In this two-part series, Ikenna Ikeyi, early career researcher, commences the examination of insolvency law reforms in Eastern and Western Africa, on behalf of the Commercial Law Research Network Nigeria (CLRNN).
African countries need legal and financial infrastructure with modern insolvency laws that encourage investor confidence in order to attract investment, stimulate economic growth and integrate into the global economy. In the short term, there is a need to protect businesses in Africa, particularly MSMEs, from the adverse effect of the pandemic and save financially distressed companies as a going concern, if possible. In the long term, Africa needs modern insolvency laws accompanied with good economic reforms to attract investment and improve the ease of doing business.
There is also a need to discuss insolvency reforms within the context of the agreement on the African Continental Free Trade Area (AfCFTA). This agreement aims to bring together a population of more than one billion people with a combined GDP of over $3 trillion. AfCFTA is focused on stimulating economic growth in Africa through the creation of a single African market for goods and services. In addition to the challenges to AfCFTA brought about by the pandemic, Africa’s inadequate infrastructure, outdated insolvency laws and onerous regulatory requirements threaten to hamper the progress of the AfCFTA. These issues must be addressed for trade across African borders to be possible.
Against this background, there is no better time to review insolvency law reforms across Africa. African countries have been reforming their insolvency laws, with many embracing ‘business rescue’ focused reforms. Firstly, this decision is arguably informed by developments in the United States of America and the United Kingdom. Secondly, there is the persuasive argument that such reforms help stimulate economic growth. Finally, these reforms reflect an attempt to harmonise insolvency regimes across the continent and integrate into the global economy.
The two-part series provides an overview of insolvency reforms in 12 English-speaking countries in Eastern and Western Africa. These reforms include receivership, arrangements and compromise, schemes of arrangements, regulation of insolvency practitioners, administration, company voluntary arrangement (CVA). Please note that in addition to these rescue-oriented reforms, there have also been reforms aimed at facilitating the speedy liquidation of distressed companies, such as compulsory winding up or winding up by court, creditors voluntary winding up and winding up under supervision of the court.
The first part of the series aims to identify rescue focused insolvency reforms that have taken place in six West African countries; Nigeria, Ghana, Liberia, Sierra Leone, The Gambia and Cape Verde. The second part aims to identify rescue focused reforms that have taken place in six East African countries; Rwanda, Kenya, Uganda, Burundi, Tanzania, and South Sudan. Each part contains a table setting out the World Bank Doing Business (‘DB’) ranking of the countries noted in this paper before and after they implemented insolvency reforms. The aim is to identify the countries that have improved their rankings on the ease of doing business metrics after the implementation of corporate insolvency reforms.
Insolvency Reforms in West Africa
The Economic Community of West African States (ECOWAS) comprises 15 countries in West Africa and aims to promote the region’s economy. It is made up of countries which have adopted colonial languages such as English, French and Portuguese as their official languages. English is spoken in Nigeria, Ghana, Liberia, Sierra Leone, The Gambia, and Cape Verde. French is spoken in Senegal, Guinea, Mali, Burkina Faso, Benin, Ivory Coast, and Niger. Portuguese is spoken in Cape Verde, Guinea-Bissau. Beyond language, the United Kingdom, France, and Portugal have continued to influence the legal systems of these former colonies.
This part focuses on Ghana and Nigeria, the latest countries to have adopted reforms, Liberia, Sierra Leone, The Gambia and Cape Verde. It will not address reforms to the insolvency systems of the French speaking countries which operate under the aegis of the Organisation for the Harmonization of Business Law in Africa (OHADA).
The legal system of Cape Verde is based on that in Portugal. The official language of Cape Verde is Portuguese. The Civil Codes that were in place in Portugal before Cape Verde gained independence still have an effect in Cape Verde.
Insolvency was regulated under the Civil Process Code 1962. In 2016, the Code for Bankruptcy and Recovery (“CBR”) was enacted by Law No. 116/VIII/2016, of 22 March 2016 was enacted. The legislation established an extrajudicial and judicial mechanisms for the recovery of companies. According the World Bank Doing Business Report Cape Verde has made resolving insolvency easier because it adopted a law that introduces a reorganization procedure and facilitated continuation of the debtor’s business during insolvency proceedings. It is unclear if there is law regulating insolvency practitioners in Cape Verde.
The legal system of The Gambia is a tripartite system consisting of the English common law principles of equity and statute law, customary law which is applied by Tribunals, and Sharia law administered by a Cadi Court system.
Insolvency and bankruptcy are regulated by the Insolvency Act, Chapter 15, Debtors Act, Chapter 8, Winding Up of Companies Act of 195-1990, sections 207-335. Insolvency legislation in the Gambia provides for liquidation (winding-up; voluntary, by court or subject to the supervision of the court), arrangements, and receivership. No reforms have taken place in the Gambia since 2009 and insolvency practitioners are not regulated in the Gambia.
Ghana’s Corporate Restructuring and Insolvency Act 2020 introduced a rescue culture focused legislation by giving businesses the option of restructuring and going into administration which up until now has been the preserve of specialized institutions such as banks and insurance companies. Some restructuring-related procedures can also be found in the Companies Act, 2019 (Act 992) introduced in August 2019.
The Corporate Restructuring and Insolvency Act 2020 introduced administration and restructuring as a means of corporate rescue. This allows a distressed company the opportunity to continue in existence by placing a temporary freeze on the rights of creditors against the company and the development of a restructuring plan between the creditors and the company to be executed by the Insolvency Practitioners. It offers companies protections similar to the United States Chapter 11 Bankruptcy law or the UK Insolvency Act 1986, giving companies the opportunity to re-organize their affairs without being subject to the pressures of liquidation, or threats of creditors and being caught up in financial and litigation threats which may further go to delay the process. The Act allows increased creditor involvement in the receivership or administration process through the formation of a 3-5-member creditor committee to protect the interest of creditors through the administration process. Under the Act Insolvency Practitioners now come under regulation. Prior to the Act there was no professional body or standards for the insolvency practice and practitioners generally depend on experience.
In 2016, Liberia enacted its Insolvency and Restructuring Act. This made resolving insolvency easier by introducing a legal framework for corporate insolvency, making liquidation and administrative procedures available to debtors and creditors. Administration appears to be the primary regime for dealing with an inability to pay debts. Liquidation is available only where reorganisation of the business is not feasible, or the debtor voluntarily seeks liquidation. Other reforms followed. The World Bank reported that Liberia had introduced a new restructuring procedure, strengthened creditors’ rights and improved provisions on treatment of contracts during insolvency. Finally, there are now rules intended to regulate the profession of insolvency administrators.
Nigeria recently introduced reforms by enacting the Companies and Allied Matter Act (CAMA) 2020 which is intended to further promote business rescue by improving on the rescue options provided by its predecessor, CAMA 1990. This is the first time Nigeria would have a formal collective business rescue legal framework. The Act introduces new administration procedure and a company voluntary arrangements procedure. It also introduced a framework for regulating insolvency practitioners. Prior to the passage of the CAMA 2020, there were no provisions in the previous law adequately addressing the issue of regulation of Insolvency Practitioners in Nigeria as is obtainable in other jurisdictions.
Prior to 2009, the Companies Act 1960 mainly provided for the liquidation of insolvent companies. The 1960 Act was replaced by the Companies Act 2009, the new legislation brought a number of changes to corporate insolvency. For example, the Companies Act 2009, as amended, makes provision for an insolvent company to enter arrangements and compromises. Distressed companies may also go into receivership, where possible or face liquidation. Kanu has argued, persuasively, that despite reforms the Doing Business Report 2018 stated that resolving insolvency was still a challenge in Sierra Leone due to the lack of rescue culture in its Companies Act 2009 and the Bankruptcy Act 2009. Finally, it is not clear whether there is any legal framework regulating insolvency practitioners in Sierra Leone.
Overview of Insolvency Reforms in West Africa
|Country||Old Act||Insolvency Procedures||New Act||New Procedures||Old DB Ranking||New DB Ranking (2021)|
|Cape Verde||Civil Process
|The Insolvency and Recovery Code
|The Gambia||Insolvency Act, Chapter 15
Debtors Act, Chapter 8
Winding Up of Companies Act of 195-1990, sections 2017-335
Arrangements and compromise
|Ghana||Insolvency Act 2006||Liquidation||Insolvency Act 2020||Administration
|Liberia||Insolvency and Restructuring Act 2016||Liquidation
|Nigeria||Companies and Allied Matters Act 1990
|Companies and Allied Matters Act 2020
Company Voluntary Arrangements Procedure
Scheme of arrangement
|Sierra Leone||Companies Act 1960, Cap 249||Receivership
|Companies Act 2009, as amended.
Bankruptcy Act 2009
Arrangements and Compromise
Ikenna Ikeyi is an early career research and LLM candidate at the London School of Economics (LSE). The research was commissioned by CLRNN and sponsored by the University of Reading. Contributions were made by Victor Olusegun, Finance Associate, Templars.
 See section 83 Corporate Restructuring and Insolvency Act 2020.
 Insolvency and Restructuring Act 2016 Sub-Chapter 3 & 5.
 See Chapter 18 of the Companies and Allied Matter Act 2020.
 See Chapter 17 of the Companies and Allied Matter Act 2020.
 For example, in Chapter 26 of the Companies and Allied Matter Act 2020.