Troubled businesses should be given a second chance – Supreme Court Judge
A Justice of the Supreme Court, Dr Justice S. K. Date-Bah, has said businesses which get into financial trouble should be given a second chance to restructure and to trade again.
Speaking at seminar on corporate rescue in Ghana, Justice Date-Bah said the first response of the law to a distressed company, which was unable to honour its credit obligations as they fell due, should not be to liquidate it but should pay the debts.
“This is too drastic a remedy which is not responsive to the inevitable ups and downs of business life. A legal system that provides principally for only liquidation can fairly be characterised as primitive, from the business point of view,” Justice Date-Bah said.
According to him, creditors and society would be better served if distressed companies were nursed back to health so they could pay back their debts and provide jobs and livelihoods.
While admitting that market forces would lead to the failure and consequent liquidation of genuinely failed businesses, Justice Date-Bah said there was still justification for a degree of state intervention through corporate insolvency legislation to delay the demise of a failing company where restructuring had the chance to restore it to health.
“Particularly in a developing economy such as the Ghanaian, an effort should be made to prolong the life of enterprises that have successfully been established from a premature demise,” he said.
Currently, the county’s laws do not make provision for ailing companies to have any form of interventions that give them the reprieve to re-strategise and restructure their operations in order to recover from their distress.
The Bodies Corporate (Official Liquidation) Act only provides for how a company should be liquidated, while the Companies Act makes provisions for receiverships and schemes of arrangement regarding insolvent companies.
Justice Date-Bah said despite the existence of a court-supervised scheme of arrangement in the current law, there was still a gaping hole in the Ghanaian law on distressed companies and urged stakeholders to ensure that the legislative void on corporate insolvency be filled as soon as possible.
“The formulation and enactment of such legislation would be an important step in nurturing a culture of corporate restructuring in Ghana.
Businesses which get into financial trouble in Ghana not through fraud or other criminal means should be given a second chance to get their house in order and trade again,” he said.
A tax expert, Mr Abdullah Ali Nakyea, said tax laws in the country added to the woes of distressed companies, adding, a new set of legislation was important to create a restructuring culture in Ghana.
A private sector practitioner, Mr Tony Oteng-Gyasi, said most failed local blue chip companies could had been saved and helped to transform if there was a rescue and restructuring legislative regime.
The President of Ghana Association of Restructuring and Insolvency Advisors (GARIA), Mr Felix Addo, thanked the participants for contributing their quota to developing a rescue culture in Ghana’s business environment.
Accountants, economists, business owners and executives, lawyers, bankers and policy makers attended the seminar organized by GARIA.
Source: GNA