African wear shop. File photo.
The country’s archaic Insolvency law has the potential to scare off investors, as it exposes struggling firms to the whims of their creditors, President of the Ghana Association of Restructuring and Insolvency Advisors (GARIA), Felix Addo, has said, calling for urgency on its revision.
A new Insolvency Bill is before Cabinet but is not likely to be passed this year as the current Parliament has barely two months to end its tenure.
Under the current law, which is over 53 years old, when a company is unable to meets its business needs/debts, its creditors may, after a 31-day period, commence liquidation, a situation the GARIA President described as not business-friendly.
“Most of companies in this part of the world are micro, small and medium enterprises. Currently, there are no systems or institutional arrangements for those companies when they are in distress.
For instance, if an entrepreneur uses his house for a bank loan, when the company is in distress, the bank will cash in on the collateral and that destroys the entrepreneur as well as his business,” Felix Addo said.
“That culture does not create an enabling environment for people to pursue businesses. It is too risky for businesses and the system has to be modernised to create a debtor-friendly environment. A successful business creates jobs and incomes for its employees and owners as well as taxes to government,” he said.
Speaking to the B&FT at the Africa Roundtable on Insolvency Reform held in Accra, Felix Addo said struggling firms need more space to turn their fortunes around, without creditors breathing down on their necks.
“GARIA thinks this is not a good regime to allow companies to grow. The likes of US and UK have similar laws that allow the distressed companies, under the supervision of a court or an appointed creditor, to turn around their fortunes instead of liquidation,” he said.
The rescue provisions in the new Insolvency Bill, Felix Addo said, are critical to allow for businesses to thrive, as it, among other things, provide qualifications as to who can be described as an insolvency practitioner.
“It also has provisions to regulate insolvency practice in the country. As it stands now, anybody can be appointed as an insolvency practitioner or turnaround expert for a company in distress."
The Round Table forum was organised by INSOL International in partnership with the World Bank Group, which is working closely with many governments in Africa to assist in strengthening their insolvency and restructuring regimes.
