A MEMBER of the Governing Council of the Ghana Association of Restructuring and Insolvency Advisors (GARIA), Mr Jacob Saah, has cited poor corporate governance and mismanagement as the major cause of insolvency and liquidation in lots of businesses.
Although he admitted businesses might go into distress due to a number of factors such as changing market conditions, change in the regulatory environment and changes in the global environment, he said mismanagement was a major factor.
Speaking in an interview with the paper ahead of the GRAPHIC BUSINESS/Stanbic Bank Breakfast meeting, he said: “It is important to understand that companies do not go into distress solely because of mismanagement but this is a major factor.
“If management put in place the right corporate governance, apply themselves properly, see the warning signs, obtain advice when they should and put in proper management practices, they will be able to sail through,” he stated.
“In whatever environment we have, there are some companies that survive and others that do not so there must be a reason for those who survive, and that is good management practices,” he added.
Act when you see warning signs
He, therefore, urged managements of banks and other businesses to act when they start seeing the warning signs of distress.
“For the general business community as a whole, I think we ought to get to a point where we can tell that the company is not doing so well and when we get there, we must seek advice. In insolvency literature, there is something known as the demise curve and it tells you that when a company grows, it gets to a point when it starts declining and this is where the management have to act,” he explained.
“Depending on where you see the warning signs and when you decide to take action, you may be able to save the company but if you don’t and wait till it goes down then of course there is not much that can be done. If you see things early enough, you can find a way of turning the business around,” he added.
Touching on the issue of insolvency and liquidation in the banking sector, Mr Saah commended the Bank of Ghana for its intervention in the banking sector.
He said the decision of the Central Bank to put uniBank under administration and also appoint an advisor for Sovereign Bank was an early step which would minimise the impact on shareholders, customers, and employees of these two banks.
“These measures taken by the BoG are all found in the Banks and Specialised Deposit taking Institutions Act (930) and it is, therefore, good the BoG has started implementing them to purge the financial sector,” he noted.
“The banking sector is a regulated industry supervised by the BoG and Banks and Specialised Deposit taking Institutions Act (930) provides a number of mechanisms that the BoG could apply in such instances,” he added. — GB