A new law in bankruptcy in Ghana to take care of concerns with regard to outdated laws and to introduce new practices that save companies on the verge of collapse is in the pipeline.
Following advocacy campaign by the Private Enterprise Foundation (PEF) since 2003 that the nation’s laws on bankruptcy were outdated and that practices lag in comparison to experience at the regional and international levels, government has commissioned a consultant to review and draft a new insolvency bill for the nation.
Mr. Moses Agyemang, Senior Economist at PEF make this known to B&FT on Monday said the consultant, Ghana Association of Restructuring and Insolvency Advisors (GARIA), is expected to come up with the draft bill by the close of the year for subsequent adoption by cabinet and parliament.
The Private Enterprise Foundation, a business advocacy organization, has been advocating review of the Bodies Corporate Official Liquidation Act, 1963 (Act 180). It says the Act needs review along the lines of appointment of a liquidator, protection of employees and creditors, liability of directors at the time of liquidation, as well as the relevance of the Act to business growth.
Under the Act, the Registrar of Companies (Registrar General’s Department) is the liquidator in all official liquidation, but PEF says the practice is outdated by regional and international experience.
“The practice now is to appoint a pool of well-trained private sector practitioners as liquidator for facilitation of effective and efficient liquidation”, PEF proposed.
PEF has also noted that the present laws do not make room for reorganization and restructuring of companies in distress to make it possible to save distressed but viable businesses.
It said the law must strike a careful balance between quick debt-collection through liquidations and preservation of the value of the debtor’s business through reorganization.
Moses Agyemang, PEF Senior Economist said Delta Airlines, a US airliner, is an example of a company that was saved by a reorganization provision contained in ‘Chapter 11’ of the US insolvency law.
“In other countries, provisions on reorganizations have become powerful tools of economic growth. In the UK system, the provision allows an administrator to take over and restructure the company, while in the US, Chapter 11 makes way for creditors to allow the business to still operate while attempts are made to restructure it from collapse.
“Such provisions have helped to save many companies on the verge of collapse, “Mr. Agyemang noted.
On employees, PEF advocates better protection for them by calling for a review of the clause that classifies salary arrears exceeding four months as preferential claims and severance pay as unsecured claims.
At a review meeting of stakeholders in Accra last week, PEF President Mr. Asare Akuffo disclosed that Ghana has consistently ranked poorly in terms of closing down business since the inception of World Bank’s Ease of Doing Business Report. In the latest report (2010 Ease of Doing Business Report), Ghana ranks 106 out of 183 countries.
The report indicates it takes on average 23 months to close down a business in Ghana compared with five months in Ireland.
The recovery rate, which measures how much of the insolvency estate is recovered, is also low for Ghana at 24 percent-compared with 93 percent in Japan.
“This situation, you will agree, points to an inefficient legal and regulatory framework for closing down business in Ghana,” he said.
By:MOSES MOZART DZAWU, BUSINESS & FINANCIAL TIMES, WEDNESDAY, OCTOBER 7, 2009
