Things to Know About the Corporate Insolvency and Restructuring Act 2020 (I)

In April 2020, the Corporate Insolvency and Restructuring Act came into force. This note highlights some of the key provisions of the new insolvency legislation.

1.Introduction of a Rescue Culture

Under the repealed Bodies Corporate (Official Liquidation) Act, 1960 (Act 180), companies in distress had one fate. Liquidation. This meant that companies which could not pay their debt after a 21-day period qualified to be liquidated.

Though the  Corporate Insolvency and Restructuring Act makes provision for official liquidation, the law makes it clear that the winding up of a company should be a means of last resort. The Act aims to provide distressed companies with the opportunity to as much as possible continue as a going concern[1], and give distressed companies breathing space by placing a freeze on the rights of creditors and other claimants[2]. Under the spirit of a rescue culture, the Act requires a court to not proceed with making a winding up order where there is an alternative remedy available to the petitioners and the petitioners acted unreasonably in seeking to have the company wound up instead of pursuing the alternative remedy[3].

2.New Options available to Ghanaian companies

The Act makes provision for placing distressed companies under the temporary management or control of an administrator[4]. Secondly, the law makes it possible for creditor rights to be frozen for a period[5]. Also, the law provides for a restructuring plan which requires reordering and rearranging the affairs of the company in order to make it profitable for both creditors and other stakeholders such as employees[6]. 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.The Administrator

The introduction of the Administrator is one of the key and most significant introduction to the law. The administrator is an insolvency practitioner into whose hands temporary management of the company is placed. The administrator may be appointed by a company[7], a liquidator where a company is in liquidation[8], a person holding a charge over the whole or substantially the whole of the property of the company or the receiver appointed by that person[9], or the court[10]. The administrator walks into the company for a very short period. Her 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 permits the administrator  to have control over the business, property and affairs of the company[11]. She sets out to investigate the affairs of the company and find ways of salvaging the business of the company[12]. He may decide to shave off non-profitable aspects of a business[13]. In sum, he is at the helm of affairs for a brief period to enable a turnaround[14]. The administrator also has the power to take decisions concerning legal proceedings involving the company. As a result, she may begin, continue, discontinue, and defend legal proceedings[15].

4.Cohabitation between the directors and administrators

An interesting character of administration under the Act has to do with the relationship between the administrator and the directors of the company. The administrator walks 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. Directors determine the direction in which the company moves. In ordinary times, directors 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 powers of directors are 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[16]. Also, the law gives the administrator the power to start and defend any legal action in the name of the company.

[1] Section 1(a)

[2] Section 1(b)

[3] Section 84(7)

[4] Section 1(b)

[5] Section 1(c)

[6] Section 1(d)

[7] Section 3(5)(a)

[8] Section 3(5)(b)

[9] Section 3(5)(c)

[10] Section 3(5)(d)

[11] Section 10(1)(a)

[12] Section 10(1)(b)

[13] Section 10(1)(c)

[14] Section 10(1)(d)

[15] Section 11(1)(a)

[16] Section 12

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