Evolving Insolvency Law: A Second Chance for Ghanaian Firms
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Evolving Insolvency Law: A Second Chance for Ghanaian Firms
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By Bathsheba Asati, Research Associate, and
Kwadwo Adjei-Barwuah, Senior Advisor, Botho Emerging Markets Group
October 14, 2020
COVID-19 has upended the operations and performance of companies globally. Firms that once recorded high profits pre-pandemic now find themselves at the brink of bankruptcy caused by falling demand, supply chain disruptions, liquidity challenges, and more. Since March, companies such as J.Crew, ALDO, and Cirque du Soleil have all filed for bankruptcy due to the strains of the pandemic. African firms are not immune to the global shock: the World Bank projects that the pandemic will drive Africa to its first recession in 25 years as growth drops to between -2.1% and 5.1% in 2020. Across the continent, a lot more needs to be done to reduce the losses arising from insolvency, as Africa’s leading economies Kenya, Seychelles, and South Africa have recovery rates of less than 40 cents on the dollar.
Emerging markets are increasingly revisiting their corporate laws to respond to the constantly evolving economic landscape. Countries such as Kenya, UAE, and Bahrain have revised their insolvency policies to give their private sector companies better chances of survival. These reforms are not only beneficial to native firms but also have a strong signaling effect on foreign investors, making these countries more attractive investment destinations.
During trying economic times, a solution that reduces the chances of businesses facing early death is a welcome lifeline. Ghana has recently revised its commercial policies, such as the Companies Act amended in 2019 and recently, the Corporate Restructuring and Insolvency Act of 2020, to modernize its 1963 Bodies Corporate (Official Liquidations) Act. The new Act creates pathways to solvency through administration, where an insolvent company is placed under an insolvency practitioner (‘the administrator’) who oversees and manages its recovery and restructuring. The Act also introduces additional reforms including an insolvency division under the Office of the Registrar of companies to create an enabling ecosystem for business recovery. This brief is part of a series examining the evolution of insolvency law in fast-growing markets across the Middle East and Africa.
The first installment of this series focused on reforms to Kenya’s insolvency law. In this brief, we analyze key recent changes to Ghanaian insolvency law and the implications for private companies and investors.