GARIA holds webinar on Insolvency and Restructuring Act

Ghana Association of Restructuring and Insolvency Advisors (GARIA) has held a sensitization Webinar on the Corporate Insolvency and Restructuring Act (Act 1015) in Accra.

GARIA assisted in the advocacy for the passage of two key pieces of legislation within Ghana’s corporate business landscape, being the Companies Act 2019 (Act 992) and the Corporate Insolvency and Restructuring Act, 2020 (Act 1015).

Indeed, that stirred the interest of the Bank of Ghana and resulted in the Bank’s association with the sensitization webinar on the Corporate Insolvency and Restructuring Act.

According to organizers of the webinar, the Act is of great importance, particularly at this time.

Second Deputy Governor of the Bank of Ghana and founding member of GARIA, Mrs. Elsie Addo Awadzi, in her address stated that the importance of the Act, particularly in this COVID-19 period, cannot be overemphasized, taking into account the telling effect of the pandemic, which has unleashed what is considered the worst global economic downturn since the Great Depression of the 1930s.

She said, “The economic impact of the pandemic on firms and households in developed and developing countries alike, is unprecedented owing to reduced demand for products and services, disruptions to global supply chains, and limited access to financial markets.

“The attendant job losses and personal and corporate distress situations have led to a deterioration in the quality of loan assets held by banks around the world, threatening their own solvency in some cases.”

She added “Policy makers around the world are working hard to reduce the economic hardship from the pandemic on businesses and households, with stimulus packages that have included unemployment benefits, small business loans, and other cash transfers, while measures put in place by central banks and regulators have also helped to improve liquidity in financial markets.

“Some jurisdictions have also introduced amendments to their insolvency laws (see Australia’s Response Act 2020, for example) to help delay triggers for initiating insolvency proceedings and providing temporary relief to directors from liability for failure to prevent insolvent trading.

“The Ghanaian economy has seen a significant slowdown since the onset of the pandemic, impacting negatively on businesses (especially micro, small and medium-sized) and households.”

She pointed out that the Bank of Ghana, in addition to fiscal policy measures by government to cushion the COVID-19 impact on businesses and households, has instituted a number of policy and regulatory interventions including a reduction in its monetary policy rate by 150 basis points, a reduction in reserve requirements for banks and specialized deposit-taking institutions (SDIs), a reduction in the capital conservation buffer maintained by banks, a reduction in provisioning requirements for certain categories of loans, and the purchase of Government bonds to support economic recovery efforts.

To her, these interventions have released significant liquidity into our banking system, which has allowed banks to account for restructured customer loans as a result of the pandemic, and grant new loans to customers in industries that have been at the forefront of helping to fight the pandemic.

“We have recently issued guidance to the banks and SDIs on the accounting treatment of loan restructuring, classifications, provisioning, and expected credit losses, and prudential assessments of credit risk and capital ratios, as well as approaches to reporting to credit bureaus on loans that have been restructured, to help ensure standard reporting that does not unduly disadvantage the customer.

“The Bank of Ghana’s recently-updated Composite Index of Economic Activity and consumer and business surveys show promise for a rebound in economic activity.

“The Ghanaian banking sector is also well-situated to help finance the economic rebound we all hope for, thanks to earlier reforms instituted by the Bank of Ghana over the last three years that have strengthened the resilience of the sector.

“These are encouraging indicators of the potential for a stronger, more self-reliant and resilient economy post-COVID, with the private sector leading. Given the Bank of Ghana’s statutory mandate to maintain stability in the general level of prices, promote economic growth and efficient operation of banking and credit systems in the country, and to promote financial stability, we recognize the benefits of a well-designed insolvency regime,” she added.

The GARIA founding member indicated that, “of the 420 institutions closed, 379 (9 banks, 23 savings and loans and 347 micro-finance companies) are currently being resolved under the special resolution regime established under section 123 of the Banks and Specialized Deposit-Taking Institutions Act of 2016 (Act 930), while 41 NBFIs (39 micro-credit institutions, one leasing company, and one remittance company) which were regulated under the NBFI Act of 2008 (Act 774) and are being resolved through liquidation under the now-repealed Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) and Act 1015, following Bank of Ghana’s appointment of the Registrar of Companies as Official Liquidator pursuant to section 7 of the NBFI Act.”

She said that Act 1015 is considered as an important addition to the framework for building a more buoyant economy, supported by a more efficient credit market.

The Bank of Ghana Deputy Governor further mentioned that, “the recent banking sector cleanup has provided impetus for a more robust credit environment, as banks are now better capitalized and more liquid, than before. Access to credit, however, remains a challenge to many economic actors due in part to legacy non-performing loans on the books of banks and SDIs given the challenges they continue to face in their loan recovery efforts.

“The Bank of Ghana has over the years put in place mechanisms such as the credit bureau regime to help banks and SDIs obtain information about borrowers’ credit behaviour as part of their credit underwriting processes.”

She urged participants to lead a review of the Insolvency Act of 2006 (Act 708), which focuses on personal insolvency, so that it is aligned with Act 1015 to provide options for restructuring for individuals and household debtors, particularly those that rely on consumer loan products of banks and SDIs.

The webinar was highly patronized by the members of GARIA and staged high profile resource persons such as Professor Justice SK Date-Bah, Professor Emeritus Albert Fiadjoe, Jemima Oware, Felix Ntrakwah, Felix Addo, Audrey Kotey and Jacob Saah.