Analysts seek strategic solution to insolvency framework, best practices shortfalls    

Rising cost of production, steep rise in prices and downward movement in purchasing powers amid the dwindling national income, analysts and professionals in Nigeria have stressed the need for strategic best practices for strengthening legal frameworks for restructuring, as opposed to the traditional focus on liquidation in order to grow the economy.

The central point of modern insolvency legislation in developed countries is on business restructuring and recovering.

However, the Nigerian practice of insolvency seems to be inadequate with regard to business restructuring and turnaround.

Insolvency is not only about being an “undertaker’’ to dissolution of a company, but giving life to an ailing company by a way of resuscitation.

Several analysts in their presentations at the “Insolvency Best Practices: A Case for Reform in Nigeria” conference organised by Institute of Chartered Accountants of Nigeria (ICAN) in Lagos, observe that notwithstanding the shortcomings in restructuring frameworks and practices in emerging economies, insolvency professionals in these economies can make a positive contribution in overcoming shortcomings by helping develop new out-of-court restructuring platforms designed to facilitate resolution of difficult restructuring situations.

Samuel Olufemi Deru, the 51 president of ICAN, said the theme of the conference brought to the fore the need for the professionals to exchange ideas, be exposed to local and international best practices and acquire the skills required to function effectively as a practitioner.

According to Deru, there is need to encourage chartered accountants to become certified insolvency practitioners and explore the opportunity in this area of specialised profession. “In a developing economy like ours, the practitioners have the opportunity to help revive organisations that have wound up or performing below expected capacity,” Deru said.

Steven T. Kargman, president, Kargman Associates/International Restructuring Advisors, in his presentation titled ‘Insolvency Practice: Challenges and Opportunities in the Emerging Economies,’ observed that with slowing global growth generally and slowing growth in the emerging economies in particular, many businesses in the emerging economies could soon be facing financial distress.

Kargman opined, “There is the need for professionals experienced and committed to ‘rescuing’ otherwise viable companies rather than focused primarily on liquidating companies.”

He further maintained that the country couldn’t achieve rescues without having the proper supporting framework and infrastructure.

There is the need to have professionals who understand the advantages of restructurings and are knowledgeable about how to execute restructurings, according to Kargman, which “also requires the existence of a legal and regulatory framework that supports restructuring.

“Insolvency practitioners in the emerging economies can be at the forefront of these efforts to improve the restructuring landscape.

“By so doing, insolvency practitioners can be at the core of any effective response that emerging economies are able to mount in addressing and resolving the financial distress for businesses that may result from the current fragile state of the global economy.”