By NEIL HARTNELL Tribune Business Editor REFORMS to the Companies Act's liquidation regime that deal with assets held in trust are "very progressive" and give the Bahamas a competitive advantage over its main Caribbean international financial centre rivals, the Attorney General told Tribune Business yesterday. John Delaney said recent experience had exposed a hole in the Companies Act, namely that there was nothing in statute to guide what should happen with assets held on trust by insolvent companies - meaning they belonged to the company's clients, not its creditors or directors. The issue has arisen several times in recent liquidations, namely money laundering convict, Martin Tremblay's, Dominion Investments (Nassau), and with Caledonia Corporate Management. Both insolvent broker/dealers are being wound-up under court supervision. In both cases, the bulk of assets involved belonged to their clients, with the companies holding them in a fiduciary capacity. With Dominion Investments, BDO Mann Judd accountant Clifford Culmer had to approach the Supreme Court for an Order determining how he would be paid, and how much, by the clients for returning their trust assets. Similar issues arose in the Caledonia Corporate Management liquidation, where Deloitte & Touche (Bahamas) accountant had to seek the Supreme Court's determination of who would bear the company's loss. He also had to obtain court approval for his fees to be paid from a percentage of client assets held on trust. Confirming that these cases had motivated the Government, and accounting profession, to codify court rulings into law, Mr Delaney said the Companies Act reform was intended to ensure liquidators' costs were "equitably borne" by the ultimate owners of assets held on trust. It was also designed to ensure creditors did not incur costs associated with returning client assets held on trust. "In this Bill, we hope to provide for the cost allocation of activities related to these assets, these trust assets, and for court to equitably determine out of those trust assets how those costs are to be borne," Mr Delaney confirmed. "There was nothing in statute to guide the court. We took this opportunity to pull relevant case law decisions on this and codify it. It will be useful for future liquidations, as the court will know how the court is going to approach this." Indicating that this would give the Bahamas a competitive advantage over its international financial centre rivals, Mr Delaney told Tribune Business: "That is a very progressive thing in this Bill. You're not going to find it in Cayman, you're not going to find it in the British Virgin Islands, although you probably will after today, because they will copy it." With some 53,691 companies currently registered under the Companies Act, Mr Delaney said the move to completely replace Section 7, which deals with winding-ups, was driven by the need to provide "for a modern regime". "To some extent, our existing regime had fallen behind," he added, pointing out that it was 50 years old, with ruled based on those incorporated in the UK in 1949. Assessments of similar laws in the Cayman and British Virgin Islands were made, and local requirements taken into consideration, and Mr Delaney said: "I believe we came up with some things that can take us forward." Other reforms allow for the relevant Bahamian regulator, such as the Central Bank of the Bahamas, Securities Commission or Insurance Commission, to petition for a licensee's winding-up if the licence is suspended or revoked. Provision is also made for the examination of management, directors and shareholders of an insolvent Bahamian company, and for the court's jurisdiction to be expanded to cover the winding-up of foreign companies that have assets and property in the Bahamas. The "meaning of insolvency" has also been expanded to include 'the balance sheet test', as well as the 'cash flow test'. The latter measures whether a company has enough cash flow to pay its bills as they become due, but the former - which measures with liabilities exceed assets - will now also be employed to determine insolvency. Director liability is provided for if they knew the company was trading while insolvent, while there is a provision for 'shadow directors' - those hiding in the background but ultimately directing an insolvent company's affairs - to be examined by a liquidator, and produce relevant papers and information. Previously, such provisions applied only to listed management and directors. The Supreme Court will also be empowered to facilitate a foreign liquidation of a company that has matters in the Bahamas, providing for international co-operation. The same provisions in the Bill, which has passed the Senate and now goes to the House of Assembly, will be applied to the 162,217 companies under the International Business Companies (IBCs) Act. "These are things existing in other countries around the world," Mr Delaney said of the reforms.