With Ghana relying heavily on Foreign Direct Investments (FDIs) to boost economic growth, it is in the nation’s best interests to pass the Corporate Insolvency bill that is currently before Parliament – since this would significantly place Ghana higher on the World Bank’s ease of doing business rankings.
Ghana placed 118th in the 2019 rankings, which is a drop by four places from 114th in 2018: but Felix Addo, President of the Ghana Association of Restructuring and Insolvency Advisors (GARIA) – an institution with expertise in corporate restructuring, business recovery and insolvency – believes passage of the Insolvency bill, which is a companion bill to the already passed Companies Act, would prominently boost Ghana’s rankings.
“The World Bank team that measures the indicators has a cut-off point of April 30th; and so the Insolvency bill must be passed by Parliament and assented to by the president before that day, and that would significantly push us up on the league and improve our standing,” he told the B&FT in an interview.
The Corporate Insolvency bill, Mr. Addo explained, is aimed at improving quality of the legal regime for corporate bodies and their administration when they become insolvent. The bill seeks to provide a framework for restructuring viable businesses and closing and transferring assets of failed businesses.
“In effect, it facilitates access to timely, efficient and impartial insolvency proceedings. Furthermore, there is a reduction in the burden of insolvency through potentially higher and equitable distribution of a company’s assets to creditors,” he added.
Parliament, last year, passed the Companies Act and President Nana Akufo-Addo assented to it in May 2019. To Mr. Addo, “We should see a major improvement with passage of the Insolvency bill. Even though we have the Companies Act, its companion law – the Insolvency bill – must be passed as well”.
The World Bank ranks countries based on 10-points: including starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.
“It is a fact of life that at any given point in time there will be individuals and organisations which are insolvent, or close to it. As a result, any economy that seeks to foster a thriving environment for businesses to operate must have an effective insolvency regime, consisting of a strong legal and regulatory regime as well as empowered institutions.
“Insolvency laws are of importance as they provide a predictable framework that assures the protection of stakeholder interests in the situation of insolvency. A business or individual is said to be insolvent when obligations to lenders can no longer be satisfied when they fall due. Insolvency may also refer to the situation where liabilities exceed assets,” he explained.
Mr. Addo noted that the Corporate Insolvency bill introduces the legal framework for administration and corporate restructuring in Ghana. “Corporate restructuring is the process by which a distressed company restructures its business or assets to bring it back into profitability. The rationale for corporate restructuring is the promotion of business and prevention of job losses.
“The formal corporate restructuring mechanisms are not intended to assist non-viable companies or shield debtors from their obligations to creditors, but rather to facilitate negotiations between the company and its creditors or ensure an orderly realisation of the company’s assets when insolvency is not feasible.
“The formal restructuring procedures seek to balance the rights of creditors to enforce their security and the public interest in ensuring the survival of viable businesses for the benefit of employees, creditors and the economy in general. The bill also deals with the official liquidation of companies, and in most respects is identical with provisions of the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180).”
The bill, he added, addresses the regulation of insolvency services and introduces a special division within the Office of the Registrar of Companies, to be known as the Insolvency Service Division. This new Division will have responsibility for the regulation of private insolvency practitioners in Ghana.
Mr. Addo pointed out that provision is made for miscellaneous matters including the Minister of Justice’s power to make regulations that ensure effective and efficient administration of insolvency proceedings.
“The rapid growth of the global economy and international trade has implications for insolvency proceedings. A company may have creditors, debtors, assets, subsidiaries and operations in a number of countries. When such a company becomes insolvent, the implications are felt in all these countries.
“The absence of provisions on cross-border issues has a negative impact in insolvency proceedings. To fill this gap, it is proposed to insert a fifth part into the bill, which will introduce provisions based on the United Nations Commission on Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.”
The bill, he added, also provides for cross-border insolvency to provide cooperation between Ghanaian courts and other competent authorities – both in Ghana and foreign jurisdictions involved in cross-border insolvency. “This has been included to ensure fair and efficient treatment of matters relating to insolvency in cross-border situations, in order to harmonise the treatment of creditor claims and other related matters when an insolvent company has business interests which spread across borders.”