Ghana has a New Corporate Restructuring and Insolvency Act

Ghana has a New Corporate Restructuring and Insolvency Act !!!!!!


Ghana and the world as a whole have hit hard times. Businesses especially are struggling to stay alive. Termination of employee contracts and default on financial and business-related obligations have quickly become the order of the day. The need to protect businesses from some of the adverse impacts of the pandemic, save struggling but viable businesses and protect creditor and employee rights has become vital to the recovery of the economy post-COVID-19. Against this background, Ghana’s Corporate Restructuring and Insolvency Act, 2020 (Act 1015) could not have been passed at a better time.  

The New Act introduces a ‘rescue culture’ by giving businesses the option of restructuring and going into administration which up until now has been the preserve of specialized institutions such as banking and insurance companies. In other words, the option to restructure, go into receivership or seek administration has been opened up to all companies registered in Ghana. This article gives a high-level overview of some of the key provisions and improvements to Ghana’s business rescue landscape. 

The Act is structured into five main parts. These are (a) Administration, (b) Official Liquidation, (c) Insolvency Services, (d) Cross border insolvency and (e) Agreements and other miscellaneous matters. To appreciate the improvements under this legislation, one must remember that for decades, official liquidation was the only option in the law books for many companies.  

The main improvement to our insolvency and business rescue law perhaps is the introduction of private insolvency practitioners (IP’s) and an insolvency division at the Office of the Registrar of Companies which was introduced by the passage of the Companies Act 2019 (Act 992). Up to now, there has been no professional body or standards for the insolvency practice and practitioners generally depend on experience, knowledge sharing through international best practice, and some just by wit. Insolvency Practitioners would now come under regulation. The Act provides for the regulation of insolvency services by the  Registrar of Companies. An insolvency practitioner is a privately licensed individual who is either lawyer, chartered accountant, or banker, is certified as a restructuring or insolvency advisor and has been licensed by the Registrar of Companies (through its insolvency division) as an IP and also has the necessary professional insurance and indemnities to enable them to practice as IPs.  The Act provides for the Ghana Association of Restructuring and Insolvency Advisors (GARIA) to support the Registrar of Companies in this role. GARIA would assist in the training and licensing of  Insolvency Practitioners and also be established as an Act of Parliament within two (2) years after the passage of this Act.   IPs would, therefore, be professionals who would further be trained in the professional conduct of insolvency services. They would also be subject to a very high level of ethical and professional standards and would carry fiduciary duties to the Registrar, creditors and the companies they serve. 

The new Act in addition also introduces Administration and Restructuring as a means of corporate rescue. This improvement allows a distressed company the opportunity to continue in existence by placing a temporary freeze on the rights of creditors against the company and the development of a restructuring plan between the creditors and the company to be executed by the IP. In simple language, it offers companies protection similar to the United States Chapter 11 Bankruptcy law or the UK Insolvency Act giving them the opportunity to re-organize their affairs without being subject to the pressures of liquidation, threats of creditors and being caught up in financial and litigation threats which may further go to delay the process. The Act allows increased creditor involvement in the receivership or administration process through the formation of a 3-5-member creditor committee to protect the interest of creditors through the administration process. 

The committee among others, advises the administrator on matters concerning the administration, monitors and receives reports from the administrator, and aids communication between the IP and the creditors. The committee, however, does not direct the IP on the performance of his duty.  The creditors also have the duty of deciding whether the company should continue in administration or proceed into liquidation based on the initial findings of the administrator delivered at the ‘watershed meeting’ of the creditors held after 28 days of the administrator taking over the business of the company.

Directors and senior management of companies have been known to continue in trade despite the knowledge that the company is indeed insolvent. They would enter into contracts and proceed to bind the company and incurring creditor liabilities with the full knowledge that the company is struggling. This leads to innocent third parties accruing liabilities through trading with an insolvent company. The new Act introduces a formula for determination of the solvency of a company and also places personal liability as well as criminal sanctions on directors and officers of companies who knowingly trade while the company is insolvent and additionally on directors who knew or ought to have known that the company was trading while insolvent. These persons are now personally liable for creditor obligations that are incurred during this period and may face criminal sanctions of up to five years imprisonment, fines and disqualifications from acting as directors for up to 5 years. Hopefully, these measures would ensure that directors and officers of companies do not engage in what the Act terms as fraudulent trade. 

The strength and integrity of the financial and banking sector is also considered in this new Act through the recognition of netting agreements and other qualified financial instruments such as swaps, derivatives and spot agreements allowing them to be ringfenced and basically protected from insolvency or restructuring proceedings. The existing terms under which these contracts were entered into would prevail in spite of the insolvency of the company. This ensures the protection of both local and international financial market transactions in the case of insolvency and helps Ghana maintain a competitive financial market.  

Another revolutionary addition to our law is the introduction of post-commencement financing.  Post commencement financing is simply funding advanced to distressed companies by financial institutions to enable them to re-organize their affairs. Companies that are in distress generally do not have adequate financing or cash flow to aid the restructuring process or improve cashflows. Generally, prudent financial institutions would not lend to companies that are under distress. The introduction of post-commencement financing completely changes this narrative and permits companies undergoing restructuring or administration to seek financing from banks and other financial institutions to enable the IP effectively carry out the process and earn better returns for the company. The willingness of financial institutions to advance finance to these companies is greatly increased by ringfencing post-commencement financing and ranking it as a class A debt in our improved creditor ranking thus making it superior to all other creditor claims including preferential claims. Companies offering post-commencement financing have additional assurance that they would recoup their money as Post commencement financing must be paid in full before the settlement of any and all other creditor claims including debts to the Government such as Tax and pension contributions. 

History has taught us that insolvency proceedings of multinational companies are especially complex as you have the myriad of issues and practitioners from various jurisdictions all at odds with each other.   The introduction of cross border insolvency provisions aims to bring some amount of sanity to otherwise very complex international insolvency proceedings and allows co-operation with foreign courts and practitioners on insolvency matters. The Act recognizes foreign insolvency proceedings as well as makes it permissible for foreign representatives to make an application to a Court in respect of insolvency proceedings. This drastically reduces the complexities that otherwise existed with insolvency of multinational organizations operating in Ghana. 


These are a few of the changes that greatly improve the ease and risk of doing business in Ghana. As pointed out earlier, this legislation could not have come at a better time. It ushers us into a new era of corporate rescue and recovery in Ghana which is especially crucial in these changing times.  


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