Financial failure of business enterprises is a fact of life in even the most prosperous and well-functioning economies. The economic environment in which all countries operate has evolved profoundly in recent times and the laws addressing financial failure need to be upgraded with modern tools to address the new realities of a changing global marketplace. This is especially so in the Caribbean, where temporary economic shocks, from COVID-19 and natural disasters such as earthquakes and hurricanes have hit economies hard. Modern insolvency laws, especially business rescue provisions, are needed to address these temporary economic shocks rather than simply closing otherwise viable businesses at the first sign of financial difficulty. Effective bankruptcy-insolvency systems provide the necessary legal frameworks to enable viable firms to reorganize, where they can be saved, and an orderly means of exit from the marketplace, when they cannot. The Caribbean is known to trail in effective methodologies to resolve troubled-debt situations and these deficiencies are reflected in low regional rankings measuring the ease of doing business.
In response, the Caribbean Association of Investment Promotion Agencies (CAIPA) approached the ICR Facility to commission a report to help improve the region’s ability to resolve insolvency as a part of its broader efforts to improve the business environment in the Caribbean.
The report identifies and addresses the most significant country-level deficiencies, broader overall regional patterns and important gaps in institutional capacity with suggestions for improvement with the goal of informed policy making across the region.
In sum, a majority of the laws in the Caribbean are based on early United Kingdom (UK), Canadian and civil law legacies originally adopted at a time when economies were far different than today. While some have made incremental changes through the years, most have not embraced the needed modernizations or even kept pace with the legislative upgrades that the base countries deemed necessary to make.
The findings highlight the need for a number of clear and targeted reforms.
Update laws for modern times. The laws in the region need revision to reflect current circumstances, modern commercial practices, and international best practices. A more in-depth “policy and technical” review is needed in each country to consider upgrades that, at minimum, consider and keep up with relevant changes in base country legislation countries (UK and Canada), with global standards and with current best practices. Such a review is recommended at five-year intervals.
Strengthen institutional and supervisory structures. Each country should have a standing official government body or ministry designee with authority to: monitor overall systemic functioning, collect statistics, study current developments, potential solutions regionally and globally; and propose and drive needed amendments. A regional body could convene a regularly scheduled gathering of regional insolvency supervisors to discuss systemic insolvency issues and common matters affecting the region. Currently, no such mechanism to exchange and learn from each other exists.
Enhance business rescue tools. Provide much-needed upgrades for business rescue (reorganization) for greater effectiveness in modern times, as well as streamlined procedures for Micro, Small and Medium-sized Enterprises, Out of Court Workout tools (such as mediation), and/or other cost-effective easily implementable measures to save businesses that can be saved rather than closing them down prematurely.
Enhance creditor participation. Address identified gaps in creditor abilities to select or approve administrators, approve major asset sales, to request debtor financial information and to object to certain claims by other creditors when necessary to enhance the ability of creditors to function properly within the system.
Download the full report for details supporting the above conclusions as well as other important findings.
This publication is part of an intervention supported by the Investment Climate Reform (ICR) Facility. The ICR Facility is co-funded by the European Union (EU), the Organisation of African, Caribbean and Pacific States (OACPS) under the 11th European Development Fund (EDF), the German Federal Ministry for Economic Cooperation and Development (BMZ) and the British Council. The ICR Facility is implemented by GIZ, the British Council, Expertise France, and SNV. This specific intervention is led by Mr. Milo Stevanovich on behalf of GIZ. The contents of this publication are the sole responsibility of the author and do not necessarily reflect the views of the donors or the implementing partners.