Seychelles, an archipelago nation in the Indian Ocean, has a small but diverse economy that primarily relies on tourism, fisheries, and offshore financial services. The financial sector in Seychelles has experienced significant growth over the past few decades, with numerous domestic and international banks operating in the country. These banks cater to both local residents and foreigners who have personal or business accounts in Seychelles.

Bank failure can have serious implications for any economy, particularly for small island nations like Seychelles. The failure of a bank can disrupt the payment system, lead to a decrease in lending, halt investment activities, and ultimately result in reduced production. In Seychelles, the consequences of a bank failure can be even more severe due to the country’s reliance on foreign investments and the interconnectedness of its financial sector with the global economy.

Banking Law in the Seychelles

In the Seychelles, the legal framework governing bank failure, resolution, and liquidation is primarily set out in the Financial Institutions Act 2004 (FIA) and the Central Bank of Seychelles Act 2004 (CBSA). The FIA provides for the licensing, regulation, and supervision of financial institutions, while the CBSA establishes the Central Bank of Seychelles (CBS) as the primary regulatory authority responsible for the stability of the financial system.

Under the FIA, if a bank is found to be in financial distress or unable to meet its obligations, the CBS may take several measures, including appointing an administrator, merging the bank with another financial institution, or liquidating the bank. The liquidation process is governed by the provisions of the FIA and the Companies Act 1972.

Civil Action against Insolvent Banks

In situations where a bank is not only illiquid but also insolvent, account holders may be able to raise their repayment percentage through civil action. According to the FIA, the liquidator is required to distribute the assets of the failed bank among its creditors, including depositors, in accordance with the priority set by law. If depositors believe that they have not been adequately compensated or that the liquidator has not acted in good faith, they can pursue legal action under the Companies Act 1972.

Bank Liquidation as a Last Resort

It is important to note that bank liquidation is considered a last resort when all other options for resolving a bank’s financial difficulties have failed. The CBS, as the supervisory authority, has the responsibility to assess the financial health of banks and take appropriate measures to ensure their stability. Some of the options available to the CBS before resorting to liquidation include:

  • Imposing corrective actions: The CBS may require the bank to take specific actions to address its financial difficulties, such as increasing capital, reducing risk exposure, or improving governance practices.
  • Facilitating a voluntary merger or acquisition: The CBS can encourage the bank to merge with or be acquired by a stronger financial institution to improve its financial stability.
  • Appointing an administrator: If the bank’s financial condition worsens, the CBS can appoint an administrator to take over the management of the bank, restructure its operations, and attempt to restore it to financial health.
  • Establishing a bridge bank: In some cases, the CBS may establish a temporary bridge bank to take over the essential functions of the failing bank, ensuring the continuity of critical banking services and minimizing the impact on the financial system. A bridge bank can facilitate a smooth transition while a suitable buyer or merger partner is identified, or until the bank’s operations can be wound down in an orderly manner.

These options demonstrate that the CBS has a range of tools at its disposal to address a bank’s financial difficulties before resorting to liquidation. The objective is to protect depositors and maintain the stability of the financial system while minimizing disruptions to the economy.

Claim Filing Procedures during Bank Liquidation

In the event of bank liquidation, account holders must follow specific procedures to file their claims and recover their funds. The liquidator appointed by the CBS is responsible for notifying creditors, including depositors, about the liquidation process and the procedures for submitting their claims. The key steps in the claim filing process are as follows:

Obtain a claim form: Depositors must obtain the appropriate claim form, which is typically provided by the liquidator or available on the CBS’s website.

Complete the claim form: Depositors must provide all necessary information, including their name, contact details, account number, and the amount claimed. They must also attach relevant documents, such as bank statements or transaction records, to substantiate their claims.

Submit the claim form: Depositors must submit the completed claim form to the liquidator within the specified deadline. Failure to do so may result in their claims being disallowed.

Await the liquidator’s decision: The liquidator will review the claims and determine their validity. Depositors may be required to provide additional information or documentation to support their claims.

Receive the payout: If the claim is approved, the depositor will receive a payout based on the priority of their claim and the available assets of the failed bank. This may be subject to a maximum limit set by the CBS or the liquidator.

Understanding the legal framework and claim filing procedures during bank liquidation in Seychelles is crucial for foreign account holders who are concerned about the safety of their assets. Although bank liquidation is a last resort, it is essential to be aware of the steps involved in the process and the measures in place to protect depositors. By staying informed and taking a proactive approach, account holders can better safeguard their assets and navigate the challenges of bank liquidation in Seychelles.