Things to Know About the Corporate Insolvency and Restructuring Act 2020 (Act 1015) I
In April 2020, the Corporate Insolvency and Restructuring Act, 2020 came into force. Since then, I have had a number of people ask me about what exactly the Act is about. So, in this piece, I will set out five things that the public ought to know about the Corporate Insolvency and Restructuring Act.
1. “Think lifeline” and “Rescue”
Forget about the grandiose title of the law. We will deal with that subsequently. But you should think “lifeline” anytime you hear of the Corporate Insolvency and Restructuring Act. And here is why. Under the previous law (i.e. the bodies corporate (official liquidation) Act, 1960 (Act 180)), companies in distress had one fate. Official liquidation. Official liquidation meant that companies which could not pay their debt as and when they became due had to “die”. A company, under the previous legislation, was unable to pay its debt when it has received a written notice inviting it to pay up a debt but is unable to do so within 21 days. Make no mistake. The new legislation also provides official liquidation, but the law makes it clear that the winding up of the company should be a means of last resort. The law, therefore, aims to give distressed companies an opportunity to weather the storm and not be submerged by it unless the situation of the company is very bad. It is for this reason that the law is seen to seek to introduce a culture of business rescue in Ghana.
2. New Options available to Ghanaian companies
Whiles it is reassuring to know that the law offers a lifeline to companies in distress, the next question is – how. Well, a number of ways. First, the law makes provision for placing distressed companies under the temporary management or control of an administrator. Secondly, the law makes it possible for creditor rights to be frozen for a period. Also, the law provides for a restructuring plan which requires reordering and rearranging the affairs of the company in order to makes it profitable for both creditors and the other stakeholders. It is important to note that all of these options give a struggling company a fighting chance and is representative of the view expressed earlier that the Act is structured in a way in order to ensure that a distressed company with the prospect of survival is not buried alive.
3. Tell me more about the administrator?
Think about the administrator this way. You are on your way to work. Your car overheats or breaks down in the middle of the road. This is a dangerous situation. You set out triangles. And then call your mechanic. Immediately the mechanic comes on board, he will ask you about the challenges and in most instances ask for the car key. From that moment until the car is repaired, you can safely say that it is the mechanic that is running the show. The same thinking applies in the case of the administrator. He is first appointed either by a court or the company itself. He walks into the company for a very short period. His aim is to keep the company as a going concern whiles troubleshooting to find out what exactly the company’s issues are. As a result, upon taking office, the law enables him to have control over the business, property and affairs of the company. He sets out to investigate the affairs of the company and find ways of salvaging the business of the company. He may decide to shave off non-profitable aspects of a business. In sum, he is at the helm of affairs for a brief period to enable a turnaround.
4. Cohabitation between the directors and administration
Remember. The administrator is walking into a company with its own structures. There will be shareholders. And also, the board of directors. The board of directors are directly responsible for directing and running the affairs of the company. For readers of this column, I am sure this sound familiar – directors determine the direction in which the company moves. In ordinary times, the company directions do not take directions or instructions from anyone when it comes to running the affairs of the company. But when a company is under administration, the dynamic is slightly different. First, the board of directors still remain in place. The reason is that the administrator is not in the company to stay. He is only there for a short while. But in order to ensure harmony and coherence, the power of directors is frozen and they may only exercise any of their powers subject to the approval of the administrator. Thus, the directors cannot enter into property deals and or exercise any of their regular powers without the involvement and approval of the administrator. Also, the law gives the administrator the power to start and defend any legal action in the name of the company.