Speech by Dr. The Honourable Ramakrishna Sithanen, GCSK, Vice-Prime Minister, Minister of Finance and Economic Empowerment on the occasion of the Opening of the Workshop on the Insolvency Act 2009 at Le Sirius, Labourdonnais Waterfront Hotel, Port Louis on Wednesday 29 July 2009 at 09:15 hours
Mrs Prabha Chinien, Director of the Insolvency Service and Registrar of Companies
Professor Peter McKenzie, Q.C.
Distinguished Guests
Ladies and Gentlemen
It is indeed a pleasure to be with all of you at this Workshop on “The Insolvency Act 2009”, which is organized jointly by the Insolvency Service and my Ministry. It is encouraging to see that – regulators, bankers, accountancy professionals, and law practitioners are participating in this workshop to exchange views on that new legislation.
Since 2006, we have been implementing unprecedented and bold reforms to radically improve the investment climate and the ease of doing business in Mauritius. The overarching goal was to move away from an outdated socio-economic model based on trade preferences to a more resilient and globally competitive economy based on the intrinsic strengths of Mauritius. The reforms we have been implementing have required significant changes to the legal framework governing investment and doing business in Mauritius. The most prominent of these changes was the Business Facilitation Act 2006 which charted a new vision to lift the country on a higher economic growth path. A number of other crucial changes have been made to the legislative framework, including the Employment Relations Act, the Employment Rights Act, the Competitions Act, the Insurance (Amendment) Act, the Securities Amendment Act, and the Financial Services Act. And a Commercial Division of the Supreme Court has been set up with jurisdiction to deal with all matters of bankruptcy, insolvency, matters arising out of the Companies Act and disputes of a commercial nature.
The Insolvency Act is a fundamental part of this endeavour to improve the ease of doing business in all sectors of the economy and at all stages of an enterprise’s development, i.e from start-up to closing down.
Prior to June 2009, the statutory framework dealing with insolvency in Mauritius was scattered among various pieces of legislations and had conspicuous gaps. They did not meet the needs of a modernizing economy with a wider variety of businesses, more globally integrated and where business risk has become more spread and more intense. For these same reasons, many countries around the world have reformed their insolvency legislations and others are now adapting to that trend.
In fact, the Insolvency Act has drawn on the experience of Australia, Canada, Malaysia, New Zealand, Singapore and UK and has been worked out in close collaboration with the World Bank and the stakeholders in Mauritius. The consultations have been particularly helpful in drafting the legislation. Let me here, take this opportunity to thank Professor Peter McKenzie, who has worked tirelessly with our technicians to bring the Insolvency Act to fruitful conclusion.
We have worked out the Insolvency Act around seven main issues, that we believe are crucial to a modern business environment and an economy that is globalizing at a fast pace.
First, we have consolidated and modernized the legal framework for insolvency by updating and integrating it in one modern, omnibus legislation.
Second, we have reviewed the process in order to give greater protection to employees while at the same time maintaining the priority of secured creditors. The law redefines the priority of claims in the distribution of assets in liquidation and gives workers’ unpaid salary higher priority than the secured creditors. We have thus put the focus on preventing and minimizing the human sufferings that closing down businesses can cause.
The other striking reform in the area of claims relates to Government, which previously could claim all the amount due to it from a company in liquidation, Under the new legislation, collection will be restricted to the amount due in one year.
The third pillar of the Insolvency law is that it sets in place alternative measures to bankruptcy. The previous legal framework had a clear bias towards liquidation. In many circumstances, companies were placed into liquidation when alternative resolutions were possible or even less costly. This new legislation corrects this bias by permitting quick and easy access to the process of rehabilitation. It provides for sufficient protection for all those involved. It offers a structure that permits the negotiation of a commercial plan enabling the majority of creditors in favour of the plan or other course of action to bind all other creditors by the democratic exercise of voting rights. And it provides for judicial or other supervision to ensure that the process is not subject to manipulation or abuse. Workouts and Voluntary Administration are two important alternatives to winding up. Workouts are now a global reality and a widespread practice, handled by professional insolvency and restructuring practitioners and are usually less expensive and painful as an alternative to outright bankruptcies. Where rehabilitation is possible, such an approach will be a preferred option as the continued operation of the enterprise will enhance the value of the assets as opposed to liquidation and that production unit can be sold as going concern to minimize hardship on shareholders, creditors and save jobs and protect workers.
As regards voluntary administration, it is another alternative to liquidation that is practiced in major jurisdictions, including UK, New Zealand, and Australia. It has since become the dominant formal procedure in times of financial distress.
Thus the Insolvency Act provides for a four-phased process:
- Restructuring and Work outs
- Administration
- Receiver/Manager
- Liquidation
Liquidation will only take place when there is absolutely no hope of restoring an insolvent person or corporation.
This will help prevent the destruction of businesses, preserve valuable skills, save jobs as well as give our entrepreneurs a second chance. Besides, now with hindsight, in midst of the worst global economic crisis in several decades, we see the benefits of having come up with this new Insolvency Act.
The fourth main thrust of the Act is that it also consolidates and modernises the legal framework for individual insolvency. It brings all individual insolvency matters under the purview of one single legislation.
Fifth, we have included an entirely new regime in the legislation to address the problems which arise from cross-border insolvency. Important issues arise for Mauritius in this area because of the significance of the global business sector. We thought it was important to have clear and well understood rules governing the insolvency of global business companies incorporated in Mauritius.
Another crucial coverage of legislation is the introduction of a new set of provisions dealing with netting arrangements in financial contracts. It provides for the netting of certain financial contracts, both in and outside of insolvency.
And a seventh salient feature of the Act, is the placing of additional responsibilities on directors of companies in the exercise of their duties, including procedures for public examination of directors and debtors by the Official Receiver / Court to prevent recurrence of delinquent behaviour and a sanction mechanism.
To conclude, let me stress that the Insolvency Act 2009 reflects the objectives of Government to implement an insolvency regime that effectively balances the interests of debtors, creditors and other stakeholders. We strongly believe that the legislation will make insolvency proceedings more transparent and less painful. Under this new legal framework, insolvency will not happen in an opaque world bereft of accountability. This law also gets the balance of regulation right so that all stakeholders affected by insolvency have confidence in the process. The Act has put in place a mechanism that identifies early signals of distress in firms and steers them through a well-defined path to rehabilitation. Only those firms that are beyond redress would take the insolvency route. It calls upon directors to be accountable and sanctions those who abuse of the system. The Insolvency Act will also secure the reputation of Mauritius as a well governed business and financial services center and a trustworthy investment destination. It is an Act to shore up corporate goodwill and protect all stakeholders.
I thank you for your attention and wish you fruitful deliberations.
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