GARIA urges reforms to save distressed businesses

The President of Ghana Association of Restructuring and Insolvency Advisors (GARIA), Felix Addo, has called for urgent reforms to rescue distressed businesses – citing the Corporate Insolvency and Restructuring Act’s (CIRA) limited success, with only three companies undergoing administration since its passage in 2020.

He made this statement at the Business Rescue Workshop 101 in Accra under the theme ‘Navigating Successful Business Rescue’. The workshop aimed to provide professionals with practical tools, frameworks and insights to guide in the complex landscape of business rescue and restructuring.

“The CIRA law has been in existence since 2020. As I said, the law’s focus is to turn around businesses that are distressed. Unfortunately, since passage of the law almost five years ago we’ve had only 3 companies that have come under what we call administration; and for liquidations, we’ve had 435 companies which have been liquidated,” he said.

“The idea is to conduct reviews before companies are liquidated to determine if they can be rescued,” he said. “Some companies may not be revivable and will be terminated, but many of the 435 companies could potentially be turned around if they go into administration.”

Mr. Addo pointed out that post-commerce finance is a major challenge for businesses, noting that a lack of working capital is a key reason many companies are struggling.

He explained that under current banking regulations, if a business defaults on a loan it becomes ineligible for further financing from banks; as this would violate prudential rules.

“Without new working capital, you will definitely fail. The working capital is supposed to come from either new shareholders, new investors or supplier’s credit and the rest; but because the company has been marked as a distressed company, it doesn’t get it,” he advised.

Mr. Addo stated that insolvency is a complex area of law and it’s not feasible to have just one judge specialising in all aspects of it. He urged the Chief Justice to consider establishing a dedicated bankruptcy court with judges specifically trained to understand and handle insolvency issues effectively.

Similarly, Justice Kofi Date-Bah, also of GARIA said: “CIRA is intended to foster a rescue culture in the Ghanaian corporate world. If a company becomes distressed the first option should not be to liquidate it, but rather restructure it and enable it to succeed”.

Senior Country Manager-International Finance Corporation (IFC) Ghana, Kyle Kelhofer, stressed the urgent need for appropriate mechanisms to reorganise viable businesses. He said these tools are essential for providing viable businesses with the breathing space necessary to reorganise, preserving enterprise value, protecting jobs, maintaining economic stability and increasing investor confidence.

“The rising number of businesses in financial distress underscores the need for well-structured insolvency processes and effective rescue mechanisms. These provide a lifeline for viable businesses, offering companies a chance to restructure, better navigate challenges, recover and continue their contribution to sustainable growth of the economy. Efficient and effective liquidation procedures are also important for non-viable businesses, as they allow for assets to quickly return to productive use in the economy,” he noted.

In the past decade alone, IFC has invested nearly US$2billion into Ghana’s economy, supporting critical sectors such as agribusiness, healthcare, financial institutions, infrastructure, value-added manufacturing, education and tourism. Additionally, during the last year it has committed over    US$400million in investments,.

Mr. Kelhofer reiterated IFC’s commitment to fostering sustainable private sector investments in emerging economies. He said his outfit’s core mission is to create opportunities that alleviate poverty and improve lives.

He called for collaboration and commitment among legal professionals, business leaders and financial institutions to work within the insolvency framework and together ensure these mechanisms are effective.