Wednesday, August 10, 2011

30 companies go bust in 10 years

Thirty large-scale companies were liquidated between the period 2000 and 2010, B&FT has learnt.

Among these companies were Black Star Line, Gateway Broadcast Services, Ghana Corporative Bank, Prestea Gold Resources, Bank for Housing and Construction, Plant Pool and Ghana Airways.

They underwent liquidation due to huge financial burdens, lack of proper corporate governance, and lack of appropriate succession plans among others.

Abdallah Ali-Nakyea, the Managing Consultant of WTS Nakyea & Adebiyi, a firm of Tax Attorneys & Solicitors in Accra, in an interview with B&FT said: “In order to facilitate a culture of corporate rescue in Ghana, specific rules for tax-free reorganisation have to be made in the tax laws.”

Concerns have been raised by business promoters and think-tanks on the need to ensure that gaps in the Ghanaian law on corporate insolvency are filled with appropriately responsive legislation as soon as possible.

Last year, the Registrar-General’s Department recorded a total of 25,000 business names, 227 partnerships and 93 external companies. 14,000 limited liability companies were also recorded with 335 subsidiary business names also registered.

Mr. Ali-Nakyea explained that the objective of rules for tax-free reorganidation would not be to grant a tax exemption to the companies or shareholders involved, but rather to “neutralise’, as it were, the tax consequences of the business reorganisation so that it involves neither a tax advantage nor a tax disadvantage.

“To ensure a win-win situation, therefore, conditions need to be set for a tax-free
reorganisation which should be continuity of business enterprise and continuity of shareholder interest.

“The degree of continuity is what needs to be agreed: for example, is the 25% in section 101 (1) (b) of Act 592 too high or adequate?”

He indicated that a corporate reorganisation often requires a formal capital contribution. There is therefore need to exempt reorganisations from stamp-duty on capital contribution.

“Corporate rescue comes in various forms including corporate restructuring or reorganisation, which refers to partially dismantling or otherwise rearranging a company to make it more profitable.

“As tax is one of the key costs to doing business, it is critical that the tax implications of any restructuring are known before it is undertaken. It is thus important that in designing tax-laws, attention must be given by drafters to provisions for corporate reorganisation.

“It is refreshing to note that there are provisions in the Internal Revenue Act, 2000 (Act 592) that support corporate rescue. At the same time, the Act contains provisions that are inimical to corporate rescue, and these are the provisions that need fine-tuning.

“Some of such rules are scattered in Internal Revenue Act, 2000 (Act 592), albeit not specifically made for purposes of corporate rescue; so can we have a part in the Act dealing exclusively with corporate rescue,” Mr. Ali-Nakyea stated.

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