Views: 468 Gertrude Bazaanaa, Accra, Dec 27,2018, Thur, 1132am Ghana’s Corporate Insolvency Law needs reformation to march up with best practices sinc...
Gertrude Bazaanaa, Accra, Dec 27,2018, Thur, 1132am
Ghana’s Corporate Insolvency Law needs reformation to march up with best practices since it last development in 1962 in the Gold Coast era, according to Ghana Association of Restructuring and Insolvency Advisors. (GARIA)
“It is our understanding that the Corporate Insolvency Bill is currently before cabinet. It is our expectation that both Bills will be passed into law in 2019.” The Association pleaded.
The Corporate Insolvency Bill is an important piece of legislation because it is aimed at improving the quality of the legal regime for corporate bodies and their administration when they become insolvent. The Bill seeks to provide a frame work for restructuring viable businesses and closing and transferring assets of failed businesses. In effect it facilitates assess to timely, efficient and impartial insolvency proceedings. Furthermore, there is a reduction of the burden of insolvency through potentially higher and equitable distribution of assets of a company to creditors.
But, only latterly, the Companies Bill drafted by the Committee is currently before parliament; however, the draft Corporate Insolvency Bill has not travelled that far.
GARIA is an association of professionals with an interest in restructuring and insolvency established to play a leadership role in corporate restructuring, business recovery and insolvency advisory in Ghana.
“Insolvency may refer to the situation where liabilities exceed assets.” The Professionals defined.
Key features of the Bill
The 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 to profitability. The rationale for corporate restructuring is the promotion of business and the preservation of jobs loss. The formal corporate restructuring mechanisms are not intended to assist unviable companies or shield debtors from their obligations to creditors but rather to facilitate negotiations between the company and its creditors or ensure the orderly realisation of the assets of the company 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 are identical with the provisions of the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180). Additional provisions address the regulation of insolvency services and introduce a special division within the Office of the Registrar of Companies to be known as the Insolvency Service Division. This new Division will have the responsibility for the regulation of private insolvency practitioners in Ghana.
The duties of the Division are as follows:
- keeping under review the law and practice that relates to the insolvency of companies and other bodies corporate in the country and making recommendations to the Registrar on any changes considered necessary;
- overseeing the administration of companies and other bodies corporate in the Ghana;
- receiving reports from the official liquidator and insolvency practitioners on the administration of insolvencies;
- carrying out research, commissioning studies, dissemination of information and provision of public education in the area of insolvency administration;
- establishing and maintaining communication and liaison with international agencies, including the International Commission on Trade Law, in the area of international insolvencies and insolvency administration as may be necessary for the efficient performance of its functions;
- advising the Minister through the Registrar General on any matter relating to the law and practice of insolvency and insolvency administration. Due to the fact that standards are required to protect the integrity of the insolvency process and the interests of stakeholders the Bill sets a standard for private insolvency practitioners.
Due to the fact that standards are required to protect the integrity of the insolvency process and the interests of stakeholders, the Bill sets a standard for private insolvency practitioners.
Provision is made for miscellaneous matters including the power of the Minister of Justice to make Regulations to ensure the effective and efficient administration of insolvency proceedings.
The rapid growth of the global economy and the international trade has implication 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 typical insolvency regime would include provisions on receivership. This area of the laws is provided for under the Companies Bill drafted by Date Bah Committee. It is therefore not captured in the draft Corporate Insolvency Bill. The Companies Bill also contains provisions on the structure of the office of Registrar of Companies. It is established as a statutory corporate body whose functions include acting as the official liquidator.
The Bill also provides for cross border insolvency to provide cooperation between Ghanaian courts and other competent authorities both in Ghana and in 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 harmonize the treatment of creditor claims and other related matters when an insolvent company has business interests which spread across borders.
Provision is also made for specific instruments in the financial sector by providing for the treatment and enforcement of netting agreements and other financial instruments typically entered into by members of the banking and financial sectors and provides for the treatment of these instruments in the case of insolvency in order to provide protection of these financial instruments and ensure the integrity of the financial sector.
The Bill also includes a provision which aimed at encouraging financing for insolvency proceedings. The Bill introduces “post commencement financing” which is aimed at ring fencing financing obtained by accompany including trade financing and venture capital during insolvency proceedings.
The provision ring-fences this form of financing and gives it priority over all creditor claims thus giving banks and financing institutions the comfort to provide post insolvency financing to distressed companies with the assurance that their monies would be repaid as a priority debt.
It is our expectation that when these two Bills are passed into law the impact on the business environment will be significant.