Practical Steps in a Corporate Restructuring Transaction in Ghana

Corporate restructuring simply refers to the process in which a company makes crucial changes to its capital structure or operations, usually in financially difficult situations. For a more detailed explanation, refer to our articles on Corporate Restructuring and The Role of The Board in Ghana and The Key Role of Due Diligence in Corporate Restructuring Transactions in Ghana.

The main objectives of corporate restructuring are to reduce debt, improve cash flow, and ensure that the company continues to operate in a financially stable manner. Factors such as financial distress, mergers, acquisitions, regulatory compliance, and operational efficiency are common triggers for corporate restructuring.

In Ghana, the key legal and regulatory frameworks that govern corporate restructuring include the Corporate Insolvency & Restructuring Act, 2020 (Act 1015) and the Companies Act, 2019 (Act 992). Additionally, various industries are subject to their own specific regulations during the restructuring process.

Below are the practical steps that businesses or companies must follow when undergoing a corporate restructuring transaction in Ghana:

1. Assessment of Financial Health

Before embarking on a corporate restructuring transaction, it is essential for the Board of Directors, financial advisors, and legal team to conduct a comprehensive assessment of the company’s financial position and health. This involves reviewing key aspects such as debt obligations, cash flow, operational efficiency, and overall financial stability. The findings from this assessment will help identify the underlying causes of financial difficulties, whether they stem from excessive debt, operational inefficiencies, or unfavorable market conditions.

If the company is insolvent (unable to pay debts when due or has liabilities exceeding assets), the Board must consider formal restructuring options to prevent liquidation. The company’s management should explore all possible recovery strategies, including refinancing, cost-cutting, asset sales, and negotiations with creditors before opting for formal restructuring.

2. Board Approval & Engagement of a Restructuring Professional

Once financial distress is confirmed, the Board of the company must meet to deliberate on the best restructuring method. The Board shall pass a formal resolution outlining the reasons for restructuring, the method chosen, and the appointment of relevant professionals. In some cases, directors must also provide certifications ensuring that the company can remain solvent after the restructuring.

If the company is insolvent or at risk of insolvency, a licensed Insolvency Practitioner must be appointed as an Administrator or Restructuring Officer to oversee the restructuring process. These professionals play a crucial role in determining the most suitable restructuring approach, whether through administration proceedings, arrangement transactions, or mergers.

Given the complexity of corporate restructuring, early engagement of experienced advisors is essential because their expertise helps businesses implement effective restructuring strategies while minimizing risks and disruptions.

3. Development of a Restructuring Plan or Proposal

The appointed administrator or restructuring officer works with creditors, shareholders, and management to draft a comprehensive restructuring plan. This plan should outline the specific steps the company intends to take to address its financial difficulties and improve its operational efficiency.

This plan typically includes: a detailed financial review of the company, a debt repayment or restructuring strategy, a proposal for asset sales, mergers, or operational changes, any changes to shareholding structures or ownership and a timeline for implementation and recovery.

The plan must focus on maximizing value for creditors, employees, and shareholders while ensuring the company remains a viable going concern.

4. Engagement of Stakeholders & Seeking Approval

The restructuring plan must be presented to key stakeholders, including creditors, shareholders, employees, and regulatory authorities. In some cases, the company may need to negotiate with creditors to secure favorable terms, such as debt forgiveness or extensions on repayment schedules.

Corporate Insolvency & Restructuring Act, 2020 (Act 1015) of Ghana provides that creditors must approve a proposed restructuring plan during meetings or through formal voting processes. Shareholders’ approval may also be required, depending on the nature of the restructuring, especially if it involves significant changes in the company’s operations or ownership. Therefore, a meeting must be held where stakeholders review, discuss, and vote on the plan.

The approval thresholds for each type of restructuring method is as follows:

• Administration Plan: This requires support from a majority of creditors to proceed.
• Mergers: This requires at least 75% approval from members and creditors.
• Arrangements: This requires at least 75% approval from creditors or members, followed by Court approval.

If stakeholders reject the plan, the company may need to revise the proposal or consider liquidation of the company.

5. Filing with the Office of the Registrar of Companies or the Court

Once the restructuring plan is approved by stakeholders, it must be submitted to the relevant regulatory body for approval and official registration.

For mergers, the approved merger proposal is submitted to the Office of the Registrar of Companies for review and formal registration. Whilst for arrangements, an application is made to the Court, which reviews the fairness of the proposal before granting approval.

Once approved, the restructuring plan becomes legally binding on all stakeholders.

6. Implementation of the Approved Restructuring Plan & Monitoring of Progress

The company (under the guidance of the administrator or restructuring officer) proceeds with executing the approved plan.

Implementation measures may include:

• Debt restructuring agreements with creditors.
• Operational changes such as downsizing, cost-cutting, or changing management.
• Mergers or asset sales to strengthen the company’s financial position.
• Changes in shareholding or ownership structures under an arrangement.

During the implementation phase, it is essential to keep stakeholders informed about the progress of the restructuring and any challenges that arise by providing regular progress reports to the creditors, shareholders, and regulatory bodies to ensure transparency and accountability.

If challenges arise during implementation, the restructuring officer may need to adjust the plan to address emerging risks. The failure of the company to comply with the approved plan may result in legal consequences or a move towards liquidation.

7. Post-Restructuring Monitoring & Evaluation

After the restructuring plan has been implemented, the business or company should continuously monitor its financial and operational performance. This involves regularly evaluating whether the restructuring efforts have achieved the desired outcomes, such as improved cash flow, reduced debt, and enhanced profitability.

A post-restructuring review can help identify areas that still require improvement, and the company can make further adjustments as necessary. This step is essential to ensure that the company remains on a path toward long-term stability and growth.

8. Conclusion Exit & Return to Normal Operations

If the restructuring is successful, the business or company returns to normal operations with improved financial health.

The administrator or restructuring officer steps down, and control is handed back to the Board of Directors. The company continues operating under the new structure established during the restructuring. If the restructuring fails, the company may proceed to liquidation as a last resort, where assets are sold to repay creditors.

Conclusion

Corporate restructuring is a vital process that enables companies to overcome financial challenges and position themselves for long-term success. By following the practical steps outlined – from conducting a comprehensive assessment to post-restructuring monitoring – companies can successfully manage the restructuring process and emerge stronger, more competitive, and financially stable. With the support of legal and financial professionals, businesses can navigate complexities, mitigate risks, and secure a sustainable future.

By: Verissa Odame-Koranteng

Junior Associate

VINT & Aletheia Attorneys & Consultants

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