Ghana: the rights and obligations of creditors during insolvency

Thursday 10 November 2022

Rachel Dagadu
ENSafrica Ghana, Accra

Mandy Ofori Sarpong
ENSafrica Ghana, Accra


Recently, a  major client requested advice about director risks around insolvent trading in Ghana. Directors of the client were concerned that if one of their significant debtors did not satisfy their payment obligations in the very near future, the company would be unable to pay its debts. This was a sad moment for us as it involved a flagship client, but it made us realise that insolvency is an ever-present risk for every company doing business in Ghana and for financial institutions and other financiers, whether local or foreign, seeking to lend money to companies in Ghana. No matter how remote the risk may be, depending on the sector in which the borrower is doing business, it is essential that foreign lenders (whether secured or unsecured) are aware of their rights and obligations during insolvency and restructuring of borrowers or security providers in Ghana.

Rights and obligations of creditors during administration

A look at administration

A company may be placed into administration: (1) if the company is unable to pay its debts or current obligations as they fall due; or (2) where the company has a negative net worth. Administration begins when an administrator is appointed by: (1) the company; (2) a liquidator; (3) a person holding a charge over all, or substantially all, of the company’s property or a receiver appointed by that person; or (4) the court.

A company is unable to pay its debts if:

  • a creditor, including by assignment, to whom the company owes more than GHS10,000 (approximately $1,000) then due, has made a written demand for payment and the company has neglected to pay the sum within 30 days of the creditor’s demand or to secure or compound for the sum to the creditor’s reasonable satisfaction;
  • a court judgment cannot be satisfied by falling on the company’s available assets; or
  • it is proved to the satisfaction of the Registrar of Companies (the ‘Registrar’) that the company is unable to pay its debts.

Can every creditor commence administration?

Administration may be commenced by both secured and unsecured creditors. A secured creditor of the whole or substantial part of a company’s assets may commence administration by appointing an administrator directly or by application to court. An unsecured creditor however, does not have the right to commence administration other than by an application to court.

The court will only appoint a liquidator if the court is satisfied that:

  1. the company is or may become insolvent;
  2. the survival of the company as a going concern is reasonably capable of being achieved by administration;
  3. a more advantageous realisation of the assets of the company may be achieved by administration than by winding-up;
  4. appointing an administrator may achieve a more advantageous realisation or expeditious settlement of a duty or liability owed to the company; or
  5. it is just and equitable to do so.

How does administration affect the rights of a creditor?

As the aim of administration is to provide an opportunity for the company to as much as possible continue in existence as a going concern, the rights of a lender (whether secured or unsecured) to accelerate a loan or exercise other rights available to it under the finance documents is restricted during administration. Once administration commences, a temporary freeze is imposed on the rights of creditors against the distressed company, preventing:

  • a secured creditor from enforcing a charge over property of the company, except by an order of the court;
  • a creditor from commencing or continuing proceedings or enforcement processes in a court against the company or in relation to any property of the company except with leave of the court and on terms that the court considers appropriate; and
  • the enforcement of a guarantee in respect of the liability of the company against a director, spouse or relative of the director, or any related person, except with leave of the court.

The restriction on enforcement of security of a secured creditor includes a restriction on: (1) appointing a receiver; (2) giving notice to convert a floating charge into a fixed charge; (3) entering into possession or assuming control of the property or appointing an agent to do so; or (4) exercising a right, remedy or power as a secured creditor or receiver that exists because of the charge.

A secured creditor has 14 days after receipt of notice of administration, or in any other case, when the administration begins, to apply to the court for leave to enforce the security. Notice of the application must be given to the administrator. The court may grant leave to enforce the security if the court is satisfied that in the circumstances of the case, serious prejudice will be caused to the secured creditor if the application is not granted. In making the order, the court may limit the enforcement to specific property or give other orders on the conduct of the sale. In enforcing security, the secured creditor is required to report to the administrator at three month intervals on the enforcement and proceeds recovered.

In relation to share charges, a person is not permitted to transfer a share in a company during administration or alter the rights or liabilities of a shareholder of a company in administration. An administrator may, however, consent to the transfer of shares or alteration of shareholder rights if satisfied that it will be in the best interests of the shareholders and creditors. The lender may make an application to the court for a transfer of shares or alteration of shareholder rights where the consent of the administrator has been sought and the administrator has refused or failed to respond within 14 days.

What roles do creditors play in administration?

Creditors also have rights in relation to the conduct of the administration, including to attend and vote at meetings of creditors (including watershed meetings where a decision is made as to whether the company should execute a restructuring agreement or whether administration should end). A creditor who is dissatisfied with the outcome of a meeting of creditors may apply to the court for appropriate orders. Creditors also have the right to apply to the court for the removal of an administrator and to pass a resolution at a meeting of creditors to remove an administrator.

Rights and obligations of creditors during restructuring

A look at restructuring

Restructuring begins when a decision is made to enter into a restructuring agreement. The restructuring agreement will, among other things, specify (1) the property of the company that may be available for creditors; (2) the nature and duration of moratorium periods; (3) the extent to which the company will be released from its liabilities; (4) the order in which proceeds of realisation of the company’s property will be distributed; and (5) the timing and admissibility of claims.

How does restructuring affect my rights as a creditor?

Restructuring binds creditors regarding claims arising before the date specified in the restructuring agreement. If the company enters into a restructuring agreement, creditors cannot:

  • do anything inconsistent with the restructuring agreement, except with leave of the court;
  • apply or continue with an application to the court for the appointment of a liquidator of the company;
  • commence or continue proceedings against the company or in relation to any property of the company except with leave of the court; or
  • commence or continue an enforcement process against the property of the company except with leave of the court.

A secured creditor cannot enforce a secured charge during restructuring except as: (1) permitted under the restructuring agreement or (2) the court makes an order to that effect. In the case of (1), the secured creditor must have voted in favour of the resolution approving the restructuring agreement.

A restructuring agreement releases a company from a debt only where the restructuring agreement provides for the release and the creditor is bound by the agreement. Such a release will, however, not affect the liability of a guarantor of the debt or an indemnity provider for that debt.

What roles do creditors play during restructuring?

During restructuring, creditors pass a number of resolutions, including resolutions for the appointment of the restructuring officer and for the execution, variation or termination of a restructuring agreement. A creditor may also apply to the court for an application to appoint or remove a restructuring officer; to determine the validity of the restructuring agreement; or oppose an application to court made by the restructuring officer to sell existing shares in the company without the consent of the shareholders.

Rights and obligations of creditors during insolvent liquidation

A look at official liquidation

 Insolvent liquidation proceedings in Ghana do not materially differ from similar proceedings in other common law jurisdictions. Insolvent liquidation may be commenced by: (1) a special resolution of the company; (2) a petition to the Registrar by a creditor or shareholder; (3) a petition to the court by the Registrar, the Attorney General, a creditor or shareholder; (4) upon a conversion from private liquidation; or (5) from administration or restructuring. Administration and restructuring do not always have to occur before official winding-up, however, when a creditor petitions the court or the Registrar for the commencement of official liquidation, the court (including upon an application by the Registrar) may order for the commencement of administration.

How does official liquidation affect my rights as a creditor?

On the commencement of winding-up, other than proceedings by a secured creditor for the realisation of security, all civil proceedings against the company are stayed, except with leave of the court and upon terms the court may impose. The court may stay proceedings against a company during the period between the presentation of a winding-up petition and when winding-up actually commences and a transfer of property or shares of the company during such a period is void unless the court orders otherwise. All property of the company will vest in the liquidator unless otherwise directed by the liquidator. Any transfer of shares during liquidation is also void unless made to the liquidator or with leave of the court.

In the settlement of debts, creditors and contributors are ranked according to the following priorities:           

  1. debts in respect of post-commencement financing (remuneration or reimbursement for expenses relating to employment, and financing obtained (whether secured or unsecured), during restructuring or administration;
  2. remuneration owed to employee(s) regarding employment during the whole or part of the four months preceding the date of commencement of winding-up and rates, taxes or similar payments owed to the government or local authority, which have become due and payable within the year preceding the commencement of the winding-up;
  3. secured debts;
  4. debts owed to directors or former directors of the company within the year preceding commencement of the winding-up that do not fall under (1) to (3) above;
  5. excess benefit restored to the liquidator or excess interest that is a portion of a debt exceeding five per cent above the Bank of Ghana policy rate;
  6. unsecured debts;
  7. debts due to preference shareholders; and
  8. debts due to ordinary shareholders.

What roles do creditors play during official liquidation?

Rights of creditors during liquidation include: (1) the appointment of a liquidator by resolution during a watershed meeting or upon termination of the restructuring agreement; (2) the ability to petition the Registrar for winding-up if the company is unable to pay its debts as they fall due, security for costs has been given by the creditor and a prima facie case for winding-up has been established; (3) participating in meeting(s) of creditors during the liquidation process; (4) submitting a proof of debt; and (5) the power to set up a committee of creditors to approve transactions that substantially affect their interests.