When a borrower becomes insolvent and is unable to pay its debts as they become due, most legal systems provide a procedure that has, as one of its primary purposes, the expeditious and orderly liquidation of assets to pay the claims of creditors. Such systems are essential in countries with active economies in which credit is generally available. Without such systems, assets and the conflicting claims of creditors become embroiled in prolonged and inefficient legal proceedings, which produce relatively small distributions in terms of recoveries to creditors. Inefficient or nonexistent bankruptcy systems also prevent the redistribution of income-producing assets and employees, with an overall negative impact on the local communities in which previously solvent businesses once operated.
In 2006, a new Insolvency Act replaced Ghana’s previous law for insolvency, dating from 1962. Lawyers and bankers generally view the new law as an improvement over its predecessor, because it clarifies and streamlines the conditions under which companies that cannot pay their debts may enter into bankruptcy. It also introduces for the first time a meaningful approach to rehabilitation of insolvent firms. The Insolvency Act is not yet especially relevant or useful to the communities that need it most, however, including the growing arena of registered enterprises and their stakeholders. In particular, the statute generally disregards special concerns of constituencies that extend credit to agricultural producers and processors, such as specific needs arising from the perishable nature of agricultural products.
In its most recent report, Doing Business ranks Ghana 104th out of 181 countries surveyed for Closing a Business. The AgCLIR scores show certain positive trends in the area, but considerable room for improvement remains, particularly in the rural areas. As detailed in this chapter, reform requires concentrated implementation and education about the country’s insolvency law.
