Dying businesses need protection

The gap in Ghanaian law on corporate insolvency should be filled with appropriately responsive legislation as soon as possible, Professor S.K. Date-Bah, Justice of the Supreme Court, has proposed.

“The formulation and enactment of such legislation would be an important step in nurturing a culture of corporate restructuring in Ghana. Particularly in a developing economy such as Ghana, an effort should be made to prolong the life of enterprises that have successfully been established [to save them] from premature demise,” he said.

Prof. Date-Bah made this proposal in Accra at a forum organised by the Ghana Association of Restructuring and Insolvency Advisors (GARIA) in collaboration with PricewaterhouseCoppers (pwc) Ghana Limited.

Among other objectives, the forum was to highlight and propose solutions to those gaps and educate key stakeholders on the need to facilitate a rescue for dying businesses in the country.

Prof. Date-Bah observed: “Liquidations are part of the process of adjustment wrought by market forces. What I am saying, however, is that there is justification for a degree of state intervention through corporate insolvency legislation to delay the demise of a failing company -- where a restructuring has a chance of restoring it to good health.

“In building a culture conducive to corporate restructuring in Ghana, the stakeholders in the restructuring process will need to be won over.

“The cooperation of creditors will be particularly important. Creditors need to be persuaded that efficient corporate rehabilitation will often yield better results for creditors than the results from the winding up of the distressed company.”

He explained that when a company is distressed, it is unable to pay its debts as they fall due -- or it is close to this situation -- adding that the first response of the law should not be to enable forthwith its liquidation to pay for the debts of its creditors.

“That is too drastic a remedy which is not responsive to the inevitable ups and downs of business life. A legal system that provides principally for only liquidation can fairly be characterised as primitive, from the business point of view,” he said.

Speaking on financing arrangements in restructuring, Wyczynsky Ashiagbor, Director, PricewaterhouseCoppers, explained that a company’s turnaround requires a greater amount of finance than would be the case in financing for a going concern.

“The main reasons for the turnaround are as follows: the business' sales performance may be negatively affected during a restructuring process as management's attention is diverted, or trade suppliers are often only willing to supply goods and services on a cash basis.”

He again cited cost and willingness of lenders to provide new debt as the major challenge of post- restructuring financing.

“[In the] Ghana Airways/Ghana International Airline example, our laws do not provide for ‘superior’ status for paying back debt during distress/restructuring situations,” he explained.

GARIA is an association of practitioners and persons who have an interest in restructuring and insolvency. The association was formed to play a leadership role in corporate restructuring, business recovery and insolvency in the country.