Month: July 2023

Every company, including statutory corporations, must have a board of directors, which is the directors acting together. Directors are supposed to be the brain and mind of the company.

The directors are to direct the affairs or business of the company. Performing the function of directing the business of the company requires as a minimum that the persons have the required capacity to direct the particular business the company is engaged in. In other words, a basic requirement to ensure the business of the company is properly directed is to have a sufficient number of directors with the requisite knowledge and experience to direct the business of the company. In order to ensure that is done, a company must set the right qualification criteria, go through the right appointment process and clearly define the scope of the responsibilities, duties and obligations of the directors (which the directors must be oriented on).

Are your directors really qualified?

Usually, the decision to set up a company to carry out a business or pursue an object is taken by one businessman or business partners who have come up with a business plan. In making enquiries for incorporation, he is told that he needs at least two persons as directors for the incorporation. Invariably, the decision taken by this businessman is based on who is likely to agree with him or related to him, or who he can control. A husband or wife is likely to choose a spouse. Others are likely to select a relative or a friend. Others may appoint based on the name of a person or religious, ethnic or political affiliations with the hope of leveraging on such factors for business. In the case of business partners, they may choose to be the directors.

The point is, very often, the decision on who to appoint is not based on clearly defined qualification criteria set out anywhere which could serve as a guide. Therefore, in many instances there are round pegs in square holes. That is, the wrong persons are appointed to the boards of companies. This, in most instances, has led to unqualified persons directing the business of a company. Consequently, companies have underperformance and in some cases collapsed.

What then are the qualification criteria for the appointment of directors? There are no one-size fits all criteria. The law recognizes this and hence did not set out positive qualification criteria in terms of the knowledge and expertise a person must have to be appointed a director of a company under the Companies Act, 2019. The law only stated a few persons who are disqualified from being appointed as directors of a company. These are:

• an infant;
• a person adjudged to be of unsound mind;
• a body corporate;
• a person prohibited by order pursuant to stated offenses; and
• an undischarged bankrupt.

Once a person does not fall under any of the disqualifications above, the person can be appointed a director. However, not everyone outside the list of disqualified grounds should clearly be a director. Should a director not be able to read and understand? Should a director not have any experience in relation to the business or not have any formal education? These positive qualification criteria are not provided by law. However, the law makes room for persons setting up a company to so provide specific criteria in the constitution of the company. Each company must, therefore, ensure that there are clear qualification criteria set out in the constitution so as to prevent unqualified persons from being appointed directors. What are the criteria stated your constitution?

There have been positive qualification criteria prescribed by sector regulators for specific sectors. For example, the Bank of Ghana as regulator of banks and specialised deposit-taking institutions has prescribed educational qualifications and experience level requirements for directors of banks and specialised deposit taking institutions per its two directives – The Banking Business-Corporate Governance Directive, 2018 and The Fit & Proper Person Directive, 2019. A director must, therefore, be approved as fit and proper by Bank of Ghana before he becomes a director of a bank or specialised deposit-taking company.

Other sectors have similar prescription including listed public companies and companies operating in the insurance and pension sectors. The question that should occupy the mind of the Registrar of Companies, as the general regulator of companies, is whether the time is ripe to have an overarching prescription for all companies. Meanwhile, in the absence of a general prescription, the constitution of each company must provide for the qualification criteria.

It is a generally accepted corporate governance position that expertise in the industry in which the company operates, expertise in finance since every company requires finance, and expertise in applicable law must be manifest on the board. With current leaps in the technology space, that has also been touted as expertise that must be considered. Therefore, the board must have persons with background in the industry, finance and law. This does not necessarily mean a company must have directors with this expertise. A company may depend on advisors for these expertise. However, the directors must in their own right be able to understand the interplay of these areas of expertise in taking strategic decisions for the company.

The failure to provide criteria for selecting directors will likely harm the company. It is the hallmark and starting point of good corporate governance. Attracting investors and securing credit depends on having a good corporate governance system that include well defined criteria on who qualifies to be appointed a director of the company.

Too many or too little

 

What is the right number of directors to appoint to constitute the board of a company? The Companies Act sets a minimum of two without setting a cap. Invariably, this has resulted in majority of companies, especially small and medium size companies, having a two-man board of directors. This in practice becomes a one-man board especially for related parties (spouses, siblings, friends and similar appointment based on close relations). What must inform the number of directors to appoint to constitute the board? Again, there is no one-size fits all answer to this. The yardstick should be what expertise is required to effectively and efficiently direct the business of the company. That in itself may also be dependent on the sector in which the company is in and the level of operations of the company. That is, whether it is a small, medium or large size company, or a regional or multinational company. The Bank of Ghana, in its Corporate Governance Directive, has increased the minimum number of directors for companies operating in specialised deposit taking business to five and has made some prohibition in relation to related parties on board.

There must be a clear determination on the number of directors required to successfully steer the affairs of the company. As indicated above, the generally accepted corporate governance position requires on the board of a company expertise in the industry in which the company operates, expertise in finance and expertise in applicable law. This does not necessarily mean a company must have three directors. One director may have all the required expertise. A company may depend on advisors for these expertise. In addition to this, there are now requirements of diversity including ethnicity, gender and religion as well as representation of particular stakeholder. The takeaway here is, some thought must be given to the number of directors and this must be stated in the constitution of the company.

Selection or appointment of directors

Appointment of directors to some state-owned companies and statutory corporations has raised eyebrows in this country. Questions have been asked including whether the person would have submitted his or her application if the position was advertised. Directors are not employees of a company, so, advertising for such positions is generally not the norm in any jurisdiction. Notwithstanding the fact that it is generally an unadvertised position, there must be clear selection processes based on assessment of the qualification and suitability of each candidate. Once there are positive qualification criteria, there must be a process of identifying qualified persons and selecting a suitable person among the qualified persons.

Most directors of companies in Ghana are generally appointed based on personal relationships. Whilst this is not inherently bad, the lack of a formal assessment process takes away from the seriousness the appointor and appointed person must attach to the position. In some instances, there is even no properly drafted letter of appointment which gives details on requirements and expectations from the appointed director. Another process divorced of personal relationship is the use of recruitment agencies or a selection committee set up by the appointing authority (mostly shareholders) that headhunt for qualified and suitable persons to be appointed a director of a company. The positives of this option include the fact that there are discussions on requirements with the recruiter and clearly set out qualification criteria. In addition, the recruiter will conduct interviews and other assessment to determine suitability for the role.

The takeaway here is that there must be a process that is followed in the recruitment and appointment of the director. Ideally, this must be set out in the constitution of the company. If not, it can be set out in a corporate governance code or manual of the company. A lack of it leads to haphazard decision making by an appointing authority (shareholder or any person given that power) based on unknown factors.

Conclusion

A board of directors is a pivotal, if not the most important, organ in corporate governance. They are the directing mind and brain of the company. It cannot be acceptable that recruitment of employees is done through a more formal process, based on organisational needs, and clearly defined qualification requirements and selection processes than those charged with the responsibility of directing the overall business of the company. A good corporate governance system must not allow this to be the case. At the time of incorporation, do not just adopt the template or default constitution. Expressly make provisions for the above matters. If you are an existing company, it is about time you consider this and make the necessary changes to your constitution or develop a corporate governance code.

Introduction

Credit is essential for the business operations of corporate entities and it is the expectation of creditors that debtor companies will repay their debts as they fall due. Creditors encompass a wide range of corporate and natural persons such as banks, saving and loans companies, corporate investors, micro finance companies and other financial institutions who have provided term loans, letters of credit, lease finance, guarantees, overdrafts among other types of credit facilities; suppliers or service providers who have supplied goods and services on credit; customers who have made advance payment on goods and services; landlords who have leased properties expecting payment of rent; and family and friends who may have invested in the business.

Prior to the passing of the Corporate Insolvency and Restructuring Act, 2020 (Act 1015), creditors had the direct option to sue corporate entities in default of satisfying repayment obligations and in drastic circumstances, a petition was presented to the Court to liquidate the company on the grounds of inability to pay debts. There was no restriction on the exercise of the rights of creditors. However, Act 1015, through the administration proceedings, has introduced a temporary restriction on the enforcement rights of creditors preventing them from commencing or continuing existing proceedings against indebted companies as part of the administration proceedings. The essence of this restriction is to give the distressed company some “breathing space” to proceed with the process unimpeded. Also, the restriction protects the assets of the company while the rescue process is ongoing so that creditors do not take any action that will aggravate the financial distress of the company.

At first glance, the temporary restriction seems repressive and may discourage creditors from considering administration as a favorable insolvency option. However, the Act provides some protection for the rights and interests of creditors throughout the administration process. This article sets out the provisions in the Act which directly or indirectly protect the rights and interest of creditors of a distressed company undergoing administration.

RIGHTS AND PROTECTION OF CREDITORS

1. Commencement of the administration process (appointment of the administrator)

Administration commences with the appointment of the administrator. An administrator may be appointed by the company (acting through the board of directors), a creditor or a liquidator. A creditor holding a charge over the whole or a substantial part of the company’s property may appoint the administrator. Any other creditor must apply to the Court for an order to appoint an administrator.  Creditors therefore, can put a company in administration.  This allows creditors to intervene to prevent the worsening of the situation of the company, especially where the course being pursued by the directors is injurious to the business of the company and the interest of its creditors.

Also, the power to appoint goes hand in hand with the power to remove an administrator and appoint a replacement (especially where the administrator is appointed by the company). The effect of this right is to give creditors some comfort in knowing that the administrator who is expected to assume the responsibility of re-directing or steering the affairs of the distressed company in a particular direction is competent, experienced and independent.  An unqualified or biased administrator may mismanage the assets to the detriment of creditors. Therefore, the power to commence the administration process and the control over the appointment of the administrator is a necessary tool for creditors to protect their interests in the administration process.

Apart from affording creditors the opportunity to step in to prevent the worsening of the distress of the company, administration is also a faster insolvency process compared to liquidation with strict timelines provided in the Act to guide the process. Also, administration can be commenced and completed with little or no court intervention. This helps to keep the status of the company private and reduces costs associated with litigation and undue delay. Further, since the main purpose of administration is not to wind up the affairs of the company, it allows creditors to explore various options which may include debt restructuring, change of management, downsizing business activities,  asset sale, post-restructuring financing, or even liquidation if it is in the best interest of the creditors. On the other hand, the sole purpose of liquidation is to wind up the affairs of the company and therefore, the outcome is most often a piecemeal sale of the assets of the company which does not usually provide maximum return to creditors.

2. Approval of remuneration and terms of engagement of administrator

In addition to the appointment of the administrator, the remuneration and other terms of engagement of the administrator are subject to the approval of the creditors.  Since the remuneration of the administrator is to be paid from the same pool of assets of the already distressed company, the power to approve the remuneration of the administrator protects the interest of creditors in the assets of the company. This ensures that creditors are able to manage the expenses incurred as a result of the administration process which must be paid regardless of the outcome of the administration proceedings. Creditors are therefore, able to prevent unnecessary depletion of the assets of the distressed company and ensure that the assets of the company are managed in a way that the company can eventually meet its existing liabilities and obligations to the creditors.

3. Attendance, participation and voting at meetings

Upon commencement of the administration proceedings, the administrator is required to hold meetings of creditors where the creditors are presented with the state of affairs of the company and a restructuring proposal is considered. All creditors are entitled to attend, participate and vote at meetings of creditors called by the administrator. This guarantees that creditors are kept well informed and are able to participate in the process and most importantly, determine the outcome of the administration process.

Creditors also have the option to establish a committee of creditors whose role is mainly to receive the reports of the administrator and communicate feedback. The committee is relevant since it serves as a direct link between the creditors and the administrator. Although the committee’s role is purely advisory, the creditors’ committee provide an opportunity for creditors to access information and stay up-to-date on the administration process, especially in cases where there are many creditors or there are creditors resident outside the jurisdiction.

4. Approval of the restructuring agreement

The administrator, at the end of his/her assessment of the affairs of the distressed company is expected to either propose a restructuring agreement to save the company or propose that the company be liquidated. The restructuring agreement is the outcome of the decision of the creditors based on the administrator’s proposal. This agreement sets out the extent to which the company will be released from liabilities, properties of the company which will be made available to pay creditors, the nature and duration of any moratorium period, post-commencement financing among other terms and conditions. The restructuring agreement is binding on all creditors although executed between the company and the administrator. Where the restructuring agreement is rejected by creditors without room for amendment, the administration process risks coming to an end and official liquidation may commence. Creditors therefore, have the “final say” on the outcome of the administration process. By this, creditors can ensure that the restructuring agreement is feasible and will be able to bring the company out of its distress to meet its obligations to creditors. Where rescue is not feasible, creditors can always opt to commence official liquidation. Therefore, although corporate rescue is the preferred outcome of the administration process, creditors can opt to liquidate the company where keeping the company as a going concern will not provide better results for the creditors.

5. Termination of the restructuring agreement

Although the execution of the restructuring agreement brings an end to the administration process, the interest of creditors in the restructuring agreement is not extinguished until all the terms and conditions are fulfilled. Act 1015 provides that creditors may terminate the restructuring agreement on the grounds of material breach of the agreement, injustice or undue delay in implementation, oppression or unfair discrimination. Therefore, although creditors are not parties to the restructuring agreement, the Act recognises their interest in the successful implementation of the restructuring agreement by providing a remedy for breach through termination of the agreement. This also ensures that the company fully complies with the terms of the restructuring agreement to prevent termination which may likely result in an official liquidation of the company.

6. Enforcement of security or recovery of property under special circumstances

While recovery and enforcement actions are prohibited during administration of the company, an exception is made for secured creditors and owners or lessors of property occupied by the company.  A secured creditor or an owner/lessor of property that is occupied by or in possession of the company may apply to the court for leave to enforce the security or take possession of the property. The court may grant the application where the court is satisfied that in the circumstances, serious prejudice will be caused to the secured creditor or the owner of the property which outweighs any prejudice to the other creditors. By this provision, the restriction on commencement and continuation of legal proceedings during administration is not absolute. Secured creditors may enforce security which will remove the secured asset from the assets under the management of the administrator. In addition, landlords or owners of properties in the possession of the company are able to take possession of their property on grounds such as failure to pay rent. This is helpful in cases where the administrator wishes to dispose of or otherwise use the charged asset or leased property in a manner that puts the creditor or landlord’s interest in the asset at risk.

CONCLUSION

Administration is still a new concept which is yet to be fully embraced by the Ghanaian corporate industry. It is therefore, necessary that creditors and businesses alike take an interest in this process and its impact on their operations, especially their finance and credit arrangements.

While administration is a welcome addition to Ghana’s insolvency legal and regulatory framework, it is important that the process does not discourage creditors from providing credit or lead to more stringent terms for credit which will be to the detriment of businesses. Act 1015 therefore, seeks to ensure that creditors are not at the “losing end” in the name of corporate rescue. Creditors are therefore provided with a great level of control over the administration process and its outcome to ensure that the process is not used to evade obligations to creditors or keep “zombie” companies in existence to the detriment of stakeholders.

Introduction

The Ghanaian corporate history is replete with many instances of failure of corporate entities, predominantly indigenous corporate entities. An example of this phenomenon is the recent collapse of corporate entities in the financial sector, even though the failure of corporations is not only limited to the financial sector. Many reasons may account for this phenomenon, key among them is the lack of good corporate governance, particularly relating to the composition of the board of directors. In response to the problem, some sector-specific legislations recently enacted include a more specific prescription on the composition of board of directors of companies engaging in business in these particular sectors. In view of having such specific prescription under sector-specific legislations, it is argued that the time has come for Ghana to consider a general Corporate Governance Code applicable to all companies rather than a piecemeal approach of focusing on specific sectors.

Definition of Corporate Governance

Corporate governance first appeared in our legislation in 2016 in the Banks & Specialised Deposit-Taking Institutions Act, 2016 (Act 930). However, before then, the Companies Act, 1963 (Act 179) prescribed general governance systems for companies. However, there is no specific legislative definition in the Acts. That notwithstanding, corporate governance has been defined as “the system of rules, practices and processes by which a company is directed and controlled”. Corporate governance, therefore, goes beyond the law. It includes non-legal rules, practices and processes that must be put in place.

Corporate governance can also be defined as “the manner in which the power of and power over a corporation is exercised in the stewardship of its assets and resources to sustain the company and increase shareholder value as well as satisfy the needs and interests of all stakeholders”. The definition requires the corporate powers to be allocated to corporate constituents to exercise the powers in order to manage the business or object of the company. In sum, corporate governance dictates that constituents are created or recognised, and given specific powers to be exercised on behalf of the company.

Default Governance Structure under the Companies Act.

The Companies Act, 2019, which is the general law under which companies are created in Ghana, prescribes the structure for corporate governance. The diagram below shows the default governance structure:

* Ferdinand D. Adadzi is a Partner at AB & David, a multi-specialist pan-African business law firm practicing in many jurisdictions in Africa including Ghana. He currently heads the firm’s Energy, Infrastructure & PPP Group, and co-head the Corporate & Finance Group. He is also a lecturer at GIMPA Faculty of Law where he lectures in Company Law and Contract Law. Contact: fadadzi@gmail.com

Richard Smerdon, A Practical Guide to Corporate Governance (4^th edn, Sweet & Maxwell, 2010).

Commonwealth Association of Corporate Governance.

Ferdinand D. Adadzi, Modern Principles of Company Law in Ghana (Ghana Publishing, 2021).

 

The prescription of the Act on corporate governance is based on four pillars – shareholders or members, board of directors, management or officers of the company, and auditors. The Regulator is to ensure the prescription above is followed. The Act provides for default allocation of the corporate powers among the various constituents and permits the constituents to exercise the powers on behalf of the company. Within the system of governance under the Act, the concept of separation of powers seems to have been adopted and incorporated to avoid the abuse of corporate powers. In order to achieve that, the Companies Act allocates the power and imposes a number of limitations that act as checks and balances on the exercise of the powers by each constituent.

Role of Directors in Corporate Governance

Once the structure is created, the Companies Act prescribes rules relating to each of the constituents. Since the system of governance must fit the particular company, the Act prescribes what can be seen as the barest of the rules. It allows promoters of companies to provide details in the company’s constitution. Even concerning the basic rules prescribed under the Companies Act, the Act allows promoters or shareholders to modify such rules in many instances under the company’s constitution.

The Act requires every company to have at a minimum:

• one shareholder
• two directors
• an auditor
• a Company Secretary

Then the Act prescribed default allocation of powers. It provides that the promoter or shareholder must allocate the corporate powers among shareholders and directors in the constitution. However, failing such allocation in the company’s constitution, the default position is that the power to manage the company’s business is allocated to the board of directors. Directors are therefore seen as the most important organ in corporate governance as they are seen as the mind of the company, which directs the business and object of the company.

However, other than the minimum number of two directors provided under the Act, there is no guide on the number, composition and distinction in the roles of directors. This has resulted in one-man-board in many companies. In some instances, a husband and wife board, where one of the spouse is not aware of the action of the other in relation to the company. In some other instances, board members are selected based on friendship or other personal relationships other than qualification and the needs of the company. In addition, other than a few disqualification requirements, there is no express requirement in terms of qualification – education or professional – that one must have to be a director of a company. Persons are therefore appointed as directors who have no knowledge of the operations of the company in anyway. Lack of prescription on the number of roles a director can combine has resulted in situations where one director can double or triple as a director, board chairman, managing director, and Company Secretary. These are the requirements that recent sector-specific legislations are seeking to correct.

Overview of Sector-Specific Legislation on Directors

 

1. Financial

Due to recent happenings in the financial sector, especially the collapse of some banks and other non-banking financial institutions, the Bank of Ghana as a regulator has issued two Directives pursuant to powers conferred under section 92 of the Banks and Specialised Deposit-Taking Institutions Act, 2017. The two Directives provides details required on good corporate governance under section 58 of the Act. The Directives are “The Banking Business – Corporate Governance Directive, 2018” and “The Fit & Proper Person Directive, 2019”.

Unlike the Companies Act, the Directives set a minimum number of 5 and a maximum number of 13 for boards of banks and non-financial institutions. In addition, the Directives have prescriptions on the percentage of the board that must be non-executive directives and independent directors. There is no such requirement under the general Companies Act. Further, a person proposed to be appointed as director must be approved by the Bank of Ghana. The approval is based on the assessment as to whether the person is a fit and proper person based on prescriptions on education, profession experience and other qualification requirements set out the Directive. It, therefore, prevents a person who lacks knowledge of the business from being appointed as a director just to satisfy the statutory requirements. The absence in the Companies Act of such provision creates a problem where a person who is appointed as a director does not understand the business and ends up not participating in directing the business of the company.

2. Insurance Sector

The Insurance Act, 2021 (Act 1061), which was passed this year, seeks to follow the path of the financial sector as stated above by having prescriptions beyond the Companies Act, 2019. Persons must have specific qualifications to be appointed as directors of the licenced insurance and re-insurance companies.[i] The proposed person must be approved by the National Insurance Commission, which approval is based on the qualification and suitability of the proposed person.

3. Pension

The National Pension Act 2008 (Act 761) also provides additional prescriptions in terms of board composition of trustees that can manage pension schemes. This includes having an independent director.

4. Listed Companies

In order to protect investing public, particularly in relation to publicly listed companies, the Ghana Stock Exchange also has a prescription beyond the Companies Act, 2019 on directors. The Ghana Stock Exchange Listing Rules (2006) and Stock Exchange (Ghana Stock Exchange) Listing Regulations 1990 (L.I. 1509) also seeks to give the Council of the Exchange the power to determine the suitability of directors of public companies that have applied to be listed on the Exchange. Rule 11 requires that satisfactory evidence must be provided that the management possesses the requisite experience. The character and integrity of the directors and management are assessed by the evidence provided. Pursuant to this, the Securities and Exchange Commission has issued the SEC Corporate Governance Code for Listed Companies.

Need for a General Corporate Governance Code

The point to note is that the gap in the Companies Act, which the sector-specific rules seek to fill is not peculiar to the sectors. Of particular importance is the gaps in the rules on the composition of the board of directors of a company, which is seen as the most important organ in the corporate governance structure. The emerging trend of having sector-specific legislations each have silo prescriptions for companies operating in the sector does not deal with the problem wholly. A holistic resolution will best deal with the issue. It is, therefore, suggested that it is about time there is a Corporate Governance Code that applies to all companies irrespective of the sector of operation. This effort, ideally, should be championed by the Registrar of Companies as the primary regulator of companies. The Corporate Governance Code should prescribe the standard rules for different levels of companies either in terms of capital, turnover, assets, number of employees, etc. These factors could be used to group companies into small, medium, large and multinational companies to determine the standard prescriptions on board composition. In line with the Companies Act, these should not be mandatory prescriptions but provide guidance that can be departed from based on the explanation provided in the incorporation documents, annual return or the prescribed form on appointment or change of directors.

Subsequent publication will provide an overview of the manner in which the guidance must be provided in the proposed Corporate Governance Code/Guide. In the meantime, promoters or shareholders of company must consider having such prescriptive rules in the company’s constitution, shareholders’ agreement or have a tailored corporate governance code to guide board composition beyond what is prescribed under the Companies Act.

See section 75 of the Insurance Act, 2021 (Act 1061).

Introduction

A new era for the administration of financially distressed companies has been introduced in Ghana under the recently passed Corporate Insolvency & Restructuring Act, 2020 (Act 1015). In the previous article published on page 30 of the Business and Financial Times on Monday, 29^th June, 2020, the basis on which a company can be put into administration were presented. This is where the company is either insolvent or likely to be insolvent, or where it has a negative net worth.  Additionally, the rules of appointment and functions of administrators and restructuring officers who are mandated to develop a restructuring plan under a restructuring agreement were discussed. Administration commences with the appointment of the administrator and ends when the restructuring officer signs the restructuring agreement with the company. The administrator and restructuring officers are thus, critical individuals in the process of administration and post-administration respectively. Under the Act, administrators and restructuring officers are required to be insolvency practitioners. In this article, we set out an overview of who an insolvency practitioner is, the qualification requirements and regulation of insolvency practitioners.

It is important for businesses, particularly creditors and lenders to be aware of who can act as an insolvency practitioner in the event that the need to appoint one to act in the administration of a company arises. It is also of great importance and benefit to lawyers, bankers and chartered accountants who intend to develop a new practice area as insolvency practitioners.

Who is an Insolvency Practitioner?

Under the Corporate Insolvency & Restructuring Act, an insolvency practitioner means a receiver or manager under the Companies Act, 2019 (Act 992), an administrator or restructuring officer under Act 1015, a trustee in bankruptcy under the Insolvency Act, 2006 (Act 708) or a liquidator. This means that the Companies Act, which governs companies generally, has also made the requirement that receivers and managers, who hitherto were only required to be eligible to be appointed as directors of a company, must now be insolvency practitioners. A person cannot, therefore, act as a receiver, manager, administrator, restructuring officer, trustee in bankruptcy or a liquidator unless the person is qualified as an insolvency practitioner.

Qualification Requirement of an Insolvency Practitioner

Three (3) categories of professionals qualify to practice as insolvency practitioners. These are chartered accountants, lawyers and bankers in good standing with the Institute of Chartered Accountants, the Ghana Bar Association and Chartered Institute of Bankers. In addition, such a person must:

• be certified as a restructuring and insolvency practitioner by the Registrar of Companies (“the Registrar”);
• have a professional indemnity insurance policy that provides indemnity for any act or omission undertaken as an insolvency practitioner; and
• meet the qualification requirements of a director of a company.

Qualification Criteria Applicable To Insolvency Practitioners

As indicated above, a chartered accountant, lawyer, or banker who is not qualified to be appointed as a director of a company cannot be an insolvency practitioner. Thus, the following persons are not qualified to be appointed as insolvency practitioners:

• a minor;
• a body corporate;
• a person that has been declared bankrupt and not discharged from bankruptcy;
• a person declared by a court to be of unsound mind;
• a person disqualified for fraudulent trading or is disqualified from holding an office in a company;
• a person disqualified from acting as a liquidator, administrator, receiver, trustee or supervisor under Act 1015 or any other enactment;
• a person subject to disciplinary proceedings under any law;
• a person who has within the past five (5) years, been convicted of:
• an offense under Act 1015; or
• a crime involving dishonesty or moral turpitude.

Certification

An insolvency practitioner must be certified as a restructuring and insolvency practitioner in order to practice. Under Act 1015, the Registrar is to act as an interim regulator of insolvency practitioners and to certify practitioners. The Act mandates that within two years of the coming into force of the Act, the Ghana Association of Restructuring and Insolvency Advisors (GARIA) must be established under an Act of Parliament to regulate insolvency practitioners. Pending its establishment under the Act, GARIA is currently an association which is to assist the Registrar to train and license existing insolvency practitioners. It is, therefore, important to know, that not all chartered accountants, lawyers and bankers in good standing with their respective professional bodies qualify to practice as insolvency practitioners. They must be so certified or licensed by the Registrar to be able to act as insolvency practitioners.

An overview of the current functions of GARIA and requirements for licensing of insolvency practitioners are discussed further below.

Members in Good Standing with a Professional Association

As discussed above, an insolvency practitioner must be a lawyer, chartered accountant or banker in good standing with the Ghana Bar Association, the Institute of Chartered Accountants and the Chartered Institute of Bankers. All these associations periodically publish a list of members who are considered to be in good standing.The main criteria that qualifies one as a member in good standing for all three associations are eligibility, the absence of disciplinary proceedings for professional misconduct and the payment of dues.

Eligibility in this context refers to the various requirements to be satisfied in order to become a member of the respective associations and obtaining a qualifying certificate. Subsequently, some institutions require members to engage in mandatory continuous professional development programmes once they have become members. This may be in addition to other requirements for maintaining good standing. In respect of professional misconduct, all three professional associations require that a member in good standing must not have any pending disciplinary proceedings against him/her, or be accused of professional misconduct or suspended from practice.

Restrictions on Dual Role as Administrator

In the appointment of an administrator, a person may qualify as an insolvency practitioner but may not be eligible for appointment as an administrator of a particular company in administration if the person is:

• a creditor of the company or associated company;
• a shareholder of the company for the last two years;
• a director of the company or associated company;
• an auditor of the company or associated company; or
• a receiver of the company or associated company.

It is an offense under the law to act as an insolvency practitioner without proper qualification. The applicable punishment is the payment of a fine between five hundred penalty units and thousand penalty units, a term of imprisonment between two to five years, or both the fine and term of imprisonment. The act performed by an unqualified insolvency practitioner remains valid unless set aside by the court.

Role of the Ghana Association of Restructuring and Insolvency Advisors (GARIA)

GARIA is an association of professionals from diverse fields such as accounting and economics, law, banking, and corporate governance with an interest in restructuring and insolvency. The Association was established to play a leadership role in corporate restructuring, business recovery and insolvency advisory in Ghana. The association currently operates under the guidance of a governing council appointed under its constitution. The objective of GARIA includes to:

• promote and play a thought leadership role in connection with and in relation to business turnarounds and insolvencies;
• encourage restructuring of distressed entities including state-owned enterprises and other business establishments;
• promote mutual exchanges of opinions and information by practitioners who are engaged in research and practice in the field of insolvency or business recovery;
• provide a forum for practitioners engaged in business recovery and insolvency practice;
• promote law reforms in effective business recovery measures and insolvency; and
• promote international cooperation with respect to insolvency or business recovery and related cross border matters.

GARIA under Act 1015 is to become the regulator of insolvency practitioners. The Act provides for a two years period within which the association is re-established as a regulator under an Act of Parliament. In the interim, the Act mandates GARIA to assist the Registrar in licensing insolvency practitioners. In view of the role currently conferred on GARIA, one cannot in practice act as an insolvency practitioner without being a registered member of GARIA and in good standing. Eligibility for registration as a member of GARIA is dependent on:

• being a lawyer, banker or chartered accountant;
• the payment of the applicable fees. Members are also required to pay their dues in order to be in good standing;
• being a member of any other institution or profession approved by the governing council of GARIA; or
• being a any other person, corporate body, association or partnership firm who can in the view of the governing council, contribute to the activities of GARIA in the field of development research, practice of business recovery, insolvency or restructuring.

A person who has performed distinguished or special services to the Association for the development of research or practice of business recovery or restructuring in Ghana may also be designated as an honorary member of GARIA.

Currently, the process for licensing of insolvency practitioners involves:

• an application to GARIA either as a member or institutional member and payment of the applicable fees;
• provision of evidence of the applicant’s professional qualification;
• vetting of the applicant by GARIA. In some instances, the vetting process is followed by an interview of the applicant by the governing council;
• decision by GARIA approving the application and recommendation to the Registrar to license the applicant as an insolvency practitioner.

It must be noted, however, that the final decision to license the applicant or otherwise rests with the Registrar taking into consideration the recommendation from GARIA. Under Act 1015, the Registrar is required to issue guidelines in respect of fees to be paid by insolvency practitioners. These guidelines have, however, not been issued yet.

Regulation of Insolvency Practitioners

In order to ensure insolvency practitioners act with due care and professionalism, Act 1015 empowers the Registrar to:

• review the conduct and performance of an insolvency practitioner;
• apply to the court for a prohibition order against an insolvency practitioner from practicing for misconduct;
• maintain a register of insolvency practitioners;
• subject to giving the insolvency practitioner a hearing, take action against an insolvency practitioner who has been suspended or removed from the relevant professional body; and
• obtain information and documents on an insolvency practitioner.

In order to ensure that the Registrar obtains the needed information in reviewing the conduct of insolvency practitioners, a person who provides information on the act or conduct of an administrator is also protected from any action taken against that person. This is to encourage people to report on the misconduct of administrators. The exercise of these powers will ensure that insolvency practitioners act with due care, diligence and professionalism in the discharge of their duties as administrators of companies.

Conclusion

In conclusion, the Corporate Insolvency & Restructuring Act, 2020 introduces a new practice for professionals as insolvency practitioners. An administrators must qualify as an insolvency practitioner in order to be able to act. As the administrator is appointed to a place of trust at a time where the company is in distress, the administrator must act in good faith and with utmost professionalism to nurture such a financially distressed company back to good financial health. This requires that administrators have a good understanding of the business of the company, management of business, debt restructuring and a good understanding on financial statements and transactions. In order to achieve the intended results in turning around a distressed company, expertise in corporate restructuring, business recovery and insolvency is required from administrators and restructuring officers under the Act. These offer opportunities to practitioners. At the same time, it present challenges which can only be overcome by developing the necessary capacities.

In the certification of lawyers, bankers and chartered accountants who are interested in this new practice, GARIA must be guided by this requirements in order to ensure that the new era of corporate administration is not stifled by a lack of the needed expertise to conduct the administration. Corporate managers, lenders and creditors must also be cognisance of the above requirements in appointing an administrator to avoid failure of the administration process due to issues relating to the administrator, rather than the situation of the company and position of creditors. The relevant professionals bodies – Ghana Bar Association, Chartered Institute of Bankers and Institute of Chartered Accountants – are also encouraged to develop continuous professional development programmes that are tailored to equip members with the relevant skills and expertise required. In this regard, it is of relevance to note that an interrelated approach of the three professional bodies will be of great benefit. GARIA is well positioned to play the coordinating role and the hope is that such interrelated approach will guide its capacity development programmes.