Turks and Caicos is a premiere destination for offshore incorporation for those seeking asset protection and financial privacy. Turks and Caicos made dramatic changes to their laws regarding insolvency which came into effect on October 1, 2017. Insolvency laws in Turks and Caicos are governed by the Insolvency Ordinance of 2017. It is essential that investors carefully abide by Turks and Caicos insolvency laws. This is especially important when utilizing trusts and incorporation for asset protection in order to prevent claims of fraudulent conveyance.
What Is Insolvency & Why Does It Matter?
The 2017 Insolvency Ordinance of Turks and Caicos Islands is an ordinance designed to reform the law relating to the liquidation of companies. It provides regulation for the administration, receivership, and liquidation. It also sets forth rules regarding the bankruptcy of individuals. Additionally, the ordinance is designed to enable companies and individuals to enter into agreements with their creditors. The ordinance describes the requirements for the licensing of insolvency practitioners. Furthermore, it provides redress for malpractice relating to insolvent persons. Finally, the ordinance is designed for the avoidance of certain types of transactions, cross-border insolvency, and connected issues.
Under the 2017 Insolvency Ordinance of Turks and Caicos Islands, a company is determined to be solvent if it passes the solvency test. A company passes the solvency test under two conditions. The first condition is that the value of the company’s property exceeds its liabilities. This includes the company’s contingent liabilities. The second condition for the solvency test is simple; that a company is able to pay its debts as they fall due.
Companies in Turks and Caicos are deemed to be insolvent if they fail to comply with the requirements of a statutory demand. This is the case only for statutory demands which have not been set aside by the Turks and Caicos government. This law applies to a local company as well as an international business company (IBC).
Companies are also presumed to be insolvent if they fail to satisfy a judgement in favor of their creditor. This is the case whether the execution or other process is wholly or partially unsatisfied. Finally, companies are considered insolvent if they fail to meet the requirements of the solvency test. This means that the company is either unable to pay its debts when they fall due or the value of its liabilities exceeds its assets or both.
Individuals are determined to be insolvent in Turks and Caicos if they fail to comply with the requirements of a statutory demand which has not been set aside. They are also deemed insolvent if they wholly or partially fail to comply with a judgement in favor of their creditor. Finally, individuals in Turks and Caicos are deemed to be insolvent if they are unable to pay their debts as they fall due.
Insolvency is of particular importance with regards to those seeking to protect their assets. This is because insolvency can have a dramatic impact on the legality of transfers of assets. In most instances, assets held by a Turks and Caicos corporation, LLC, or trust are protected against foreign judgments. However, this is not true in cases of fraudulent conveyance. Fraudulent conveyance of assets occurs when a person or company transfers assets (such as to a person, corporation or trust) for the purpose of defaulting on obligations to creditors. A transfer of assets to a company or trust which renders the transferee insolvent may be considered fraudulent. This type of transfer is known as insolvent trading.
Insolvent trading can occur at any time before the commencement of the liquidation of a company. A person may be found guilty of insolvent trading if they transfer assets to a company or trust. This is the case when they do so knowing or reasonably anticipating that the transfer will make them insolvent. This stipulation applies to the director of the company that received the transfer of assets.
In order to avoid claims of insolvent trading, companies should avoid transferring assets while in any phase of insolvency proceedings. Individuals should avoid making transfers of assets during or immediately prior to bankruptcy proceedings. The phases of an insolvency proceeding include the following: administration, receivership, administrative receivership, and liquidation.
A company is considered to be “in administration” during the period from the commencement of the administration to its termination. A company is considered to be “in receivership” during the period when a receiver is appointed with regard to any of the company’s assets. A company is considered to be “in administrative receivership” when an administrative receiver is appointed with regard to the company. A company is considered to be “in liquidation” during the period from the commencement of the liquidation of the company to its termination. Individuals are considered to be “in bankruptcy” during the period from the date the bankruptcy order is made against the individual until it is discharged.
It is important to note that insolvent trading can occur not only in the above instances but under other circumstances as well. An individual or company can also be found guilty of insolvent trading where they can reasonably assume that the transfer of assets would render them insolvent.
Why Were the Laws Changed?
The new insolvency legislation in Turks and Caicos marks the first time that the islands have ever had an independent statute dealing with insolvency issues. All previous insolvency laws in Turks and Caicos were sub-sets of legislation regarding companies.
The 2017 Turks and Caicos Insolvency Ordinance draws heavily from similar legislation drafted in 2003 in the British Virgin Islands. Turks and Caicos is implementing insolvency legislation in order to comply with the best practices recommended by the Organization for Economic Cooperation and Development (OECD). Insolvency laws, like the ones recently established in Turks and Caicos, are designed to prevent the fraudulent transfer of assets. They are also an important component of multinational efforts against money laundering and financial corruption. By introducing the new insolvency laws, Turks and Caicos reaffirms itself as a financial center with a strong international reputation.
Key Features of Turks and Caicos Insolvency Law
The 2017 Insolvency Ordinance in Turks and Caicos is based largely off of similar legislation introduced in the British Virgin Islands in 2003. As a result, there are some key similarities and differences between insolvency legislation between Turks and Caicos and the British Virgin Islands.
Like in the British Virgin Islands, Turks and Caicos law lays out explicit regulations for the appointment of insolvency practitioners. Insolvency practitioners are licensed individuals who are authorized to act in relation to insolvent individuals, partnerships, or companies. In Turks and Caicos, insolvency practitioners are licensed by the Turks and Caicos Financial Services Commission.
Insolvency practitioners in Turks and Caicos serve many purposes. They may act as the supervisor of a company arrangement or a personal insolvency agreement. They may act as the administrator or administrative receiver of a company. They may act as the liquidator or provisional liquidator of a company or unregistered company. They may act as the interim supervisor under a proposal for a company arrangement or a personal insolvency agreement. They may also act as the interim receiver of an individual or as the bankruptcy trustee of an individual.
New changes to the existing law stipulate that prior auditors, directors, and connected persons are not permitted to serve as insolvency practitioners. In order to be issued a license to act as an insolvency practitioner in Turks and Caicos, a person must reside in the islands. They must not be bankrupt or disqualified by any provisions of the insolvency ordinance.
Turks and Caicos, unlike the British Virgin Islands, has yet to implement the UNCITRAL Model Law on cross-border co-operation. As a result, insolvency practitioners who are not locally licensed and regulated are unable to run a Turks and Caicos insolvency proceeding.
The 2017 Insolvency Ordinance does not provide recognition of foreign proceedings. It does, however, provide for orders in aid of foreign proceedings. This means that foreign insolvency does not apply in Turks and Caicos. The orders, however, make it easier to re-adjudicate the foreign insolvency in a Turks and Caicos court. This provision is laid out in the Turks and Caicos legislation in a similar way to the British Virgin Islands legislation.
The changes to Turks and Caicos insolvency laws come along with other provisions designed to increase transparency. This includes the provision that companies must make a register of beneficial owners available to law enforcement.
By and large, the changes which have been made to the Turks and Caicos insolvency laws will have a positive impact. The new laws help to modernize Turks and Caicos business legislation. They also serve to bolster the international reputation of Turks and Caicos as a global financial center. The laws demonstrate compliance with the Organization for Economic Cooperation and Development (OECD) regulations and best practices. Generally speaking, the new laws should not have any negative impact on those engaging in legal business activities in Turks and Caicos. That said, it is essential that investors know the law in order to avoid transactions which may appear to be fraudulent transfers.