By Justice S K DATE (Prof)
The setting
In the last two decades of the nineteenth century, there was rapid economic growth in the Gold Coast, fuelled by cocoa farming and gold mining. It was in this context of economic growth that the local colonial administration decided to enact a Companies Ordinance in 1907, as a reaction to an influx of companies from South Africa.[i] The Companies Ordinance 1907 was a transplantation of the Companies Act, 1862 of England which had, however, become obsolete by the time of the Ordinance’s enactment. Indeed the 1862 English Act was repealed and re-enacted with substantial reform in 1908 as the Companies (Consolidation) Act in England. Nevertheless, the Gold Coast and even independent Ghana stuck with its outdated Companies legislation until the enactment of Professor Gower’s reform recommendations in 1963. The outdated Companies Ordinance, unsurprisingly, had no provisions on the rescue of distressed companies. However, it had the merit of introducing into this jurisdiction the notion of limited liability of members of companies and the separation of a company’s ownership from its control.
Although Professor Gower’s reforms in the 1960s introduced provisions to deal with insolvent companies, they did not include provisions on the rescue of distressed companies. The new provisions enacted in 1963 related to the liquidation or winding-up of companies. Although Professor Gower’s proposals were on the whole visionary, they did not contain any provisions for the rescue of companies which were unable to pay their debts as they fell due, as a result of cashflow or other reasons.
Professor Gower’s proposals on insolvency were included in the Companies Act, 1963 (Act 179) and the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180). The Companies Act, 1963 contained provisions on voluntary liquidation, while the Bodies Corporate (Official Liquidations) Act, 1963 dealt with official liquidations, that is involuntary or compulsory liquidations. The provisions of the Companies Act, 1963 on voluntary liquidation were not, strictly speaking, on insolvency, since in fact a declaration of solvency by affidavit was made a precondition to the invocation of voluntary liquidation.
Thus, prior to the twenty-first century, Ghanaian law made provision for the birth of companies and their death, either with their own consent or against their consent at the instigation of their creditors. However, it did not make provision for the intensive care of diseased companies to nurse them back to health. Accordingly, there was a gaping hole in the regulatory regime for companies. The conditions therefore existed for a champion to emerge to catalyse a process for the reform of the law. It was against this backdrop that GARIA emerged. GARIA stands for the Ghana Association of Restructuring and Insolvency Advisors.
The regulatory regime introduced by the Corporate Insolvency and Restructuring Act, 2020 (Act 1015)
The Act embodies the regulatory regime for financially distressed companies in Ghana. This section of the paper now devotes some time to examining the main features of the regime. Since in their Report, GARIA indicated that the English model was what they were adapting as their proposal for Ghana, it would be appropriate to use as a check list, in our discussion of the new Act, some common characteristics identified by an English author, Hamish Anderson, in his book The Framework of Corporate Insolvency Law.[ii] Three procedures are available under the Insolvency Act, 1986 of the UK. These are: liquidation; administration; and company voluntary arrangements. Hamish Anderson identifies the following characteristics as common to all three procedures:
- “insolvency proceedings are not necessarily opened by a court order;
- the court does not manage the day-to-day conduct of the proceedings;
- the conduct of the proceedings is entrusted to an office-holder;
- only a qualified insolvency practitioner can act as the office-holder (unless the official receiver is acting as liquidator);
- insolvency practitioners are highly regulated and office-holder’s failure to conduct the proceedings in accordance with prescribed standards exposes him/her to disciplinary action in addition to legal liability;
- office-holders have special powers and privileges to enable them to perform their functions;
- creditors’ interests are paramount;
- creditors are treated as a class and individual rights within the proceedings must be exercised consistently with the interests of the class;
- the role of the court during the course of proceedings is to resolve disputes and determine questions of law;
- the court will not substitute its own commercial judgment for that of the office-holder; and
- there is a common distribution scheme (which applies unless the creditors collectively contract out by means of a company voluntary arrangement (CVA) or Companies Act scheme of arrangement.[iii]”
Of the three types of proceedings under English law mentioned by Anderson, this paper’s focus is only on administration. Furthermore, company voluntary arrangements are not dealt with in the CIRA. Liquidations are dealt with in CIRA, but the provisions on them are in the main a re-enactment of the provisions of the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180). What is novel is the regulatory regime for rescuing financially distressed companies. Anderson’s above list will be used as a checklist for discussing some of CIRA’s provisions on administration.
Insolvency proceedings are not necessarily opened by a court order
Under the provisions of CIRA, there is no need to go to court to secure the appointment of an administrator of a company. A duly qualified person can be appointed extra-judicially by the distressed company; by a liquidator, where the company is in liquidation; or by a person holding a charge over the whole or substantially the whole of the property of the company or the receiver appointed by that person. Finally, a court may also appoint an administrator[iv]. Where a company is already in administration, only the creditors can appoint a replacement for an administrator that they have removed. Where an administrator has died, resigned or become disqualified, his or her replacement may be appointed by his or her appointer. Where it is the company that appoints the administrator, the directors must pass a resolution that the company is insolvent or is likely to become insolvent in the opinion of the directors. The resolution should also state that an administrator must be appointed for the company[v]. A private liquidator of a company in a private liquidation under the Companies Act, 2019 may also appoint an administrator if the liquidator thinks that the company is insolvent or is likely to become insolvent[vi].
The circumstances in which a court may appoint an administrator are where an application is made to the court by a creditor, the liquidator, if the company is in liquidation, or the Registrar of Companies and the court is satisfied that[vii]:
- “the company is or may become insolvent.
- the survival of the company and the assets as a going concern are reasonably capable of being achieved in the event of an administrator being appointed;
- a more advantageous realisation of the assets of the company and any related company may be achieved than on an immediate winding up;
- the appointment of an administrator may achieve a more advantageous realisation or a more expeditious settlement of a duty or liability owed by any person to the company or any related company; or
- it is just and equitable to do so.”
“Insolvent” is defined in CIRA as meaning: “unable to pay debts as they fall due.[viii]” This definition encompasses both cashflow and balance sheet insolvencies. A cashflow insolvency refers to a situation in which a company is unable to pay its debts as they fall due, even if the total assets of the company exceed the total liabilities of the company. A balance sheet insolvency occurs when the total liabilities of a company exceed its total assets. (A company is then regarded as having a negative net worth.) Section 1(2) of CIRA makes it explicitly clear that both cashflow and balance sheet insolvencies are triggers for invoking the administration regime.
A secured creditor, or a receiver appointed by such creditor, is not permitted to appoint an administrator where the company is already in liquidation.[ix] An administrator’s appointment may not be revoked, except where the administrator is removed by the court or by the creditors[x].
Next week we will continue with the discussion of the features of our Corporate Insolvency and Restructuring Act.
Prof Date is a Retired Justice of the Supreme Court of Ghana, retired Special Adviser (Legal) at the Commonwealth Secretariat in London and former Professor of Law.
This article is an edited reproduction of the original paper prepared and delivered at the inaugural Annual Public Lecture in honour of the late Kojo Bentsi-Enchill, organised by the Bentsi-Enchill, Letsa and Ankomah law firm.
[i] See Final Report of the Commission of Enquiry into the Working and Administration of the Present Company Law of Ghana. (1961) 2
[ii] Op.cit.
[iii] Op. cit
[iv] See s.3(3).
[v] See s3(7).
[vi] See s.3(9).
[vii] See s.3(12)
[viii] See s.169
[ix] See s.3(11).
[x] See s.3(13),
