What happens when a company in Trinidad and Tobago cannot pay its debts?

When a company is insolvent

Under the Bankruptcy and Insolvency Act (Chapter 9:70), an "insolvent person", including a company, is one that is not bankrupt, has property or does business in Trinidad and Tobago, owes provable debts of at least TT$4,000, and (s 3(1)):

• cannot meet its obligations generally as they fall due;
• has stopped paying its current obligations in the ordinary course of business; or
• has property that, at a fair valuation, is not enough to pay all its obligations.

Institutions to which the Financial Institutions Act applies, such as banks, and insurance companies are excluded from the Act's definition of "corporation" (s 3(1)). For a winding up, the Companies Act (Chapter 81:01) has its own tests. A company is deemed unable to pay its debts if a creditor owed more than the statutory minimum leaves a written demand at its registered office and it fails for 3 weeks to pay, secure or compound the debt; if execution on a judgment is returned unsatisfied; or if the Court is satisfied that it cannot pay its debts, taking account of contingent and prospective liabilities (s 356(1)).

A proposal to creditors

The company may start by filing a notice of intention with the Supervisor of Insolvency, naming a licensed trustee who has agreed to act (s 30(1)). From then, creditors generally cannot take or continue action or execution to recover their claims (s 55(1)). The stay does not stop a secured creditor who had already taken possession to sell, or who gave its enforcement notice more than 10 days earlier (s 55(2)).

A cash-flow statement must be filed within 10 days, and the proposal within 30 days, or the company is deemed to have made an assignment in bankruptcy. The Court can extend the 30 days by up to 5 months in total (s 30(2), (8), (9)). Unsecured creditors accept the proposal by a majority in number and two-thirds in value of those in each class who vote at the meeting (s 35(2)(d)). The Court must then approve it (ss 40, 41). If creditors refuse it, the company is deemed to have made an assignment in bankruptcy (s 38).

Receivership by a secured lender

A secured creditor who intends to enforce its security over all or substantially all of a business's inventory, receivables or other property must generally first give the debtor notice and, unless the debtor consents after receiving it, wait 10 days (s 13). A receiver must, within 10 days, notify the Supervisor, the company and its known creditors (s 14(c)), advertise the appointment in a daily newspaper within 14 days (s 15(c)), and give at least 14 days' notice before selling the property, subject to exceptions (s 18).

Bankruptcy or winding up

A company may be made bankrupt:

• by an assignment of its property for its creditors, made with the Court's leave (s 25(1)); or
• on a creditor's petition, where it owes the creditor at least $10,000 and has committed an act of bankruptcy, such as ceasing to meet its liabilities generally as they fall due, within the previous 6 months (ss 4(1)(j), 5(1)).

Bankruptcy stays unsecured creditors' actions, but a secured creditor may generally still realise its security (s 56).

Alternatively, the company may be wound up under Part VI of the Companies Act. The High Court may wind up a company that is unable to pay its debts, on a petition by the company, a creditor or a contributory (ss 355(c), 357(1)). The members may instead resolve that the company cannot continue its business because of its liabilities (s 405(1)(c)); unless the directors have made a statutory declaration of solvency, this is a creditors' voluntary winding up (s 410(5)).

When directors become personally liable

If, in a winding up, the business was carried on to defraud creditors, or with reckless disregard of the company's obligation to pay its debts or of the insufficiency of its assets, the Court may, on the application of the liquidator, a creditor, a contributory or the Official Receiver, declare officers and others knowingly party to it "personally responsible, without any limitation of liability", for all or any of the company's debts, as the Court directs (Companies Act, s 447(1)). After such a declaration, or a conviction for fraudulent trading, the Court may bar the person from managing a company without its leave for up to 5 years (s 447(4), (4A)).

In a bankruptcy, directors can be made jointly and severally liable to repay dividends or share buy-backs paid in the period starting 1 year before the first insolvency filing, if the company was insolvent or was made insolvent by the payment and the directors had no reasonable grounds to believe otherwise (Bankruptcy and Insolvency Act, s 90).