The debt priority scheme in insolvent liquidation in Ghana: An evaluative analysis

The broad distinction between secured and unsecured debt has important implications for their treatment in insolvency. The general rule is that all creditors are treated pari passu in the distribution of the insolvency estate: sharing the assets pro rata according to their pre-insolvency entitlements. Security interests, however, modify this pari passu treatment by giving priority to secured debt in insolvency. Several national insolvency regimes also give preference to certain classes of debt, thereby altering the broad treatment of secured and unsecured debt in insolvency. These alterations are expressions of policy choices that can have direct and indirect consequences for the creditor–debtor regime. This article uncovers and evaluates the policy choices underlying the debt priority scheme in insolvent liquidation in Ghana in comparison to the stated objectives of the corporate insolvency system under the Corporate Insolvency and Restructuring Act, 2020 (Act 1015). The analysis uncovers a significant omission and two instances of confusion in the purpose of the system for the classification and priority of debt under Act 1015. Overall, the article concludes that severe subordination of general unsecured debt under the Ghanaian scheme is a strong disincentive to advancing unsecured credit to businesses, especially small businesses, which often have few viable assets for the creation of secured interests. In an economy in which the majority of businesses are small and medium enterprises, the debt priority scheme is unnecessarily skewed towards big business and does not accord with the realities of the character of the Ghanaian economy.