Insolvency 2021

Last Updated November 23, 2021

Ghana

Law and Practice

Authors



Addison Bright Sloane is a full-service premium business law firm based in Ghana with industry knowledge spanning all key industry sectors, both in Ghana and the rest of Africa. The firm's managing partner has practised as a partner in a global law firm in the City of London. Addison Bright Sloane's lawyers advise on a wide variety of matters, including insolvency and restructuring, IT outsourcing, business process outsourcing, cloud computing, litigation, alternative dispute resolution, and arbitration. Clients range from SMEs to multinationals – including software companies, banks and financial institutions – as well as government agencies and other public sector organisations and SMEs.

The restructuring market in Ghana has made significant strides within the last three years, particularly in respect of regulatory and legal changes.

In August 2019, the Bank of Ghana (BoG) announced that it had undertaken a fresh round of closures of financial institutions, revoking the licences of 23 savings and loans companies that had been operating while insolvent. Since the launch of the clean-up of the financial sector, the BoG has revoked the licences of around 420 institutions, including banks, micro-finance institutions, finance houses and non-bank financial institutions. Some banks were placed in receivership while others were selected for a merger with other banks.

The underlying causes of the shutdown of these institutions was that most of the institutions faced severe challenges with solvency, liquidity and asset quality. Some of these challenges are a direct result of the slow pace of economic growth in Ghana, the lack of effective supervision by the regulatory body and bad management corporate practices prevalent in these affected institutions. The impact of the COVID-19 pandemic on businesses cannot be underestimated, with the pandemic placing many companies in financial distress, making them unable to meet their liabilities. The BoG’s mid-year report on Banking Sector Developments for 2021 noted that non-performing loan (NPL) ratios inched up from 15.7% in 2020 to 17% by June 2021. The increase in NPLs is due to the pandemic-induced loan repayment challenges, sluggish credit growth and bank-specific loan repayment challenges.

The most notable development in corporate restructuring in Ghana is the enactment of the Corporate Insolvency and Restructuring Act, 2020 (Act 1015). The new law repeals the old Bodies Corporate (Official Liquidations) Act, 1963 (Act 180). Its aims include facilitating the administration of the business, property and affairs of a distressed company in a manner that provides an opportunity for the company to continue in existence as a going concern, as much as possible.

The legislative and legal framework governing financial restructuring, insolvency and liquidation in Ghana is made up of the following Acts:

  • the Corporate Insolvency and Restructuring Act, 2020 (Act 1015);
  • the Companies Act, 2019 (Act 992); and
  • the Insolvency Act, 2006 (Act 708).

The Corporate Insolvency and Restructuring Act, 2020 (Act 1015)

The provisions of Act 1015 apply to all companies except those carrying on the business of banking, insurance or any other business that is subject to special legislation, unless the special legislation does not provide for a rescue provision.

The Act is categorised into four main parts:

  • administration and restructuring;
  • official liquidation;
  • insolvency services; and
  • cross-border insolvency.

The highlights of the new Act include the provision of administration or restructuring as an essential tool for companies in distress to continue in existence as a going concern, to provide temporary management of the affairs, business and property of a distressed company, and to place a temporary freeze on the rights of creditors and claimants against the company. These remedies were previously not available under the Bodies Corporate (Official Liquidations) Act 1963 (Act 183), which only permitted the initiation of winding-up procedures once a company’s liabilities exceeded its assets or it become insolvent.

The new Act introduces an administrative process to be applied in situations where a company is insolvent or is likely to be insolvent, or where the company has a negative net worth. A company is insolvent if it is unable to pay its debts or meet its obligations, or if it is determined that the company is likely to be insolvent. A company has a negative net worth where its total liabilities, including contingent or prospective liabilities, exceed the total assets of the company. This provision was introduced to afford a distressed company protection from threats of liquidation from creditors, and enables it to reorganise its affairs to return to solvency, if at all possible.

The primary responsibilities of an appointed administrator are to have control of the business and property of the company, to investigate the affairs of the company and to explore how to salvage the business of the company in the best interests of the creditors, employees and shareholders. To facilitate these stated objectives, the new law empowers the administrator to begin, continue, discontinue and defend legal proceedings concerning the company, and gives it the power to carry on the business of the company and to appoint any other person to act on behalf of the company. In this way, the administrator acts as an agent of the company.

Where an administrator is appointed, he or she must convene a meeting of creditors of the company to determine whether the company should enter or execute a restructuring agreement. Once the decision to restructure is agreed by the creditors, the company executes a restructuring agreement with the administrator, who is now designated as the restructuring officer. The restructuring officer has the responsibility for implementing the restructuring agreement and providing appropriate notifications to the creditors and the Registrar of Companies.

The restructuring agreement provides for the terms and conditions of the restructured debt, including payment to creditors. The terms of the agreement would typically set out the restructured debt, the nature of the moratorium period, and payment plans.

Under the new Act, the Registrar of Companies is required to create the Insolvency Services Division as a division of the Office of the Registrar of Companies. Amongst other functions, the Insolvency Services Division shall regulate insolvency practice, oversee the administration, restructuring and insolvency proceedings of companies, and make recommendations to the Registrar on any changes deemed necessary to the relevant laws on insolvency within Ghana.

Act 1015 provides mechanisms for cross-border insolvency proceedings, including rules court and procedures (to be introduced). The main purpose of this provision is to achieve the following:

  • promote co-operation between a court and other competent authorities of Ghana and foreign states involved in cases of cross-border insolvency;
  • provide legal certainty for trade and investment;
  • provide for the fair and efficient administration of cross-border insolvencies that protect the interests of creditors and debtors and other interested persons;
  • provide protection over the value of assets of a debtor; and
  • protect and preserve investment and employment.

The scope of application of these mechanisms for cross-border insolvency proceedings is to assist when required, as follows:

  • in Ghana by a foreign country or a foreign representative in connection with a foreign proceeding;
  • by a Ghanaian Court or a Ghanaian representative in a foreign state in connection with an insolvency proceeding under this Act;
  • in respect of a foreign insolvency proceeding and a proceeding under this Act, relating to the same company that is taking place concurrently; or
  • by a creditor or other interested person of a foreign state in commencing proceedings or requesting the participation of proceedings commenced in Ghana in connection with the insolvency proceedings of a company under the Act.

The Companies Act, 2019 (Act 992)

Act 992 also contains provisions on insolvency, liquidation, receivership, statutory management and bankruptcy. It provides for rescue tools for the turnaround of distressed companies, including voluntary variation of the rights of shareholders' and creditors' arrangements. This entails the reorganisation of shares of a company by consolidating the shares of different classes or dividing shares into different classes. An arrangement of a company is largely limited to changes in the rights and liabilities of members of a company. Other tools include the use of a compromise agreement between a distressed company and its creditors to cancel all or part of the debts of the company, vary the rights of creditors or alter the constitution of the company. Act 992 also allows for the appointment of a receiver or a manager over a company in distress, and provides for private liquidation (ie, voluntary liquidation) and involuntary liquidation.

The Insolvency Act, 2006 (Act 708)

Essentially, Act 708 provides for the protection of creditors and debtors in insolvency proceedings and for related matters such as the work of the Official Trustee appointed under the Act.

Insolvency proceedings in respect of a debtor shall be initiated by the presentation of a petition to the Official Trustee in the prescribed manner, accompanied by the prescribed fee, for the making of a protection order, enabling the debtor's assets to be conserved for the protection of the creditors until the affairs of the debtor have been considered by the High Court.

It is important to note that Act 1015 did not repeal Act 708. However, processes by which creditors and debtors can protect themselves in the event of insolvency as provided in Act 708 are provided within the meaning of Act 1015. Notwithstanding the applicability of Act 708, most insolvency proceedings are more likely than not to rely on Act 1015 for relief as its provisions are less harsh on debtors and creditors when distress is on the horizon.

The Ghanaian insolvency regime recognises voluntary and involuntary liquidation under Act 992 and Act 1015, as well as voluntary administration or restructuring. Under Act 1015, a company is placed in administration or restructuring if it is unable to pay its debt or obligations, or if it has a negative net worth.

Administration processes commence when directors of the company deem the company to be insolvent or likely to become insolvent. An administrator is then appointed to salvage the affairs of the company. A company is put into restructuring when, at a watershed meeting convened by the administrator, a restructuring agreement is adopted or approved by creditors or a class of creditors holding at least 51% of the value of the debt owed.

Voluntary liquidation is provided under Act 992. A company undergoes voluntary liquidation if it resolves by a special resolution to be wound up by voluntary liquidation. Within five weeks of the resolution, the directors of the company must swear an affidavit declaring that, after an inquiry into the affairs of the company, they deem the company to be capable of paying its debts and liabilities within 12 months from the commencement date of the winding-up.

Involuntary liquidation, on the other hand, is initiated solely by the creditors of a company, usually against the wishes of the company, when a company is unable to meet its liabilities. A company is deemed unable to pay its debts if a creditor has served a written demand on the company to pay its debt and the company has neglected or failed to do so for 30 days after the demand. A company may also undergo involuntary liquidation if the execution of a judgment or court order is unfulfilled, or if it is proven to the Registrar of Companies that the company is unable to pay its debts.

There is currently no obligation to commence formal insolvency proceedings within a specified time. There are also no penalties for directors or officers of a company if the company does not commence insolvency proceedings. However, a company in distress must undergo either administration or restructuring if it desires to revamp its business. Similarly, an insolvent company must be liquidated and wound up, with all claims and creditors settled accordingly.

Creditors, members or a contributory of a company can commence involuntary or official liquidation proceedings against a company. Creditors commence such proceedings when a company fails or neglects to meet its debt obligations due to the creditor after several demands on the company. A creditor may also commence proceedings if the execution or any process issued on a judgment or order of the court in favour of the creditor is returned unsatisfied in whole or in part. Proof of a company's insolvency is enough to warrant a creditor initiating proceedings against it.

Insolvency is required to commenced either by voluntary/private liquidation proceedings or by involuntary/official liquidation proceedings.

The Banks and Specialised Deposit-Taking Institutions Act (Act 930) regulates the insolvency regime and statutory restructuring applicable to banks and other credit institutions. Where a bank or specialised deposit-taking institution is declared insolvent by the BoG, its licence is revoked and a receiver is appointed over the bank.

Similarly, the BoG may appoint an official administrator over a bank or specialised deposit-taking institutions in Ghana when the BoG determines that the institution is engaged in any unsafe or unsound practice that could potentially weaken its condition, jeopardise the interest of depositors or dissipate the assets of the bank. A bank can also be placed under administration if its capital adequacy ratio or paid-up capital falls below 50% of the minimum required by law.

Currently, the option to choose or explore consensual and non-judicial restructuring processes is not apparent. There is a lack of statistics and data to ascertain the preferences of restructuring market participants for informal restructuring processes over statutory processes. However, a company is not precluded from resorting to an informal means of restructuring its affairs; the statutory processes as provided under the legal regime are adequate to handle administration or restructuring matters when they occur.

In addition, banks and other credit facilities in Ghana are generally supportive of companies experiencing financial challenges. It is not uncommon for banks to restructure debt or loan facilities with borrower companies to give them time to reorganise their affairs and enable them to meet their liabilities.

In 2020, as a means of mitigating the financial repercussions of the pandemic on some businesses, some banks within the country granted loan moratoriums and repayment holidays to customers or companies in default of loan repayments and those severely impacted by the pandemic, especially companies in the tourism and art industry.

The current legal regime does not mandate a consensual restructuring negotiation before the commencement of a formal statutory process.

When a company is placed under administration, it offers a rest period against its creditors and other claimants in that a temporary freeze is placed on the company’s assets to shield them from being repossessed by creditors. In Ghana, a restructuring agreement executed between an administrator and a company in administration is binding on all parties, including secured creditors regarding claims. The import of a restructuring agreement in insolvency proceedings is similar to a consensual standstill. Act 1015 states that a secured creditor shall not realise or enforce its secured charge unless the restructuring agreement expressly allows them to do so. Furthermore, any proposition on whether or not to waive a default of a credit agreement is included in a restructuring agreement, which creditors may adopt at a watershed meeting.

During a restructuring process, any undertakings by the debtor company must be contained in the restructuring agreement, which must be agreed upon by the creditors and the company.

Act 1015 has laid out certain mechanisms to protect creditors and ensure their active participation in insolvency proceedings. Under the Act, creditors of the company have a right to establish a committee of creditors that will be accountable to the entire body of creditors. Such committee shall have no more than five members.

Under Act 1015, a company’s debts are ranked in classes and classified based on the type of debt. A company’s debts are ranked in order of priority from Class A debts to Class H debts. Class A debts are in respect of post-commencement financing and take priority over all other creditor claims, both secured and preferential class debts. Class A debts are expected to be paid in full, whilst Class H debts are debts in respect of ordinary shareholders.

Act 1015 provides for post-commencement financing, which means any financing obtained by the company during administration or restructuring proceedings to enable the distressed company to carry on its activities, including trade financing and venture capital. Post-commencement financing usually consists of loans and advancements from banks or other credit facilities. Another means of financing the business is through new or existing shareholders purchasing shares in the company. However, the creation of new shares and transfers of shares must be done with the consent of the administrator or restructuring officer. Another alternative source of funding may be from the disposal of assets of the company.

Funds obtained through post-commencement financing are secured to the lender by utilising an asset of the company that is not encumbered. Post-commencement financings are also ranked as Class A priority debts, so take priority over all other creditor claims, including those of secured and preferential classes, and shall be paid in full.

Under Act 992 and Act 1015, creditors of a company are required to exercise and maintain the utmost good faith in their dealings with the company during the restructuring and insolvency proceedings. Under Act 1015, a creditor is bound by the executed restructuring agreement and is prohibited from doing anything inconsistent with the agreement. A secured creditor who is also bound by the restructuring agreement shall not realise or enforce the secured charge, except where the agreement allows for the realisation of the secured charge or by an order of the court.

Under Ghana’s insolvency laws, there is the possibility for dissenting creditors to be bound by the majority of creditors of all other classes. This is known as a cross-class cram-down. Under Act 992, where an arrangement or compromise is proposed, it becomes binding on the company if 75% in value of each class of members and 75% in value of each class of creditors concerned approve the arrangement or compromise. Dissenting or minority creditors affected by the majority decision may apply to the court to object to the arrangement or compromise proposition. Similarly, under Act 1015, it is possible to bind dissenting creditors during restructuring proceedings. Where 51% of a class of creditors pass a resolution for the execution of a restructuring agreement, such an agreement is binding on all other classes of creditors of the company.

Creditors may take security/liens over assets of the company that are not encumbered. Security/lien interests are typically granted by way of contract, deed, debentures, mortgage or other forms of acceptable security document. A creditor may create a floating charge or a fixed charge over the whole or a specified part of the asset.

The rights and remedies available to secure creditors include the right to enforce their security. Act 1015 enables secured creditors affected by the appointment of an administrator to apply to the court for leave to enforce their security. A secured creditor may also apply to the court after the execution of the restructuring agreement for an order to realise or enforce a secured charge. In addition, secured creditors are given priority over unsecured creditors, who must wait until all other costs and creditors have been paid before they receive any of the money they are owed from the proceeds of the liquidation of the company’s assets. Secured creditors also have the right to petition the Registrar of Companies or the court for an order to wind-up the affairs of a company if said company is unable to pay its debt obligations when they fall due.

Secured creditors are not empowered by law in Ghana to initiate voluntary proceedings, nor to disrupt or block a formal voluntary or involuntary process. Secure creditors' rights, remedies and liens are subject to automatic stays or deferrals in formal or informal proceedings.

Secured creditors have procedural protection in statutory insolvency and restructuring proceedings. Act 1015 enables secured creditors to apply to the court for leave to enforce their security if they are of the view that the appointment of an administrator would cause them serious prejudice. In liquidation proceedings, the liquidator is required to submit a progress report to the secured creditors, to ensure that secured creditors have knowledge of the proceedings and are given the opportunity for their views to be considered on the realisation of assets of the company by the liquidator. The law also protects secured creditors from fraudulent activities of the company that are deemed to affect the rights of secured creditors. Under Act 1015, secured creditors may apply to the court in the course of winding-up proceedings where there is credible suspicion that the manner by which the business of the company was carried out was with intent to defraud its creditors. In the event of such an application, the court may order the officers of the company who knowingly carried on the business of the company in a fraudulent manner personally responsible without limitation for the debts or liabilities of the company.

Under Act 1015, rights are classified and prioritised as follows:

  • Class A is a debt in respect of post-commencement financing and takes priority over all other creditor claims, including those of secured and preferential classes, and shall be paid in full;
  • Class B is a preferential debt that ranks equally between other preferential debts against the estate of the company and is paid in full unless the remainder of the estate is insufficient to meet the preferential debt, in which case the preferential debt shall be paid in equal proportions;
  • Class C is a secured debt and secured by a fixed charge against an asset of the company;
  • Class D is a debt or a part of a debt that does not fall within Class E and is, or was, owed to a director or former director of the company within the year preceding the commencement of winding-up;
  • Class E is a debt or a part of a debt that satisfies any of the following conditions:
    1. excess benefit restored to the liquidator; or
    2. excess interest that is a portion of a debt which, whether it is stated to do so or not, represents interests at a rate in excess of 5% above the Bank of Ghana policy rate;
  • Class F is an unsecured debt that is not secured by a charge of any kind over an asset of the company and does not fall into any of the other classes;
  • Class G is a debt in respect of preference shareholders; and
  • Class H is a debt in respect of ordinary shareholders.

The rights of unsecured trade creditors are generally reserved or kept whole during a restructuring process in Ghana. However, such rights are subject to the rights of secured creditors where the enforcement of liens or security over any asset of the company is being contemplated.

In a restructuring and insolvency context, unsecured creditors possess some rights and remedies, including a right to object to the appointment of an administrator or liquidator and to object to the sale of assets as an interested party.

They also have a right to petition the Registrar of Companies and the court for the winding-up of a company that has failed to meet its debt obligations. Unsecured creditors can exercise their right as other creditors to terminate a restructuring agreement where an information breach has occurred and/or where a material contravention of the agreement by a person bound by the agreement has occurred.

Pre-judgment attachment remedies are available under Ghanaian law. In Ghana, a creditor may apply to the court for a Mareva injunction or an interim injunction for the preservation of property pending the final determination of the suit. An order for a Mareva injunction is to prevent a genuine risk that a debtor would dissipate or distribute its assets before legal proceedings are initiated or before the trial is determined. It is intended to freeze or preserve the assets of a debtor for easy recovery for a creditor. Such orders, last for a specified duration and a repeat application can be made to the court where time lapses.

The Lenders and Borrowers Act 2020 (Act 1052) also provides for a mechanism that facilitates the realisation of a creditor’s security upon default by the borrower company without a court judgment or order. However, it is a requirement that the creditor must have a prior registered collateral security with the Collateral Registry, and a notice of default must be served on the borrower before the realisation of the creditor’s security.

Priority claims exist in restructuring and insolvency proceedings in Ghana. Under Act 1015, the priority of debts is classified and ranked in classes. New money claims or post-commencement financing debts are ranked as Class A debts and have priority over all other creditor claims, including secured credit claims. The other categories of debts that have priority over secured credit claims are office-holder fees, tax claims and remuneration owed to employees for employment during the whole or a part of the four months preceding the date of commencement of administration.

Under Act 930, assets realised in the liquidation process and secured claims have priority over all other claims.

Under Act 1015, a company may be placed in administration, leading to a restructuring agreement where it is deemed that the company is insolvent as a result of its failure to pay its debts or current obligations. This determination does not take into account whether the company's total assets exceed its total liabilities.

The process of financial restructuring/reorganisation under Act 1015 covers three stages:

  • the first stage deals with the appointment of an administrator;
  • the second stage focuses on the conduct of administration; and
  • the last stage deals with the post-administration or restructuring stage and the implementation of the restructuring agreement.

Once an administration or restructuring procedure commences, the following would apply:

  • the business of the company is suspended, except where the transaction of the company during this period of administration is for the beneficial administration of the company;
  • there is a temporary freeze on legal proceedings and enforcement processes against the company, except by orders of the court;
  • the directors of the company are precluded from exercising powers and functions or managing the affairs of the company, except with the prior written consent of the administrator;
  • the administrator assumes control of the business, property and affairs of the company;
  • transactions or dealings affecting the property of the company would be void, unless they are entered into by or with the prior written consent of the administrator;
  • the transfer of shares or alteration of the rights or liabilities of a shareholder are not permissible unless consented to by the administrator – where the administrator refuses consent, the court decides either way; and
  • the owner or lessor of property may not be able to take possession or otherwise recover the property that is in the possession of or in use by the company, except with permission from either the administrator or the court.

Creditors have the power to appoint a replacement administrator where a company is undergoing administration. They may also remove an administrator by passing a resolution. The creditors are vested with the power to approve the remuneration of the administrator.

The administrator is required to call the first meeting of creditors and also the “watershed meeting” and other meetings of creditors that are required by the committee of creditors. The first meeting of creditors shall consider the establishment of a committee of creditors where necessary.

The principal functions of the committee of creditors include:

  • advising the administrator about matters that relate to the administration;
  • receiving and considering reports from the administrator; and
  • approving the remuneration and other terms of engagement of the administrator.

The administrator reports to the committee of creditors as and when reasonably required to do so by the committee.

Under Act 1015, at a watershed meeting the creditors of the company may resolve that the company executes a restructuring agreement. This resolution will be carried if it is supported by at least 51% of the creditors voting.

A restructuring agreement binds all creditors, including secured creditors/dissenting creditors regarding claims that arise on or before the day specified in the agreement and/or in accordance with the terms stated in the agreement. However, a dissatisfied creditor may apply to the court for an appropriate order.

Under Act 992, the court may approve a restructuring arrangement or compromise proposal between the company (or the administrator, in cases of administration) and the creditors, or any class of the creditors, or members or any class of members of the company, where a majority in number, representing 75% in value of each class of members concerned and 75% in value of each class of creditors concerned, approve the arrangement or compromise. The court may entertain an application from dissenting creditors and order either way upon hearing the application whether or not to confirm the arrangement or compromise with or without modification. The order of the court becomes binding on the company, its members and all its creditors, and the validity thereof is not impeachable in any subsequent proceedings.

Ghanaian law is silent on the treatment of trading or transferring claims against a company undergoing restructuring.

Restructuring procedures may be adopted to reorganise a distressed company in a manner that provides an opportunity for the company to continue in existence as much as possible, and also to help in the development and implementation of a restructuring plan, including administrative measures, which ultimately results in a better return for creditors and shareholders of the company.

Generally, any transaction or dealing that affects the assets of the company, including its usage, must be sanctioned by the administrator of the distressed company.

The administrator of the company is vested with the power to execute agreements disposing of any assets or properties of the company. The purchaser of said assets acquires good title thereto, free from encumbrances. Restructuring proceeding sales and similar transactions that have been pre-negotiated can only be effectuated with the consent and approval of the administrator.

A secured creditor may only enforce the security against the company during the administration by making an application for leave at the High Court to do so.

The law provides for post-commencement financing, which may include trade financing and venture capital. The new money may be secured to the lender by utilising an asset of the company that is not encumbered.

The appointed administrator is empowered to investigate the affairs of the company, which includes ascertaining the value of claims and those creditors with an economic interest in the company.

A restructuring agreement must not be oppressive or unfairly prejudicial to one or more creditors. Where a creditor feels disgruntled about the restructuring agreement on the basis that it is unfair or inequitable, he or she may apply to the court for relief.

A restructuring officer has the general power to reject contract claims on the company for valid reason. However, a party that is dissatisfied with the decision of the restructuring officer may apply to court for a determination.

The relevant legislation (ie, Act 1015) does not provide for the release of non-debtor parties and their ensuing liabilities during the administration of a distressed company.

Creditors can exercise the right of set-off under the following conditions:

  • if the set-off involves pre-application debt obligations by the creditor and debtor company;
  • if the debtor company was not rendered insolvent immediately after the set-off; and
  • if the transaction was in the ordinary course of business.

Creditors can exercise rights of netting where the financial contract between the creditor and the insolvent company contains provisions of a netting agreement. In such circumstances, the netting agreement is enforceable in accordance with the terms of the contract, including enforcement against an insolvent party and, where applicable, enforcement against a guarantor or any other person who provided security for the insolvent party.

An enforcement shall not be stayed, avoided or limited by:

  • an action of the liquidator;
  • any other enactment relating to bankruptcy, reorganisation, composition with creditor, receivership or any other insolvency proceedings to which the insolvent party may be subject; or
  • any other enactment that may be applicable to the insolvent party.       

If a company fails to observe the terms of an agreed restructuring plan, the restructuring officer is duty bound to apply to the court for leave to convert the administration of the company into official liquidation.

The restructuring officer would apply to the court for an order in relation to a creditor who fails to observe the terms of the restructuring agreement. The court will issue an order that it considers appropriate, having regard to all the circumstances for the purposes of giving effect to the restructuring agreement.

An existing equity owner may receive or retain any ownership or property to the extent provided in the restructuring agreement.

Administration

This process enables the rehabilitation of a company that is financially distressed. A company shall be placed in administration or restructuring if it has a negative net worth or is unable to pay its debts or current obligations as they fall due, even if the total assets of the company exceed its total liabilities. Upon the commencement of administration, the company shall suspend its business, unless it is required to continue to do business for its beneficial administration.

The process is commenced when an administrator is appointed, either by the company or by the liquidator if the company is in liquidation. The court or a person holding a charge over the whole or substantially the whole of the property of the company can also appoint the administrator.

While a distressed company is undergoing administration, there is a temporary freeze on the rights of creditors and other claimants against it.

Administration does not result in the removal of the directors of the company from office. However, the directors of a company that is in administration shall not exercise any power, perform any function nor be responsible for managing the affairs of the company, except with the prior written approval of the administrator or as expressly provided for under Act 1015.

The principal role of an administrator is to have control of the business, property and affairs of the company, with the objective of salvaging the business of the company in the interests of creditors, employees and shareholders. All transactions or dealings affecting the company must be approved by the administrator.

The administrator is mandated by law to furnish the creditors with a report on the business, property affairs and financial circumstances of the company, and to state whether or not they believe it is in the interest of the creditors to execute a restructuring agreement, for the administration to end or for the company to be placed in liquidation.

Administration provides an opportunity for a distressed company to be rescued and brought back to the path of profitability, if reasonably possible.

Voluntary and Involuntary Liquidation

Under Act 992, a body corporate may be wound up voluntarily. In order to commence this process, the company must demonstrate that it is able to pay its debts and liabilities in full within a period of not more than 12 months from the commencement of the winding-up.

The procedure for voluntary liquidation is as follows:

  • there must be a declaration of solvency by the directors through an affidavit at a meeting of the directors;
  • a members’ special resolution must be passed within five weeks of the making of the declaration of solvency;
  • the name of the private liquidator must be stated in the special resolution, and the proposed liquidator must give prior consent to their appointment, in writing;
  • the special resolution must be sent to the Registrar of Companies to be registered and published in the Companies Bulletin, within 14 days of being passed; and
  • the appointed liquidator becomes an officer of the company by virtue of the appointment.

The involuntary liquidation procedure allows for the winding-up of a body corporate in a manner that results in the maximisation of the realisation of the estate of the insolvent company and the distribution of the estate, having regard to the equitable treatment of stakeholders in the company.

The official winding-up of a company commences on the passing of a resolution for the winding-up of the company, or on the making of a winding-up order.

Official liquidation can be initiated through the following modes:

  • special resolution of the company;
  • petition addressed to the Registrar of Companies;
  • petition to court;
  • conversion from a private liquidation; or
  • conversion from administration or restructuring of the company.

Please see 5.1 Differing Rights and Priorities regarding the classification of debts.

Liquidation ultimately results in the winding-up of the company and is preferable where the underlying business is not viable and the assets of the company have to be realised so that creditors/shareholders can be repaid.

The liquidator negotiates, executes and authorises the sale of assets or the business during such proceedings. A bona fide purchaser acquires good title in a sale of assets during liquidation, and that title is "free and clear" of claims and liabilities asserted against the company.

Act 1015 is silent on whether secured or unsecured creditors may credit bid for company assets and act as a stalking horse in a sale process. Generally, a creditor is bound to act in a bona fide manner in its relationship with the company and not in a manner that is adverse to the interest of the company, its members or creditors. It may be possible to effectuate pre-negotiated sales transactions following the commencement of liquidation, subject to the approval by the liquidator.

During an official liquidation, the creditors have the right to set up a committee of creditors, which would be accountable to the entire body of creditors. Such committee shall have no more than five members. The creditors shall determine the conditions for the appointment of the members of the committee. The expenses incurred in the performance of the duties of the committee shall be considered as part of the cost of the liquidation.

The committee approves transactions that substantially affect the interest of the committee, including payments out of assets, dispositions and contracts.

Act 1015 empowers Ghanaian courts to recognise cross-border restructuring and insolvency proceedings. A foreign representative who is the official liquidator appointed by the foreign country may apply to a court in Ghana for an order of recognition of foreign proceedings. In addition, a foreign representative can apply for reliefs such as injunctions and orders for the preservation of a debtor’s assets in Ghana.

The basis for such recognition is to provide effective mechanisms for cross-border insolvency proceedings where assistance is required:

  • in Ghana by a foreign country or a foreign representative in connection with a foreign proceedings;
  • by a Ghanaian court or a Ghanaian representative in a foreign state in connection with insolvency proceedings;
  • in respect of a foreign insolvency proceeding and a proceeding under the laws of Ghana relating to the same company, which is taking place concurrently; or
  • by a creditor or other interested person of a foreign state in commencing proceedings or requesting participation in proceedings commenced in Ghana in connection with the insolvency proceedings of a company under the laws of Ghana.

The courts in Ghana are required by law to co-operate to the maximum extent possible with the foreign court or foreign representatives concerned, either directly or through an insolvency practitioner.

Having recognised foreign proceedings, a Ghanaian court is empowered to communicate directly with foreign courts or foreign representatives, or to request information or assistance directly from them.

Where foreign proceedings and Ghanaian insolvency proceedings are taking place concurrently regarding the same debtor, the court shall seek co-operation and co-ordination.

After recognition by the court of foreign main proceedings, a Ghana insolvency proceeding may be commenced only if the debtor has assets in Ghana.

The Ghana insolvency proceeding shall be restricted to the assets of the debtor that are located in Ghana and to the extent necessary to implement co-operation and co-ordination.

If there is more than one foreign proceeding regarding the same debtor, the court shall seek co-operation and co-ordination and apply the following rules:

  • any relief granted to a representative of a foreign non-main proceeding after the recognition of a foreign main proceeding shall be consistent with the foreign main proceedings;
  • if a foreign main proceeding is recognised, or after the filing of an application for recognition thereof, the court shall review any relief and modify or terminate such if it is inconsistent with the foreign main proceedings; and
  • if another foreign non-main proceeding is recognised after the recognition of an initial foreign non-main proceeding, the Court shall grant, modify or terminate the relief for the purpose of facilitating co-ordination of the proceedings.

From the foregoing rules, the jurisdiction, decisions, rulings or laws of the foreign main proceedings are deemed paramount in Ghana. Act 1015 provides that, subject to the Rules of Court in Ghana, where a foreign court has been recognised as having foreign main proceedings, any commencement or continuation of individual actions or individual proceedings concerning the assets, rights, obligations or liabilities of the debtor is stayed, as is execution against the assets of the debtor, and the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

A foreign creditor in Ghana is treated no differently in proceedings; they have the same rights as anyone else to commence and participate in proceedings.

Ghanaian courts recognise the judgments of foreign countries that have a reciprocity agreement with Ghana. However, those foreign judgments must emanate from a superior court and must be final and conclusive between the parties, and the judgments must be primarily about payments of money.

An application for the registration of a foreign judgment must be made within six years of the entry of that foreign judgment. A notice for registration must be served on the judgment debtor. The judgment creditor can enforcement judgment by way of a writ of fieri facias, garnishee proceedings, a charging order, attachment and sale of immovable property, an order for committal to prison or a writ of sequestration.

Ghanaian courts would not recognise a foreign judgment that is deemed to have been obtained by fraud or be against public policy.

Administrator

An administrator is appointed during the administration of a company. The appointment may be made by a company or by the court. The BoG may also appoint an administrator for a deposit-taking institution.

Receiver

A receiver may be appointed by the Registrar General or by the court.

Official Trustee

An Official Trustee is appointed in insolvency proceedings where a debtor is seeking a protection order to enable the debtor’s assets to be conserved for the protection of the creditors until the affairs of the debtor have been considered by the High Court. In addition, they can bring bankruptcy proceedings against a debtor before he/she is discharged from an insolvency order. An Official Trustee is appointed by the President of Ghana.

Liquidator

A company can appoint a liquidator to wind it up by way of resolution. In addition, a court or the creditors can appoint a liquidator, and such an appointee would be under the direction of the appointing party.

Administrator

The administrator’s role is to take control of and manage the affairs of the company, investigate the affairs of the company and take steps to salvage the company. They are responsible for defending, commencing and/or discontinuing legal proceedings.

The administrator appointed by the court owes a fiduciary duty to the court and shall be an officer of the court. An administrator appointed by the company shall owe a fiduciary duty to the company. An administrator appointed by the BoG shall act in accordance with the instructions and guidance given by the BoG at any time and shall be accountable only to the BoG.

Receiver

The role of a receiver appointed by the Registrar of Companies is to take possession of and protect the property of a company in receivership, receive rents and profits, discharge the outgoings in respect of the property and realise the security of those on whose behalf he/she was appointed.

A receiver is required to exercise their powers with reasonable regard to the interest of secured creditors, the company and unsecured creditors when taking possession to protect the property of the company. A receiver appointed by the court is an officer of the court and is under the directions of the court.

A receiver appointed by the BoG is required to take possession and control of the assets and liabilities of the distressed bank or specialised deposit-taking institution and report to the BoG.

Official Trustee

An Official Trustee’s role is to receive petitions from creditors and debtors in respect of the conservation of individual assets of the debtor by way of a protection order. They are required to take possession of the property that has passed to them by virtue of an insolvency order. Also, the Trustee shall make arrangements for the continuance of the business, if necessary. In addition, they can bring bankruptcy proceedings against a debtor before he/she is discharged from an insolvency order.

The Trustee is required to submit an annual report to Parliament, and can only be removed from office by the President.

Liquidator

A liquidator's role is to report to the creditors at intervals of not more than six months on the progress of the liquidation, consult the creditors on matters arising in proceedings that substantially affect their interest, and also give effect to the views expressed by the creditors in relation to the realisation and distribution of assets.

A liquidator appointed for the purposes of a private liquidation has a fiduciary relationship to the company, and reports to the company at a general meeting.

In an official winding-up, the liquidator has a fiduciary relationship to the company as if he or she was a director of the company.

Administrator

Under Act 1015, an administrator may be appointed by the company, by the liquidator (where a company is in liquidation), by a person holding a charge over the whole or substantially the whole of the property of the company or by the receiver appointed by that person or the court.

Where a company is already in administration, an administrator may be appointed only by:

  • the creditors, as a replacement administrator for an administrator that the creditors have removed; or
  • the appointer of the first administrator, if that administrator has died, resigned or become disqualified.

A person shall not be appointed as an administrator unless:

  • they have consented in writing and have not withdrawn their consent at the time of appointment; and
  • the consent of that person has been filed with the Registrar.

Exercising its powers under Act 930, the BoG may appoint an administrator.

An administrator may be removed by the court upon the application of a creditor, the liquidator of the company or the Registrar, by a resolution of creditors passed at the first meeting of the creditors.

An administrator shall be a natural person who is a qualified insolvency practitioner. To be qualified as an insolvency practitioner, the person must be an accountant, a lawyer or a banker in good standing with a professional group, and must be certified as an insolvency and restructuring practitioner.

Under Act 1015, the creditors of a company under administration are disqualified from acting as an administrator, as are persons who have been a shareholder, director, auditor or receiver of the company under liquidation or of any associated company within the previous two years.

Receiver

The courts or the Registrar General may appoint a receiver to take control of the assets and liabilities of insolvent companies. After it has determined that a deposit-taking institution is insolvent or likely to be insolvent, the BoG may revoke the licence of such institution and appoint a receiver to take over its assets and liabilities.

The BoG may remove the receiver from office and appoint a replacement. A receiver appointed by the BoG must be a person who holds office in the private sector or an officer of the BoG, and must meet the requirement prescribed by the BoG.

Directors and auditors are prohibited from being appointed receivers.

Trustees

The President of Ghana appoints the Official Trustee and may remove him/her. The Official Trustee interacts with management through meetings to confirm proof of debt. The Official Trustee must give each creditor of the company a copy of the debtor’s statement of affairs and the proposal for an arrangement with creditors. To qualify as the Official Trustee, a person must be a lawyer with a minimum of ten years' experience.

Liquidator

A liquidator is appointed for a company in administration:

  • by the court;
  • by resolution of the creditors at a watershed meeting; or
  • at a meeting convened to consider the termination of a restructuring agreement.

The liquidator shall lodge the following with the Registrar:

  • a copy of the administrator's report that accompanied the notice to creditors of the watershed meeting; and
  • a further report that updates the administrator's report regarding any matters of which the administrator is aware that are not referred to in the administrator's report or have changed since that report, and that affect the financial position of the company.

Where there is no administrator or restructuring officer to act when the company is placed in liquidation, the directors of the company at the date of liquidation shall take the steps described in this section and act in the stead of the administrator or restructuring officer.

In an official winding-up, the liquidator has a fiduciary relationship with the company as if he or she was a director of the company.

Upon an application of a member of the company or of the Registrar, the court may also remove a liquidator and appoint another.

Directors and auditors of the company are disqualified from being appointed liquidators. A person shall not be appointed a liquidator if that person is not a qualified insolvency practitioner with the requisite membership of the Institute of Chartered Accountants, the Ghana Bar Association or the Chartered Institute of Bankers.

It is provided under Act 1015 that, within seven days of the appointment of an administrator, the directors of the company shall submit to the administrator a financial statement of the company and a statement of its financial position, comprehensive income, changes in equity and cash flows.

Additionally, directors must give the administrator a description of significant accounting policies and explanatory notes to the financial statements prepared in compliance with International Financial Reporting Standards approved or adopted by the Institute of Chartered Accountants or any other standards approved or adopted by the Institute.

The measures applied to determine financial distress or insolvency commence at the first meeting of creditors of the company or the watershed meeting, at which the administrator shall present the financial statements of the directors.

A director who fails to submit the financial statements as requested by the administrator or who fails to do so within the time determined by the administrator as required by law would be liable to pay the Registrar an administrative penalty of 250 penalty units (a penalty unit is GHS12, equivalent to USD2).

A director of a company that is in administration shall not exercise any power, perform any function, be responsible for managing the affairs of the company nor purport to do so as an officer of the company except with the prior, written approval of the administrator.

In addition, under Act 992, a director of a company holds a fiduciary relationship towards the company and shall act with the utmost good faith towards the company in a transaction with or on behalf of the company. Directors also owe a duty of care to creditors to ensure that the affairs of the company are properly managed and that property is not dissipated or exploited. Furthermore, a director who is appointed by a special class, including creditors, must consider the best interest of that class in all transactions.

Where a director commits a breach of duty, the director and any other person who knowingly participated in the breach are liable to compensate the company for any loss suffered as a result of the breach. The identified directors would be required to account to the company for profits made as a result of the breach. Any profits made from any contract or transaction entered into between the directors and the company in breach of their fiduciary duty towards the company would be rescinded.

In addition, the administrator is duty-bound under Act 1015 to report any past officer or shareholder who may have committed an offence of dishonesty or be guilty of negligence, breach of duty or trust in relation to the company to the Registrar of Companies, for civil and criminal sanctions to be applied.

The insolvency officer is the only person that can assert fiduciary breach claims against the directors while the company is undergoing restructuring. Creditors are prohibited from asserting direct fiduciary breach claims against directors as a restructuring agreement binds creditors including secured creditors regarding claims that arise on or before the day specified in the restructuring agreement.

Where it appears to the liquidator that the company made some dispositions of property at other than the full value, or incurred due debt at other than the full value, the liquidator may by notice require the beneficiary of the disposition and debts to restore and surrender any rights accrued to the liquidator.

Under Act 930, the receiver may set aside the following pre-receivership transactions affecting the assets of the bank or specialised deposit-taking institution and recover the assets from the transferee or other beneficiary of the transaction:

  • a gratuitous transfer to key management personnel or affiliates;
  • transactions with key management personnel that are detrimental to the interest of depositors;
  • gratuitous transfers to third parties;
  • transactions based on forged or fraudulent documents;
  • acts done with the intention to impair the rights of creditors; and
  • any attachment of a security interest that existed six months before the effective date of receivership.

Under Act 1015, the liquidator is empowered to reverse transactions that took place during the two years ending with the making of the winding-up order, or more than two years but less than ten years before the making of the winding-up order and at a time when the company was insolvent.

Under Act 930, the receiver may set aside transactions with key management personnel that are detrimental to depositors within five years before the effective date of receivership.

In performing their duties under Act 1015, the administrator may issue notice to persons who are beneficiaries of debts and dispositions of properties of the company at other than the full value to restore said property to the company. Individual creditors are not empowered to assert claims directly nor to fund an office holder to do so on their behalf as the office holder is remunerated for their role.

A receiver appointed by the BoG has the power to annul transactions unilaterally if those transactions fall within the grounds for annulling pre-receivership transactions within the meaning of Act 930.

Claims to set aside or annul transactions can be brought in both restructuring and insolvency proceedings.

Addison Bright Sloane

22B Akosombo Rd
Ambassadorial Enclave
Airport Residential Area
Accra
Ghana

+233 30 397 1501

vbright@addisonbrightsloane.com www.addisonbrightsloane.com
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Law and Practice

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Addison Bright Sloane is a full-service premium business law firm based in Ghana with industry knowledge spanning all key industry sectors, both in Ghana and the rest of Africa. The firm's managing partner has practised as a partner in a global law firm in the City of London. Addison Bright Sloane's lawyers advise on a wide variety of matters, including insolvency and restructuring, IT outsourcing, business process outsourcing, cloud computing, litigation, alternative dispute resolution, and arbitration. Clients range from SMEs to multinationals – including software companies, banks and financial institutions – as well as government agencies and other public sector organisations and SMEs.

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