• About Us
  • Contact Us
Account
GTB
  • Home
  • News
  • Premium
  • Business
  • Personal Finance
  • Lifestyle
    • Travel
    • Health
    • Retail/Fashion
  • Podcast
    • Business Chat
    • Retiring Richly
    • Sika Nkommo
  • Videos
  • Analysis/Features
No Result
View All Result
  • Home
  • News
  • Premium
  • Business
  • Personal Finance
  • Lifestyle
    • Travel
    • Health
    • Retail/Fashion
  • Podcast
    • Business Chat
    • Retiring Richly
    • Sika Nkommo
  • Videos
  • Analysis/Features
No Result
View All Result
Account
Ghana Talks Business
No Result
View All Result

The Rights of Creditors in Administration

23/11/2020
Reading Time: 4 mins read
Rights of creditors in administration, ghanatalksbusiness.com
0
SHARES
Share on FacebookShare on TwitterShare on WhatsApp
Companies generally raise money to finance their businesses through equity (i.e., share issue) or through debt (i.e., by taking loans).

The person who takes gives money in exchange for shares becomes a shareholder. And the one who gives money or goods on credit to the company becomes a creditor. Whereas the fortunes of shareholders are tied to the performance of the company, creditors expect to receive payments for loans and other credit lines advanced to the company (no matter how well the company performs).

The question this article seeks to answer is what happens to creditors when a company is placed in administration (i.e. when a financially distressed company is temporarily placed under the control of an administrator to turn around the fortunes of the company)?

Rights of Creditors in Administration

The Corporate Restructuring and Insolvency Act 2020 (Act 1015) puts creditors into four major groups. These are creditors who offered the company post-commencement financing, Preferential Creditors, Secured Creditors, and Unsecured Creditors.  

Post commencement financing is a very interesting one. When a company goes into administration, a fresh injection of cash may be necessary for the company to be able to get back on its feet and settle its outstanding liabilities. This injection is known as post-commencement financing. It is mainly financing obtained by the company in the course of the administration. This includes loans, trade financing, or venture capital. Monies due to employees in respect of salaries or employment benefits (during the administration) are also included as post-commencement financing.  Due to the role of post-commencement financing in turning the fortunes of a company, the framers of the Act ringfenced post-commencement financing as a superior claim (Class A Debt) placing it even before preferential claims. This gives the providers of finance comfort that their monies would be repaid as a priority out of the available assets and revenue of the company.  

Then comes preferential creditors. Preferential creditors are also paid in full. They are not secured by any assets but comprise remuneration owed to employees and payments owed to government authorities mostly in respect of taxes, rates, social security benefits, etc. These are paid as a priority before claims secured against assets of the company.

Creditors, therefore, have a lot of interest in the work that the administrator does and his ability to sustain the company, its operations and ultimately pay back monies owed to them. 

The insolvency law creates a creditors committee which is a committee comprising three to five creditors who serve as the representative of creditors. This committee receives reports from the administrator on matters that concern the company, approves the remuneration and other terms of engagement of the administrator, and gives advice to the administrator on matters concerning the administration.  The creditors’ committee provides the creditors with a means to be more involved in the administration of the company and therefore the outcome of the administration and ultimately the fate of the company’s indebtedness to them.

You have to remember that creditors have to monitor the fate of the companies that owe them with eagle eyes to protect their investment and also to ensure that the administrator at all times is acting in a manner to protect their interest and create value in the company. The role of creditors in the administration of companies cannot be underplayed. However, in as much as they serve in an advisory role to the administrator, you also have to remember that the ultimate liability for the acts of the administrator lies in the administrator’s own hands.

The creditors are crucial in the administration process. And their co-operation in the steps leading to the turnaround of a business cannot be underplayed.

Audrey Kotei, Audreygrey, ghanatalksbusiness.com
Audrey Naa Dei Kotei, Managing Partner, AudreyGrey

Author’s Profile

Audrey is the managing partner of AudreyGrey, a legal, tax and compliance firm in Accra. She is corporate law, compliance, and tax expert and is currently spearheading thought leadership initiatives particularly aimed at knowledge dissemination and implementation of Corporate law and practice in Ghana.  She is an experienced insolvency expert and also serves as a consultant with the Ghana Association and Restructuring Advisors (GARIA) 

info@audreygrey.co
0302 913 994

Previous Post

Ghana’s debt position at a dreaded Debt to GDP mark of 71% – What this means

Next Post

CAF President Ahmad fined $220,000 and banned by FIFA for 5 Years

Related Posts

Investing in stock market

Companies issue notice on Annual General Meetings

12/05/2020
Insolvency law Ghana, AuderyGrey, ghanatalksbusiness.com

Ghana has a New Corporate Restructuring and Insolvency Act

12/05/2020
Disqualification of Directors, Companies Act: ghanatalksbusiness.com

Disqualification of Directors (II) – Companies Act 992

11/11/2019
The Companies' Act, Directors Accountability, ghanatalksbusiness.com

Directors Accountability (1) – Ghana Companies Act 992

04/11/2019
Registrar-General

Registrar of Companies decoupled from RGD

18/10/2019
Ghana's Companies Act 992: ghanatalksbusiness.com

Companies Bid Farewell to Business Restrictions

25/09/2019
Next Post
CAF president Ahmad banned

CAF President Ahmad fined $220,000 and banned by FIFA for 5 Years

Ameyaw Debrah

Meet Ameyaw Debrah, Ghana’s expert lifestyle and entertainment blogger, and influencer

  • About Us
  • Disclaimer
  • Privacy Policy
  • Advertising
  • Contact Us

© 2021 Ghana Talks Business

No Result
View All Result
  • Home
  • News
  • Premium
  • Business
  • Personal Finance
  • Lifestyle
    • Travel
    • Health
    • Retail/Fashion
  • Podcast
    • Business Chat
    • Retiring Richly
    • Sika Nkommo
  • Videos
  • Analysis/Features
  • Login

© 2021 Ghana Talks Business

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In