A recent bankruptcy case involving a local company that is no longer operating has raised questions about the security of local pension funds when a business goes broke.
Cayman’s current law governing private sector pensions does protect retirement funds from creditors in a bankruptcy filing, assuming the bankrupt business paid into the fund before going belly-up.
However, there are some holes in the current legislation that a draft National Pensions Bill sought to patch up in 2012, according Department of Labor and Pensions director Mario Ebanks.
That bill has yet to be approved and is expected to be amended prior to coming back to the Legislative Assembly.
Mr. Ebanks said last week that Cayman’s National Pensions Law, section 56(1), prevents retirement funds held either directly by the business or in a managed investment plan from being paid to creditors in the event of insolvency.
“Creditors of the employer could not raid the pension funds of the employees,” Mr. Ebanks said.
If the employer has not paid properly into the retirement fund as required by the National Pensions Law, Mr. Ebanks said, the employer can be criminally prosecuted. However, all such cases become statute-barred after five years.
In that case, Mr. Ebanks said, National Pensions Law section 91 goes into effect, and the pensions board can fine the employer or can sue the employer in civil court for recovery of the funds.
Mr. Ebanks said, “You can go after the directors of the company. One of the complications with the [Cayman Net Ltd., which went bankrupt and is no longer operating] matter is that the late Desmond Seales was the sole shareholder.” Mr. Seales died in July 2010.
Precisely who would be sued in such a case is a matter under review with legal advisers, Mr. Ebanks said.
In the redrafted National Pensions Bill, proposals were made that would widen the net of collection in a nonpayment of pensions case.
According to that version of the bill: “Where a body corporate commits an offence under [the] law, every director or other officer concerned in the management of the body corporate commits that offence unless the director or other officer proves that the offence was committed without his consent or connivance or that he exercised reasonable difference to prevent the commission of the office.”
“The gist of [it] is essentially the same as section 91 in the existing [pensions] law, but…the trick in the whole thing or strategy is to ensure one can identify the management of those entities and establish a clear line of sight as to who the owners are,” Mr. Ebanks said. “If we can get to bringing alive this whole culture of compliance…you could start to put some leverage on these businesses that close a business down and then restart it under a different name and try to avoid their obligations.”
Mr. Ebanks said he wasn’t commenting on any specific case, and that such situations are relatively rare in Cayman.
“But you can have a fairly big organization that this happens to and it affects a lot of people,” he said. “And one person being deprived of their retirement money is enough.”