COVID-19 shines spotlight on corporate insolvency and “orderly exits”, says BoG

Elsie Awadzie, second deputy governor of the Bank of Ghana (BoG), has said the recently passed Insolvency and Restructuring Act 2020 (Act 1015) could not have come at a better time to help viable but distressed businesses come back stronger and help others honourably exit in a post-COVID-19 recovery economy.

“A robust corporate insolvency regime has a critical role to play in facilitating the post COVID recovery,” she said, “by helping to resolve the inevitable debt-overhang that will be one of the legacies of the pandemic, and by helping to reorganise viable but distressed firms while ensuring the exit of non-viable ones. Act 1015 will therefore become very handy in the months and years ahead.”

Awadzie was speaking at a webinar on the Corporate Insolvency and Restructuring Act 2020 organised by the Ghana Association of Restructuring and Insolvency Advisors (GARIA).

She said the importance of the new legislation cannot be overemphasised, particularly at this moment.

Cultural context

“If the current banking sector crisis is anything to go by, the orderly exit of non-viable institutions from the marketplace creates room for viable ones to thrive and support the economy better,” she said, pointing out that, without the orderly exit of these financial institutions, the entire system was at risk of collapse because of their level of interconnectedness.

“We see it [Act 1015] as an important addition to the framework for building a more buoyant economy, supported by a more efficient credit market.

“The recent banking sector clean-up has provided the impetus for a more robust credit environment, as banks are now better capitalised and more liquid than before,” she said.

Though much has been done in the passage of the act, Awadzie said a great deal more is needed to sensitise all key stakeholder groups, particularly the private sector, given the cultural context that makes discussing and doing something about distress and insolvency a taboo.

Shortage of professionals

She said there is a need to continue relentlessly to build the professional body of corporate insolvency and restructuring practitioners. 

“Act 1015 provides for licensing of insolvency practitioners. I urge GARIA to help to operationalise this licensing regime in the shortest possible time. The recent banking sector clean-up exercise brought to the fore the shortage of professionals in the area.

“I note that Act 1015 makes provision for the establishment of GARIA under an act of Parliament within two years. This is an opportunity to further strengthen its role in spearheading the development of a strong cadre of insolvency and restructuring professionals for all sizes and categories of businesses,” she added.

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

She said this will ensure that there is a comprehensive and modern insolvency ecosystem, made up of personal and corporate insolvency regimes, supported by bespoke special resolution regimes for financial institutions such as the one established by Act 930.

Tireless effort to raise awareness

Awadzie said the Bank of Ghana remains committed to promoting economic growth and the efficient operation of the banking and credit system in Ghana. It will also continue to support the development of an efficient corporate insolvency regime and the work that GARIA still champions.

She applauded GARIA for championing the enactment of Act 1015 as necessary accompanying legislation to the new Companies Act 2019 (Act 992). She also praised the organisation’s tireless efforts to raise awareness of the need for a strong insolvency regime, as well as a well-established industry of insolvency and restructuring professionals.

Felix Addo, president of GARIA, noted the Corporate Insolvency and Restructuring Act 2020 (Act 1015), which repealed the erstwhile Bodies Corporate and Official Liquidation Act 1963 (Act 180), was signed into law on 30 April 2020 and has features which could go a long way to assist businesses not only to survive the pandemic but also to recover.

“CIRA applies to all businesses registered under the Companies Act, 2019 (Act 992) with a few exceptions, namely banks, insurance or any other business which is subject to special legislation, except instances where the special legislation does not provide a rescue provision such as the Security Industries Act 2016 (Act 929),” he said.

Addo said despite the perfect storm that the world and Ghana find themselves in, the timing of this law, which enables restructuring of distressed companies, could not have been more perfect. 

“Let us take advantage of the possibilities this new law offers, especially for our previously stressed companies [even before COVID-19], to make the necessary structural adjustments before they end up on the chopping block.”

He encouraged businesses to take advantage of its many features to preserve jobs and economic value, as well as preserve creditor and other stakeholder interests in a balanced, fair and equitable manner, thereby emerging “fit for purpose” for the long haul.

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