Passage of the Insolvency bill, which is currently before Parliament, would allow companies such as Neoplan that are significantly distressed to be brought back to life without the necessary intervention of government.
Felix Addo, President of the Ghana Association of Restructuring and Insolvency Advisors (GARIA) – an institution with expertise in corporate restructuring, business recovery and insolvency, has told the B&FT in an interview that should the Insolvency bill be passed before the current parliament rises, Ghana stands to significantly benefit across the board; including a significant boost in the country’s ease of doing business rankings.
“It is good news that government has decided to bail-out Neoplan because it owns 65 percent of the company, but this new law [Insolvency bill] has provisions which would help the turnaround of Neoplan rather than have the direct intervention of government,” Mr. Addo noted.
To him, the new Insolvency bill has two main key features that would significantly transform the fortunes of distressed companies instead of these companies collapsing and being placed in receivership – which affects everyone, including creditors, staff, tax authorities, suppliers of materials or inputs, and the general economy.
One of the key features, he explained, is placing the company in administration. When a company is placed in administration, an administrator is appointed and all creditors are brought to the table to agree on a turnaround plan introduced by the administrator – which includes creditors agreeing to hold-off calling on their debt for a specific period, he added.
“Neoplan is in distress because of two things: they are not getting new business and they have creditors calling on their debt. Under the current system, what the creditors would do is appoint a receiver, and the receiver would proceed to sell assets,” he said, citing the example of a recent auction of cars from collapsed savings and loans and microfinance companies.
“What the new bill is saying is that creditors will be asked to wait and not enforce their rights for some period, so the administrator can implement a rescue plan – agreed by all stakeholders – so the company can be revived. Sometimes, when a company is distressed you’ll want to turn it around and not just give it to a receiver,” he added.
The second key feature of the yet to be passed Insolvency bill Mr. Addo touched on was ‘Post Commencement Financing Provision’. This provision, he explained, allows that once a company is in administration, a new debt can be incurred to revive the company – but this debt is ring-fenced and takes priority over all previous debts.
“As a distressed company, no lender would want to do business with you; but [with a rescue plan in place] the company can attract fresh capital, and so you must differentiate between the new lending and old – and that becomes priority number-one.
“If a bank comes to the aid of Neoplan, for example, after it goes into administration and gives it a fresh loan, this new loan is ring-fenced. When Neoplan starts making money, the new debt is the first to be serviced and not the old debt.
“Between the staying of creditors from enforcing their creditor rights and post-commencement financing, Neoplan’s situation can be turned around; and it has a much better chance of survival than getting a bailout from government or shareholders,” he added.
Neoplan was expected to shut down on January 31 after the company’s management issued a memo to that effect, but government, the majority owner, intervened and pledged to salvage the situation and return the company to vibrancy.
For almost 46 years of its existence, Neoplan Ghana Limited has built over 4,000 buses for government to support the transport sector. In its hey-day, the company gave employment to hundreds of Ghanaians and also offered one of the best options for road transport passenger vehicles. But due to lack of financial support and contracts from government, the company was left with no choice but to shut down.