechanisms that allow for the actual reversal and recovery of assets from such transactions.
4.7 Who can pursue the claims?
The following parties have the right to challenge transactions that defraud creditors:
- creditors;
- contributories;
- the liquidator; and
- regulatory and licensing authorities.
4.8 What remedies are available and how do they operate in practice?
The court can issue orders upon the application of the liquidator requiring a person who is or was a director or officer of the company, or who is or was a professional service provider to the company and was involved in fraudulent transactions, to comply with certain conditions, such as returning assets or providing information related to the transaction.
Where fraudulent conduct is proven, persons responsible for the fraudulent transactions may be liable on indictment to a fine and to imprisonment for five years.
4.9 What defences are available?
See Question 4.5, above, for the defence available to a director.
5.1 What are the duties of directors and managers?
Under the Act, directors are required to act honestly and in good faith in the best interest of the company. The standard of care expected from directors is that they must exercise the care, diligence and skill that a reasonable director would exercise in similar circumstances.
5.2 What claims can be brought against directors and managers arising from breaches of those duties?
Claims can be brought against directors for any acts or omission or decision made whilst they are or were a director which results in a breach of their overarching duty (i.e. to act honestly and in good faith in the best interest of the company), as discussed in Question 5.1, above.
A member (i.e. a shareholder or personal representative of a shareholder) can bring proceedings in the name and on behalf of the company where permission is granted by the court to do so.
5.3 Who can pursue the claims?
See Question 5.2, above.
5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?
Directors have a duty to act honestly and in good faith in the best interest of the company. Therefore, where the company is unable to pay its debts or is insolvent, in acting in the best interest of the company they would be under a strict obligation to file for insolvency to avoid breaching their fiduciary duty.
5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?
Yes, directors and managers can be found liable for the increase in sums owed to creditors after the company becomes insolvent.
5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?
Directors and managers can be found liable for transactions in fraud of creditors.
6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?
Upon appointment, the liquidator will take custody and control of the assets of the company, which are broadly defined to include intellectual property, money, goods, things in action, land and every description of property wherever situated and obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property.
6.2 How is that information obtained in practice?
In a voluntary liquidation, the company and its directors and officers will likely cooperate with the voluntary liquidator to transfer the information. In a court-ordered liquidation or winding up, the liquidator may need to ask the court to make orders against the relevant parties if they do not cooperate.
6.3 Can the court assist in obtaining that information and how does that work in practice?
In a court-ordered liquidation or winding up, the court can make a broad range of orders on the application of the official liquidator.
7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted?
Belize has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.
7.2 Is it possible to recognise office holders from other jurisdictions?
There is no statutory recognition of office holders from other jurisdictions.
In order to carry on business in Belize, a foreign company must be registered pursuant to the Act and must have a Registered Agent, who must be licensed by the Financial Services Commission.
7.3 What is the process and what are the conditions for recognition?
As there is no recognition of office holders from other jurisdictions, there is no process and there are no conditions for recognition.
7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?
Office holders from other jurisdictions are not entitled to information about a debtor’s property, information and affairs.
7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?
There are no statutory steps that a foreign office holder can take to recover assets belonging to the debtor. A foreign office holder would have to consider the civil claims that may be available in the Belize courts.
7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?
A foreign office holder would have to commence a claim in the Belize courts seeking a court order to claw back claims or fraudulent transaction claims.
Official liquidators are officers of the court pursuant to the Act, while voluntary liquidators do not face the same statutory duty.
8.1 Can a foreign office holder take appointments?
A foreign practitioner, being a person who is qualified under the law of a foreign country to perform functions equivalent to those performed by official liquidators under Belize law, may be appointed jointly with a qualified insolvency practitioner as an Official Liquidator, or court-appointed liquidator.
8.2 What are the conditions for becoming an office holder?
The Act provides that a qualified insolvency practitioner is a person holding the qualifications as the court considers appropriate for the conduct of the winding up of a company.
The following persons are disqualified from holding the office of voluntary liquidator: a minor; an undischarged bankrupt; and an individual who is or has been in the two previous years a director of the company or held a senior management position in the company, or a close family member of such individual.
A voluntary liquidator must be registered with the Financial Services Commission, who will consider, among other things: the individual’s qualifications, experience, knowledge, and abilities; the individual’s financial and criminal history; and whether the individual is a “fit and proper person”.
8.3 What are the main rules of professional conduct?
The Act does not prescribe rules of professional conduct for official liquidators or voluntary liquidators. However, an official liquidator is an officer of the court, and a voluntary liquidator’s registration with the Financial Services Commission may be subject to conditions.