Insolvency and restructuring practitioners in the country are calling for the speedy passage of the Corporate Insolvency Bill into law to prevent companies from premature liquidation.
According to the Ghana Association of Restructuring and Insolvency Advisors (GARIA), a well-structured insolvency regime would enable companies to fall on alternatives options to recover rather than closing shop, as is the common prescription under the country’s current laws.
The President of GARIA, Mr Felix Addo, told the Daily Graphic after a media sensitisation workshop in Accra that Ghana needed to join in international best practice where the legal framework permitted restructuring distressed or bankrupt companies as a preferred alternative to closing the entity.
Currently, a creditor can cause the liquidation of a corporate entity after 21 days of failing to meet liabilities and financial obligations as they fall due.
In other jurisdictions such as the United Kingdom and United States, the distressed company is given a breather from its creditors and the assets reorganised and the operations restructured with the aim of bringing the company back to profitability.
After truncated attempts to develop a regime that supports this option, Ghana recently put together a team of legal experts, headed by Justice Date-Bah, to review the legal framework governing corporate entities.
This has seen a review of the Companies Act, 1963, Act 179 and a draft Corporate Insolvency Bill which is currently before Cabinet.
The Business Advocacy Challenge (BUSAC) Fund is supporting GARIA to promote the passage of the insolvency law.
Mr Addo, who is also the Senior Country Partner at accounting firm, pwc, which has overseen many such liquidation exercises, including Ghana Airways, pointed out that the absence of such a legal regime that encouraged corporate restructuring as against liquidation would give more confidence to investors in the economy.
“Direct investments, foreign or local, come in because there is predictability in the economy. And a key aspect of this friendly business environment is having a solvency regime which is business supportive and friendly,” he said.
He said if the only option in the business life cycle was total liquidation or the appointment of a receiver to manage the company for creditors to recover their assets, “then if I run into a hiccup, when the business has its back against the wall, then there is nowhere to turn and creditors will enforce and put the business down.”
Importance of insolvency regime
Insolvency is occasioned when a company’s liabilities exceed its receivables or debts and an efficient regime seeks to encourage the restructuring of ‘viable but financially troubled companies.’
According to GARIA, a good system requires “a careful balance between liquidation and restructuring.”
“An insolvency regime prevents the premature dismemberment of a debtor’s assets by individual creditors seeking quick judgements and protects the interests of all stakeholders,” Mr Addo added.
The bill, with four parts, makes provision for administration of the insolvency regime, official liquidations with similar provisions and replacement of the Bodies Corporate Act, 1963, (Act 180), and insolvency services.
It emphasises corporate restructuring, the process of rearranging a company’s assets back into profitability, with the aim of promoting the growth of businesses and preserving jobs.