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Companies and Economic Growth: Time to Rethink the Treatment of Insolvent Corporate Entities in Nigeria
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Published by: Admin

Published:6 months ago

View: 9

Pages: 19


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This article calls for a change in the management of corporate insolvencies in Nigeria. By highlighting the important contributions made by companies to economic growth, it argues that it is imperative to have an insolvency system that supports companies when they experience financial distress or become insolvent. Achieving this goal is dependent on creating a corporate “rescue culture” and getting stakeholders in insolvency to imbibe the philosophy in Nigeria. Such a culture, the author opines, requires the enactment of a new and modern rescue-oriented insolvency law and having a functional insolvency system, institutions and personnel to administer insolvency. An insolvency law embedded in rescue procedures will operate to ensure that liquidation is a procedure of last resort, and one to be applied to an insolvent entity only where all attempts to rescue it fail. Whilst acknowledging the fact that not all companies are candidates for rescue, the author takes the view that the insolvency of a company should not necessarily spell its legal demise as is currently the case in Nigeria with most insolvent companies due to the trigger-happy creditors who erroneously believe that they can recover debts owing to them through fire-sales as opposed to company reorganisations. The author argues that rescuing an insolvent company is more advantageous to stakeholders with economic interests in it than liquidation by demonstrating that if a distressed company is rescued and returned to profitability, not only will it be able, over time, to meet all of its financial obligations to its body of creditors, but the company will also survive and continue to provide jobs for the employees, make tax revenue contributions to the state as well as ensuring that the customers are not deprived of the goods or services provided by the company – contributions vital to the growth of a country’s economy all of which would be lost if the company ceases to exist.

Development Bank of Nigeria exists to alleviate financing constraints faced by Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria through providing financing, partial credit guarantees and technical assistance to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.

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