The regulation applicable to non-bank money lenders has been modernised with the introduction of the Financial and Corporate Services Providers Act, 2020 (FCSPA), which provides a robust regulatory framework governing financial and corporate service providers, including non-bank money lenders. The legislation recently came into force and it is yet to be seen if it will have any significant impact on the loan market in The Bahamas.

In the months prior to the global recession caused by the COVID-19 pandemic, Bahamian banks were starting to increase the amount of credit lent. This was a welcome sign compared to the relative stagnation of credit lending over the previous five years, which saw an average annual decrease of 0.1%. Some of the increase in lending could have been attributed to a slight improvement in the domestic economy, which had experienced declines partially as a result of Hurricane Dorian.

As with most countries, COVID-19 has had a significant impact on the economy in The Bahamas. This is reflected most clearly in the loan market by the reversal of trend in the percentage of non-performing loans compared to total loans. Prior to the COVID-19 pandemic, the percentage of non-performing loans compared to total loans had declined for four straight quarters, hitting a low of 8% in the fourth quarter of 2019. From the second quarter of 2020 onward, this percentage has increased every quarter and in the first quarter of 2021 was at 8.7%. The increase in loan arrears was led by a 16.8% growth in consumer delinquencies.

However, overall lending by domestic banks increased following the onset of the COVID-19 pandemic, as a result of an increase in government borrowing. While it is unlikely that the government can sustain the level of borrowing it has been forced into during the COVID-19 pandemic, it is likely that government borrowing will continue to be necessary until the COVID-19 pandemic has abated.

The government of The Bahamas has also raised funds by issuing bonds on the high-yield market in order to meet government expenditure and assist in the response to the COVID-19 pandemic. The issue of government bonds during the pandemic has not had a significant impact on financing terms and structures in The Bahamas.

See 1.1 Impact of Regulatory Environment and Economic Cycles.

The banking and finance market in The Bahamas is very well developed, with robust legislation protecting the interests of creditors.

The Central Bank of The Bahamas (Central Bank) recently shook things up by introducing one of the first central bank-backed digital currencies, the Sand Dollar. Sand Dollars are digitalised versions of the Bahamian dollar and are issued by authorised financial institutions. Currently, Sand Dollars cannot be used for lending. However, it will be interesting to see if the remit of the Sand Dollar is expanded to allow for Bahamian lending institutions to issue loans in Sand Dollars.

In other areas under its purview, the Central Bank has sought to focus on the protection of consumers, which may result in changes to banking and finance techniques in the future.

The trend in tax transparency is likely to continue to result in new regulations that Bahamian lending institutions will have to adjust to. Adjusting to new tax transparency regulations will continue to increase the operational costs of Bahamian lending institutions, which will likely have a knock-on effect on the loan market.

The government of The Bahamas is looking to push development of the renewable energy sector in The Bahamas and has been working with regional project finance institutions to promote the development of renewable energy projects. Increased financing of these renewable energy projects is expected in the future.

An entity can provide financing in or from within The Bahamas if it is licensed either as a bank by the Central Bank pursuant to the Banks and Trust Companies Regulations Act, 2020 (BTCRA), or as a non-bank money lender by the Securities Commission of The Bahamas (the Commission) pursuant to the FCSPA.

The licensing requirement is restricted in that the activities are provided “from within The Bahamas” under the BTCRA and “in or from within The Bahamas” under the FCSPA. While the phrase “from within The Bahamas” is not defined in the BTCRA, both “in The Bahamas” and “from within The Bahamas” are defined in the FCSPA. The definitions in the FCSPA would be used as guidance in the context of the BTCRA and are also applicable thereto.

According to the FCSPA, a person will be deemed to be carrying on the activity of money lending in The Bahamas if, “regardless of physical location, the person offers financial services or corporate services to Bahamian residents.” A person would be deemed to be carrying on the activity of money lending from within The Bahamas if “the person being a legal entity registered or incorporated under the laws of The Bahamas offers financial services or corporate services to persons outside or within The Bahamas.”

The result of this is that money lending activity that occurs on a cross-border basis would generally not be captured as a regulated activity, unless such lending is directed towards companies that are deemed to be resident in The Bahamas pursuant to the Exchange Control Regulations, 1956. See 3.3 Restrictions and Controls on Foreign Currency Exchange regarding residence status under the Exchange Control Regulations.

The restrictions placed on foreign lenders lending to Bahamian borrowers depends on the residence status of the borrower, pursuant to the Exchange Control Regulations. See 3.3 Restrictions and Controls on Foreign Currency Exchange regarding residence status under the Exchange Control Regulations.

As indicated in 2.1 Authorisation to Provide Financing to a Company, an entity carrying on lending on a standalone basis to Bahamian residents for the purposes in the Exchange Control Regulations would be required to obtain a licence under the FCSPA. However, no licensing requirement under the BTCRA should be triggered in the circumstances.

Where a borrower is deemed to be non-resident for the purposes of the Exchange Control Regulations, there is no similar requirement that a foreign lender be licensed under the FCSPA.

The following restrictions apply to the granting of certain Bahamian assets as security to foreign lenders.

• The acquisition of Bahamian assets by non-Bahamians is considered foreign investment in The Bahamas. Foreign investment in The Bahamas is required to be approved by The Bahamas Investment Authority (BIA). Therefore, the prior approval of the BIA is required whenever security is granted to a foreign lender over real property or the assets (including shares) of a Bahamian resident company.
• The acquisition of Bahamian assets by non-Bahamians is prohibited by the Exchange Control Regulations. The prior approval of the Central Bank will also be needed for the grant of security over real property or the assets (including shares) of a Bahamian resident company assets, pursuant to the Exchange Control Regulations.

While it is acknowledged that the grant of security does not transfer ownership of such assets to the foreign lender until an event of default occurs, such approvals are necessary in order for foreign lenders to acquire a security interest over the assets, because they could potentially come to be owned by non-Bahamians.

Due to the restrictions under the Exchange Control Regulations, a Bahamian resident borrower of foreign currency would be required to obtain the approval of the Central Bank of The Bahamas in order to receive the foreign currency-denominated loan and to repay the loan in foreign currency.

Generally, persons deemed resident for the purposes of the Exchange Control Regulations are Bahamian citizens residing in The Bahamas, permanent residents of The Bahamas with no restrictions on employment or naturalised citizens of The Bahamas and legal entities owned and controlled by them. Non-resident persons are persons that do not meet the requirements to be designated as resident.

Resident entities are entities that own real estate in The Bahamas and conduct business in the local economy and are owned and controlled by Bahamian persons. Non-resident entities are entities that do not own any real estate in The Bahamas and do not conduct business in the local economy and are owned and controlled by non-resident persons.

As far as is known, there are no restrictions under Bahamian law on the use of proceeds from loans or debt securities. It should be noted, however, that where regulatory approvals have been obtained in respect of the loan or debt security, use of the funds for purposes other than those approved may require additional approvals or prompt a notification obligation.

Bahamian law recognises the concepts of both agent and trust.

No specific loan transfer mechanisms exist under Bahamian law; the normal rules of contracts would apply to the transfer of a loan. Under general contract principles, the benefit of a loan or security package can be transferred by way of assignment.

A mortgage over real property located in The Bahamas is required to be recorded in The Bahamas. Where there is a transfer of a mortgage over real property located in The Bahamas, the transfer document should also be recorded in order to perfect the rights of the new mortgagee.

There are no restrictions under Bahamian law against debt buy-backs.

The acquisition of publicly listed companies in The Bahamas is governed by the Securities Industry (Take-Over) Rules, 2019 (the Take-Over Rules). With respect to certainty of funds, the Take-Over Rules merely require that, where a bid is to be made in cash or partly in cash, the offeror has the necessary funds available, prior to the bid, to make full payment for all securities that the offeror intends to acquire.

Where a Bahamian company is listed on an international exchange, the rules governing that exchange would apply to the Bahamian company rather than the Take-Over Rules.       

There are no withholding taxes in The Bahamas that apply to the repayment of loans.

There are no taxes applicable to the repayment of loans. Where a mortgage is given over real property located in The Bahamas, value added tax (VAT) is payable at a rate of 1% on the value of the mortgage.

There is no legislation in The Bahamas that dictates a maximum rate of interest on non-Bahamian currency loans. The Rate of Interest Act of The Bahamas sets a maximum rate of 20% per annum simple interest on Bahamian dollar loans.

Under the Money Lending Act of The Bahamas, the court has jurisdiction to determine that interest and other lender charges are “excessive… and the transaction is harsh and unconscionable”. The court has remedial jurisdiction under this legislation to “set aside… any security given or agreement made in respect of money lent”, although this jurisdiction of the court is rarely invoked in modern secured loan transactions. Furthermore, again, this does apply to foreign currency loans.

In The Bahamas, the assets most commonly made available as collateral include real property, shares, cash or securities accounts, inventory, intellectual property and claims, receivables and other choses in action. The main forms of security over such assets are mortgages, debentures, pledges, charges, liens and assignments by way of security.

Shares

Security over shares of a Bahamian company is the most common form of security granted to a foreign lender. Shares are typically secured by way of a pledge over the shares. In order for the lender to take control over the shares on default, the pledge is typically accompanied by the following documents, signed and undated:

• instrument of transfer;
• shareholder proxy form;
• letter of resignation from each director and officer;
• undertaking of the Bahamian company to register the share transfer when effected; and
• instrument of authorisation, authorising the lender to date and deliver each of the above documents in the event of a default under the pledge.

Where shares in a Bahamian company are pledged, it is common for a notation to be placed in the register of members of the company, indicating that the shares have been pledged.

Claims, Receivables and Other Choses in Action

Security over claims, receivables and other choses in action are generally taken by way of an assignment by way of security. Security can also be taken by way of a fixed or floating charge. Where security is taken by an assignment, notice of the assignment is required to be given to the debtor or counterparty in order to have legal effect and be enforceable against the debtor or counterparty.

Real Property

Security over real property typically takes the form of a mortgage, but can also take the form of a legal or equitable charge. Under the relevant legislation, security over real property is required to be registered with the Registrar General of The Bahamas in order to be perfected.

As previously discussed, the taking of security over real property is subject to VAT at a rate of 1% on the value of the mortgage. The Registrar General would not register security over real property in respect of which the applicable tax has not been paid.

Additionally, as discussed in 3.2 Restrictions on Foreign Lenders Granting Security, where security over real property is granted to a foreign lender, the grant of such security must be approved by the BIA and the Central Bank. Failure to obtain such approvals would render the security null and void under the applicable legislation and unenforceable by the lender.

Due to the formalities associated with the taking of security over real property, where a foreign lender is lending to a Bahamian borrower, security over real property is taken only where it is necessary.

Other Assets

All other assets can typically be given as security, pursuant to a legal or equitable charge, and typically form part of an all-assets debenture. Debentures are typically executed by way of deed.

Security over assets other than real property located in The Bahamas is not required to be registered in order to be perfected. However, Bahamian companies may maintain a register of mortgages and charges (although they are not required to), a copy of which can be filed with the Registrar General of The Bahamas, in order to give potential creditors notice of the existing security interests granted by that company.

Bahamian law permits the taking of security over all present and future assets of a company. Typically, such security is taken by way of an all-assets debenture, with a fixed charge over existing immovable assets and a floating charge over all existing movable assets and all future assets of the company.

There are no relevant corporate benefit rules that limit or restrict the ability of Bahamian companies to guarantee the obligations of a related company. Therefore, provided the articles of association of the Bahamian company allow for the company to give such guarantees, a Bahamian company can give downstream, upstream and cross-stream guarantees. However, concerns about there being adequate credit support are typically resolved by a members’ resolution approving the grant of the relevant security.

There are no applicable financial assistance restrictions on the ability of a target to guarantee or secure the acquisition of its own shares.

Where a security granted is not in the ordinary course of a company’s business and would, if called upon, result in the disposition of 50% or more by value of the assets of the company, the granting of such security is required to be approved by a resolution of the members.

Security granted under Bahamian law may be released by an instrument in writing in the same form as the instrument granting the security. Typically, however, a deed of release is used to pre-empt any issues of formality or lack of consideration.

Under Bahamian law, there is no registration regime except as it relates to real property, as discussed in 5.1 Assets and Forms of Security. Generally, so far as priority goes, the first in time will prevail (ie, the first agreement to be executed creating a security interest will have priority over any subsequent security interests). In respect of real property, priority shall be awarded in accordance with the order in which the relevant security interest is lodged and accepted for recording in the Registry of Records. Accordingly, any mortgage so first lodged and accepted for recording in the Registry of Records shall be deemed and taken to be good and valid, and shall in no way be defeated or affected by reason of priority in time of execution of any other such document or agreement.

The collection and application of an insolvent company’s property in insolvency proceedings is subject to any agreement between the company and its creditors that the creditors’ claims will be subordinated or otherwise deferred to those of any other creditors, and to any contractual rights of set-off or netting of claims between the company and any party.

Under Bahamian law there are four possible remedies available to a security holder:

• foreclosure;
• power of sale;
• taking possession; and
• appointment of a receiver.

Foreclosure

Foreclosure operates to extinguish the grantor’s equity of redemption and to legally and equitably vest the fee simple title in the collateral.

The right to foreclose does not arise until repayment has become due at law, which occurs when the legal date for redemption has passed, or if a particular provision of the security document makes the money fall due upon its breach. Upon occurrence of this event, the grantor loses his legal right of redemption and is left only with his equity of redemption. The security holder would now have the right to extinguish the equity of redemption through foreclosure and take full title to the property.

Foreclosure requires a court order. No notice is required under law but, in practice, the security holder contracts not to enforce the security by foreclosure until he or she has given some specified notice.

Power of Sale

A security holder’s power of sale enables the security holder to sell the property out of court and free from the equity of redemption. The power is statutory and does not need to be expressly inserted in the mortgage deed.

The power of sale arises once the following conditions are fulfilled:

• the security interest was made by deed; and
• the secured obligation is due – ie, the legal date for redemption has passed; if the secured obligation is payable by instalments, the power of sale arises as soon as any instalment is in arrears.

Once the power of sale arises, however, the power does not become exercisable unless one of the three following conditions has been satisfied:

• notice requiring payment of the secured obligations has been served on the grantor and default has been made in payment of part or all of it for three months thereafter;
• some interest under the secured obligations is two months or more in arrears; or
• there has been a breach of some provision contained in the relevant statute or in the security document (other than the covenant for payment of the secured obligations) which should have been observed or performed by the grantor or by someone who concurred in making the security interest.

The power of sale is exercisable without any order of court.

Possession

A legal mortgage gives the security holder a legal estate in possession and, as such, he or she is entitled to take possession of the property as soon as the mortgage is made – even if the mortgagor is guilty of no default. However, this right of possession is not automatic and is subject to certain limitations. In particular, the security holder must obtain an order for possession from the court. The court will generally only postpone the delivery of possession where it “appears that the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage.”

Receivership

Security documents often provide for the appointment of a receiver with powers of management of the collateral. Without taking possession himself, the security holder can ensure that the property is efficiently managed and that his claim for interest is made as a first charge on the net rents and profits. The receiver is usually paid a commission of 5% of the sum received for carrying out his or her duties.

The power to appoint a receiver arises and becomes exercisable in the same circumstances as the power of sale. The power is statutory and there is no need to apply to the court. The security holder must make the appointment in writing. The receiver is the agent of the mortgagor and has the power to recover the income of the property. The money collected by the receiver must be applied in a certain order.

The choice of foreign law as the governing law of the contract, the submission to a foreign jurisdiction and the waiver of immunity are generally enforceable under Bahamian law.

It can be assumed for this purpose that the provisions have been entered into in good faith and would otherwise be deemed valid and enforceable under the laws of the foreign jurisdiction that govern the relationship.

There are two means of enforcing a foreign judgment in The Bahamas. The simplest means is by registration under the Reciprocal Enforcement of Judgments Act. However, this Act is available only in respect of the UK, Australia and certain Caribbean Commonwealth countries with which The Bahamas has reciprocal enforcement agreements. In respect of countries with which no such arrangements exist, the applicant must apply to the court for permission to register the foreign judgment.

In respect of judgments in respect of which there are no reciprocal enforcement agreements, it is necessary to bring a fresh action in The Bahamas, personally serve the person against whom the judgment is sought to be enforced, and then use the foreign judgment as evidence in support of the action. In such cases, litigants will often seek to use the summary judgment procedure provided by the Bahamian Rules of the Supreme Court, and the court is likely – though not bound – to rely on the determination of the foreign court on the merits. Under the common law, a foreign judgment can be recognised and enforced if the following requirements are met:

• the foreign court had jurisdiction to give the judgment in accordance with the principles of jurisdiction recognised by Bahamian laws;
• the judgment is for a debt or definite sum of money other than a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty; and
• the foreign judgment is final and conclusive on the merits.

Furthermore, the courts of this jurisdiction will recognise jurisdiction in a foreign court if the local courts themselves claim jurisdiction in similar circumstances and the defendant was present in the foreign country at the time of the action or submitted to the jurisdiction of the foreign court.

As discussed in 3.2 Restrictions on Foreign Lenders Granting Security, a foreign lender will require the approval of the BIA and the Central Bank in order to take legal title to certain Bahamian assets, including real property in The Bahamas and Bahamian resident companies.

As far as is known, there are no other restrictions under Bahamian law on a foreign lender enforcing its rights under a loan or security agreement.

Reorganisation procedures in The Bahamas are limited to a reorganisation of a company’s share capital, a merger with a subsidiary company or a consolidation with a foreign company. There is no restructuring procedure in The Bahamas in the form of a corporate rescue similar to that of US Chapter 11 proceedings.

However, liquidators appointed in The Bahamas have a statutory duty to consider whether to enter into international protocols with foreign officeholders where a Bahamian company in liquidation is the subject of a concurrent bankruptcy proceeding under the law of a foreign country, or where the assets of a company in liquidation located in a foreign country are the subject of a bankruptcy proceeding or receivership under the law of that country. In specific circumstances, a Bahamian company in liquidation through its provisional liquidators has previously co-operated with US courts through co-operation with a Chapter 11 trustee, but the use of such procedures to facilitate corporate restructuring remains limited.

Informal work-outs are available, to the extent that a provisional liquidator or receiver is appointed. A provisional liquidator may be appointed to present a compromise or arrangement to creditors, while a receiver may continue to carry on the business and seek to arrange a sale of the company or its secured assets. Some creditors may also reach a compromise with the company, rather than commence liquidation proceedings.

The impact of the commencement of the insolvency process on a lender’s rights depend on whether the lender is a secured or unsecured creditor. Where the lender has security over the whole or part of the assets of a company, it is entitled to enforce its security without the leave of the court or reference to the liquidator. However, where the value of the security held is not sufficient to satisfy the debt owed, or the lender is unsecured, the lender would be required to submit a claim to the borrower’s liquidator for any amounts owed. Its claims would rank pari passu (ie, equally) with all other unsecured creditors.

After the claims of secured creditors have been satisfied, the order of creditors’ claims in insolvency proceedings is as follows. The claims shall rank equally among themselves and be paid in full unless the assets are insufficient to meet them, in which case they shall abate in equal proportions and have priority over the claims of the holder of debenture under any floating charge and paid out of any property comprised in or subject to that charge:

• the expenses of the liquidation, insofar as there are sufficient assets to meet them, including the liquidator’s fees and disbursements;
• preferential debts, which are all rates, taxes, assessments or impositions imposed or made under the provisions of any act;
• sums due by the company to employees – whether employed in The Bahamas or elsewhere – for salaries, wages and gratuities accrued in the four months preceding commencement of the winding-up;
• wages due to any worker or labourer for services rendered to the company in the two months preceding the relevant date (ie, the date of commencement of the winding-up, or the date of the winding-up order in the case of a company ordered to be compulsorily wound up which had not commenced winding up voluntarily);
• sums due and payable by the company on behalf of employees in respect of medical health insurance premiums or pension fund contributions;
• sums due by the company to former employees in respect of severance pay and earned vacation leave, where employment contracts have been terminated as a consequence of the company being wound up; and
• sums due to workers for personal injury accrued before the relevant date, unless the company has, upon the commencement of the winding-up,  an insurance contract with rights capable of being transferred to – and vested in – the workers, or the company is being wound up voluntarily merely for the purpose of reconstruction or amalgamation with another company.

Bahamian law does not contain any specific provisions allowing a Bahamian court to lower the priority of a claim in the liquidation estate of a company or delay its payment until other creditors are paid.

However, a transaction may be set aside if, within the prescribed period before the commencement of liquidation, it is made in favour of a creditor at a time when the company is unable to pay its debts, to give the creditor preference over other creditors, or if it is made at an undervalue by or on behalf of the company with intent to defraud its creditors.

The main risk area for lenders in the insolvency of a Bahamian borrower is that the lender may rank behind non-disclosed creditors with higher ranking priority over the assets of the borrower. As security documents are not required to be registered in order to be perfected, it is not always possible to uncover the existence of security interests over the assets of a Bahamian company from publicly available sources. Lenders should conduct all reasonable due diligence in order to ensure they are aware of all security interests granted by the borrower.

There is no specific legal framework governing project finance in The Bahamas. Any major projects in The Bahamas are typically financed by foreign lenders using a mix of foreign and Bahamian funding vehicles.

Given the established reputation of Bahamian companies, their flexibility and the robust legal framework backing them, Bahamian companies are regularly used in international project finance structures. Bahamian companies can be tailored to act in project financing structures as finance vehicles, asset holding vehicles or project vehicles, depending on the project’s jurisdiction.

While there is no public-private partnership (PPP) legislation or regulations in The Bahamas, the government of The Bahamas has recognised the importance of using PPPs in order to meet The Bahamas’ social and economic infrastructure needs. The government of The Bahamas has issued a policy document outlining the characteristics that it would consider for proposed investments, which are as follows:

• the project must have a minimum investment value of USD10 million;
• the output requirements must be capable of being clearly and contractually specified and effectively monitored;
• the assets of services for which the PPP is used must be relatively predictable;
• the PPP must be able to expand or innovate currently under-performing sectors and services; and
• the projects must be expected to generate commercial revenues from charging service users or ancillary sources.

The policy document identifies priority sectors for PPPs, which include:

• electricity generation and distribution, including the development of renewable energy sources, in the Family Islands;
• ports;
• airports;
• roads and bridges;
• information and communications technology (ICT);
• urban renewal; and
• government buildings and facilities.

There are no government approvals, taxes, fees or filings specific to project finance transactions in The Bahamas or using Bahamian companies.

Oil, Gas and Mining

The Ministry of Environment and Housing is the government body responsible for oil and gas, pursuant to the Petroleum Act, 2016 and the Conservation and Protection of Physical Landscape Act.

Power

The Utilities Regulation and Competition Authority is responsible for the regulation of utilities, pursuant to:

• the Communications Act, 2009;
• the Utilities Regulation and Competition Authority (URCA) Act, 2009;
• the Utilities Appeal Tribunal (UAT) Act, 2009; and
• the Electricity Act, 2015.

See 8.1 Introduction to Project Finance.

See 8.1 Introduction to Project Finance.

The acquisition and export of the natural resources of The Bahamas would constitute the undertaking of an activity in The Bahamas. Where a non-Bahamian carries on an undertaking in The Bahamas, it is required to obtain BIA approval as this would constitute foreign direct investment in The Bahamas. Depending on the natural resource, certain other regulatory approvals may also be required.

The regulation of environmental, health and safety matters is under the purview of the Ministry of Environment and Housing and, in particular, the BEST Commission and the Department of Environmental Health and Safety, respectively.