Creditors’ Rights & Protection in Corporate Administration

Creditors’ Rights & Protection in Corporate Administration

Credit is essential for the business operations of corporate entities and it is the expectation of creditors that debtor companies will repay their debts as they fall due. Creditors encompass a wide range of corporate and natural persons such as banks, saving and loans companies, corporate investors, micro finance companies and other financial institutions who have provided term loans, letters of credit, lease finance, guarantees, overdrafts among other types of credit facilities; suppliers or service providers who have supplied goods and services on credit; customers who have made advance payment on goods and services; landlords who have leased properties expecting payment of rent; and family and friends who may have invested in the business.

Prior to the passing of the Corporate Insolvency and Restructuring Act, 2020 (Act 1015), creditors had the direct option to sue corporate entities in default of satisfying repayment obligations and in drastic circumstances, a petition was presented to the Court to liquidate the company on the grounds of inability to pay debts. There was no restriction on the exercise of the rights of creditors.

However, Act 1015, through the administration proceedings, has introduced a temporary restriction on the enforcement rights of creditors preventing them from commencing or continuing existing proceedings against indebted companies as part of the administration proceedings. The essence of this restriction is to give the distressed company some “breathing space” to proceed with the process unimpeded. Also, the restriction protects the assets of the company while the rescue process is ongoing so that creditors do not take any action that will aggravate the financial distress of the company.

At first glance, the temporary restriction seems repressive and may discourage creditors from considering administration as a favorable insolvency option. However, the Act provides some protection for the rights and interests of creditors throughout the administration process. This article sets out the provisions in the Act which directly or indirectly protect the rights and interest of creditors of a distressed company undergoing administration.


Commencement of the administration process (appointment of the administrator)

Administration commences with the appointment of the administrator. An administrator may be appointed by the company (acting through the board of directors), a creditor or a liquidator. A creditor holding a charge over the whole or a substantial part of the company’s property may appoint the administrator. Any other creditor must apply to the Court for an order to appoint an administrator.  Creditors therefore, can put a company in administration.  This allows creditors to intervene to prevent the worsening of the situation of the company, especially where the course being pursued by the directors is injurious to the business of the company and the interest of its creditors.

Also, the power to appoint goes hand in hand with the power to remove an administrator and appoint a replacement (especially where the administrator is appointed by the company). The effect of this right is to give creditors some comfort in knowing that the administrator who is expected to assume the responsibility of re-directing or steering the affairs of the distressed company in a particular direction is competent, experienced and independent.  An unqualified or biased administrator may mismanage the assets to the detriment of creditors. Therefore, the power to commence the administration process and the control over the appointment of the administrator is a necessary tool for creditors to protect their interests in the administration process.

Apart from affording creditors the opportunity to step in to prevent the worsening of the distress of the company, administration is also a faster insolvency process compared to liquidation with strict timelines provided in the Act to guide the process. Also, administration can be commenced and completed with little or no court intervention. This helps to keep the status of the company private and reduces costs associated with litigation and undue delay. Further, since the main purpose of administration is not to wind up the affairs of the company, it allows creditors to explore various options which may include debt restructuring, change of management, downsizing business activities,  asset sale, post restructuring financing or even liquidation if it is in the best interest of the creditors. On the other hand, the sole purpose of liquidation, is to wind  up the affairs of the company and therefore, the outcome is most often a piecemeal sale of the assets of the company which does not usually provide maximum return to creditors.

Approval of remuneration and terms of engagement of administrator

In addition to the appointment of the administrator, the remuneration and other terms of engagement of the administrator are subject to the approval of the creditors.  Since the remuneration of the administrator is to be paid from the same pool of assets of the already distressed company, the power to approve the remuneration of the administrator protects the interest of creditors in the assets of the company. This ensures that creditors are able to manage the expenses incurred as a result of the administration process which must be paid regardless of the outcome of the administration proceedings. Creditors are therefore, able to prevent unnecessary depletion of the assets of the distressed company and ensure that the assets of the company are managed in a way that the company can eventually meet its existing liabilities and obligations to the creditors.

Attendance, participation and voting at meetings

Upon commencement of the administration proceedings, the administrator is required to hold meetings of creditors where the creditors are presented with the state of affairs of the company and a restructuring proposal is considered. All creditors are entitled to attend, participate and vote at meetings of creditors called by the administrator. This guarantees that creditors are kept well informed and are able to participate in the process and most importantly, determine the outcome of the administration process.

Creditors also have the option to establish a committee of creditors whose role is mainly to receive the reports of the administrator and communicate feedback. The committee is relevant since it serves as a direct link between the creditors and the administrator. Although the committee’s role is purely advisory, the creditors’ committee provide an opportunity for creditors to access information and stay up-to-date on the administration process, especially in cases where there are many creditors or there are creditors resident outside the jurisdiction.

Approval of the restructuring agreement

The administrator, at the end of his/her assessment of the affairs of the distressed company is expected to either propose a restructuring agreement to save the company or propose that the company be liquidated. The restructuring agreement is the outcome of the decision of the creditors based on the administrator’s proposal. This agreement sets out the extent to which the company will be released from liabilities, properties of the company which will be made available to pay creditors, the nature and duration of any moratorium period, post-commencement financing among other terms and conditions.

The restructuring agreement is binding on all creditors although executed between the company and the administrator. Where the restructuring agreement is rejected by creditors without room for amendment, the administration process risks coming to an end and official liquidation may commence. Creditors therefore, have the “final say” on the outcome of the administration process.

By this, creditors can ensure that the restructuring agreement is feasible and will be able to bring the company out of its distress to meet its obligations to creditors. Where rescue is not feasible, creditors can always opt to commence official liquidation. Therefore, although corporate rescue is the preferred outcome of the administration process, creditors can opt to liquidate the company where keeping the company as a going concern will not provide better results for the creditors.

Termination of the restructuring agreement

Although the execution of the restructuring agreement brings an end to the administration process, the interest of creditors in the restructuring agreement is not extinguished until all the terms and conditions are fulfilled. Act 1015 provides that creditors may terminate the restructuring agreement on the grounds of material breach of the agreement, injustice or undue delay in implementation, oppression or unfair discrimination.

Therefore, although creditors are not parties to the restructuring agreement, the Act recognises their interest in the successful implementation of the restructuring agreement by providing a remedy for breach through termination of the agreement. This also ensures that the company fully complies with the terms of the restructuring agreement to prevent termination which may likely result in an official liquidation of the company.

  1. Enforcement of security or recovery of property under special circumstances

While recovery and enforcement actions are prohibited during administration of the company, an exception is made for secured creditors and owners or lessors of property occupied by the company.  A secured creditor or an owner/lessor of property that is occupied by or in possession of the company may apply to the court for leave to enforce the security or take possession of the property.

The court may grant the application where the court is satisfied that in the circumstances, serious prejudice will be caused to the secured creditor or the owner of the property which outweighs any prejudice to the other creditors. By this provision, the restriction on commencement and continuation of legal proceedings during administration is not absolute. Secured creditors may enforce security which will remove the secured asset from the assets under the management of the administrator.

In addition, landlords or owners of properties in the possession of the company are able to take possession of their property on grounds such as failure to pay rent. This is helpful in cases where the administrator wishes to dispose of or otherwise use the charged asset or leased property in a manner that puts the creditor or landlord’s interest in the asset at risk.


Administration is still a new concept which is yet to be fully embraced by the Ghanaian corporate industry. It is therefore, necessary that creditors and businesses alike take an interest in this process and its impact on their operations, especially their finance and credit arrangements.

While administration is a welcome addition to Ghana’s insolvency legal and regulatory framework, it is important that the process does not discourage creditors from providing credit or lead to more stringent terms for credit which will be to the detriment of businesses. Act 1015 therefore, seeks to ensure that creditors are not at the “losing end” in the name of corporate rescue. Creditors are therefore provided with a great level of control over the administration process and its outcome to ensure that the process is not used to evade obligations to creditors or keep “zombie” companies in existence to the detriment of stakeholders.

[i] The author is a lawyer by profession with an LLM in corporate and commercial law. Her areas of practices include regulatory compliance, project advisory, mergers and acquisitions, restructuring and insolvency, corporate finance and tax. She has experience across a broad range of industries including finance, trade, oil and gas, power, and infrastructure and has advised both local and foreign clients, governments, regulators, and not-for-profit organisations.

She is currently an associate at AB & David Africa a multi-specialist pan-African business law firm practicing in many jurisdictions in Africa including Ghana. Email: [email protected]

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