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Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
ISSN NO: ISSN-L (online): 2026-500X Journal Website: https://journal.ucc.edu.gh/index.php/jobed
Saving Honest Entrepreneurs through the Second Chance Policy in
Ghana
Francis Kofi Korankye-Sakyi
Faculty of Law, University of Cape Coast, Ghana
DOI: https://doi.org/10.47963/jobed.v12i.1518
Corresponding author: francis.korankye-sakyi@ucc.edu.gh
To cite this Paper: Korankyi-Sakyi, F. Saving Honest Entrepreneurs through the Second Chance Policy in Ghana. Journal of Business and
Enterprise Development (JOBED), 12(1). https://doi.org/10.47963/jobed.v12i.1518
Keywords
Abstract
Entrepreneurship
CAMEL
Insolvency
Financial sector reforms
Second Chance Policy
Received: 16Th June 2024
Revised: 12th September 2024
Accepted: 24th September, 2024
Editor: Anthony Adu-Asare
Idun
Copyright (c) 2024 Francis
Korankyi-Sakyi
This work is licensed under
a Creative Commons
Attribution-NonCommercial
4.0 International License.
This paper analyses the existing legal frameworks on insolvency in Ghana and how
they sufficiently provide to save honest entrepreneurs during financial reforms.
Financial sector reforms are a welcomed mechanism to foster financial sector
efficiency for sustainable growth. During the period of decision-making in financial
sector reforms, it is expected that some business concerns would have their lifespan
terminated. Notwithstanding, recent episodes of financial deregulation have revealed
unintended consequences of demobilising the sector which has affected innocent
entrepreneurs. The aftermath of the financial sector reforms has passed the Corporate
Restructuring and Insolvency Act, 2020 (Act 1015). This paper aims to address the
issue of whether or not the existing legal framework benchmarked against the Capital
Adequacy, Asset quality, Management, Earnings, Liquidity (CAMEL) framework
absolves honest entrepreneurs in such a period as against fraudulent entrepreneurs.
The paper adopted the doctrinal legal research approach using distinct research tools
including data from primary sources, statutes, journal articles, online resources and
other obligatory tools. It finds that recent financial sector reforms did not segregate the
fraudulent entrepreneur from honest entrepreneurs to make room for the CAMEL to
save the latter. It concludes on how a second chance policy can be developed along
with existing statutes to settle and save honest businesses in periods of economic
volatility.
Introduction
Entrepreneurship is a key factor in national economic development towards goal nine of the
Sustainable Development Goals (SDGs). SDG nine partly seeks to promote inclusive and
sustainable industrialisation by 2030 and to significantly raise the industry's share of
employment and gross domestic product (GDP) in line with national circumstances in the least
developed countries (LDCs). However, the recent financial and economic volatility in Ghana
exposes a contrived legal environment for entrepreneurs. The financial trajectory through the
period of banking reforms since 2006 in Ghana has impacted all forms of enterprises
(Korankye-Sakyi, Abe & Yin, 2023). For entrepreneurs, failure is an honest contemplation that
requires legislative interventions. However, there is a dearth of studies on the Ghanaian policy
and legal environment to highlight this phenomenon and how challenged entrepreneurs can be
rescued in times of formal insolvency.
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
The theory of second chance is based on ideation that encourages calculated risk by
companies and requires a framework to minimise the challenges of insolvency; and rescue for
affected companies (Wood, 2013). Various commentators posit that failure is a part of taking
risks ((Lattacher & Wdowiak, 2020; Anderson & Morrison, 2015; Cope, 2011; Fletcher, 2009;
Goode, 2011, 2). However, it has been suggested that the failure of many businesses is the
result of incalculable risk (Jensen, 2000). According to Anderson and Morrison (ibid), the
concept of "rescue" or Second Chance Policy as an objective corporate insolvency legal
regime has surfaced strongly in the last 40 years in many jurisdictions. In many jurisdictions,
the idea of company rescue is a unique alternative to insolvency. According to Wood (ibid),
"Company survival is difficult enough to achieve in flourishing times when the economy is
strong." In other words, there is an incentive to offer support to "all" ailing businesses and
individuals in various stages of insolvency when necessary1. In a developing country like
Ghana with recent financial and economic challenges, it would be incongruent to argue the
same on this premise in a recession.2 Drawing on the position of Wood (2013) that the fast-
moving legal environment of corporate and commercial law impacts the financial climate, I
argue that the role of entrepreneurs needs to be safeguarded through a robust legal
environment that anticipates future risks in protecting honest entrepreneurs during corporate
insolvency regimes. This is regular with the position that corporate rescue theory in many
jurisdictions is a medium to advancing knowledge in the area of insolvency, in theory and
practice (Wood, ibid). Various jurisdictions perceive the Second Chance Policy differently (Qi,
2008, 131). For instance, in the United States (US) the Second Chance Policy is encouraged
while in the United Kingdom (UK), it is looked at with suspicion. In Ghana, there is no
empirical data to determine how the public reacts to this phenomenon due to the lack of
sunshine on it. One reason for any country to shy away from embracing a second chance
policy is because of the stigma of failure. This must not be encouraged. Financial sector
reform is generally considered natural and good for an economy as it engenders financial
innovation and promotes efficiency in the financial system, potentially leading to higher
economic growth (Korankye-Sakyi, Abe & Yin, ibid). The case has been made for "most"
insolvent companies to be given the "chance" to be rescued either by reorganisation or
liquidation. In the case of Solomons and Defty v Cheal, Huggins and Coster (2011, para 14),
Justice Norris argued that rescuing the company in times of insolvency is a going concern (See
Keay, 2010, 129). Drawing on this, it is argued that a forward-looking legal fortitude should
guarantee a second chance ideology within the existing legislative framework through
appropriate amendments or insertions as the need be.
The Second Chance Policy in insolvency aims to provide individuals or businesses
facing financial distress with an opportunity to recover and rebuild their businesses. The policy
recognises that bankruptcy or insolvency does not necessarily equate to a permanent failure
but may arise from a combination of unforeseen circumstances including but not limited to
financial mismanagement, bad corporate governance practices, externalities or other factors.
Under this policy, distressed entrepreneurs are given a chance to restructure their debts,
negotiate with creditors, and propose sustainable repayment plans, even with governments.
1
See Goode, R. (2011). Principles of corporate insolvency law. (4th ed.), (London: Sweet &
Maxwell), 111 on forms of insolvency.
2
A recession is usually defined as a period of general economic decline; specifically two
consecutive quarters of negative GDP growth.
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
This approach encourages financial institutions and creditors to work collaboratively with
debtors to find mutually beneficial solutions that maximise recovery and minimise the
negative impact on both parties. The Second Chance Policy aims to strike a balance between
protecting the interests of creditors and providing debtors with a fair opportunity to regain
financial stability.
By integrating the second chance policy into the legal regimes of insolvency, a country
can create a system that promotes entrepreneurship, innovation, and economic growth while
minimising the long-term consequences of insolvency for individuals and businesses. It
encourages a supportive environment where viable businesses can overcome temporary
setbacks and contribute to the country's economic development.
Given this background, this paper analyses the existing legal frameworks on
insolvency in Ghana and how they sufficiently provide to save honest entrepreneurs during
financial reforms. SDG Nine requires sustainable policy interventions that keep enterprises
surviving in any form of economic, financial or ecological restructuring to help realise its
objective. In any modern economy, financial sector reforms are welcomed as long as they meet
standards and engender financial sector performance, as stated earlier. Financial sector
reforms, thus, are a welcomed mechanism to foster financial sector efficiency for sustainable
growth. During the period of decision-making in financial sector reforms, it is expected that
some business concerns would have their lifespan terminated. Notwithstanding, recent
episodes of financial deregulation have revealed unintended consequences of demobilising the
sector by affecting innocent entrepreneurs in such events. In the recent banking sector reforms
beginning in 2016 in Ghana, over 400 financial institutions were liquidated without any effort
to disaggregate the so-called fraudulent entrepreneurs from honest enterprises. In the aftermath
of the financial sector reforms, the Corporate Restructuring and Insolvency Act, 2020 (Act
1015) was passed. The objective of this paper is to address the issue of whether or not the
existing legal framework benchmarked against the CAMEL framework absolves honest
entrepreneurs in such a period as against fraudulent entrepreneurs. It finds that recent financial
sector reforms did not segregate fraudulent and honest entrepreneurs to make room for the
CAMEL to save the latter. It concludes on how a second chance policy can be developed along
with existing statutes to settle and save honest businesses in such periods.
Objectives
This paper aims to address the issue of whether or not the existing legal framework in Ghana
benchmarked against the CAMEL model absolves honest entrepreneurs against fraudulent
entrepreneurs in insolvency situations. To achieve this aim, the following objectives will be
pursued:
i. To assess the effectiveness of the Second Chance Policy in supporting honest
entrepreneurs in Ghana.
ii. Identify key challenges and barriers faced by honest entrepreneurs in Ghana.
iii. Propose strategies to enhance the effectiveness of the Second Chance Policy in Ghana.
Research Questions
i. How is the effectiveness of the Second Chance Policy in supporting honest
entrepreneurs in Ghana?
ii. What are the challenges faced by honest entrepreneurs in Ghana?
iii. What are the appropriate strategies for enhancing the effectiveness of the Second
Chance Policy in Ghana?
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
Methods
The paper as a qualitative overview adopted the doctrinal legal research approach using
distinct research tools including data from secondary sources; books, statutes, journal articles,
online resources and other obligatory tools. The doctrinal desktop methodology refers to a
research approach that primarily relies on analysing existing legal documents and literature
without conducting fieldwork or gathering empirical data (Ali, et al., 2017; Hutchinson, 2015;
Hutchinson & Duncan, 2012; Kilcommins, 1973). The several justifications for using this
methodology in this paper include the fact that, first; the doctrinal desktop methodology
allowed the researcher to extensively analyse legal documents, such as legislation, case law,
and policy frameworks, to gain a thorough understanding of the existing legal framework
surrounding the second chance policy in Ghana.
Second, by focusing on existing literature and policy documents, the methodology
allowed the researcher to evaluate the rationales behind the Second Chance Policy in Ghana.
The researcher relied on the assumption that conducting research through the doctrinal desktop
methodology is often more accessible and feasible than other approaches, particularly when
fieldwork, data collection, or direct engagement with stakeholders may be challenging in terms
of time and funding (McConville & Chui, 2017; Sanjari, et al., 2014; Genn, Partington &
Wheeler, 2006). It is acknowledged that while the doctrinal desktop methodology is a valuable
tool for certain types of research, such as in this instance, it has limitations in terms of
capturing real-world experiences or the perspectives of stakeholders (Petropoulos et al., 2022;
Robson & McCartan, 2011).
Combining this methodology with other research approaches, such as interviews or
surveys, could have provided a more holistic understanding of the subject and its impact on
honest entrepreneurs in Ghana. Some inclusion and exclusion criteria were considered for selecting
the literature for the doctrinal review (Patino & Ferreira, 2018). For the inclusion criteria, literature
specifically addressing the topic was considered. This included legal texts, academic articles, and
reports specifically focusing on insolvency laws, CAMEL framework, entrepreneurship, and economic
development in Ghana. Again, the methodology used recent papers to ensure up-to-date information
that reflects the current state of affairs regarding insolvency laws and entrepreneurship in Ghana.
However, studies and historical works that provide basic knowledge were included. On exclusion
criteria, literature that does not directly relate to the topic or does not provide substantive insights into
insolvency laws and entrepreneurship in Ghana were excluded. Again, it excluded source materials that
are overly legalistic or technical in nature and may not be easily comprehended by non-expert readers.
Results and Discussions
Theoretical framework
The Second Chance Policy is underpinned by various economic and sociological theories; the
fresh start theory argues that individuals or businesses should be given a complete discharge of
their debts and a fresh start after going through insolvency proceedings (Hershfield, et al.,
2018; Veronika Job, et al., 2017; Hershfield, et al., 2015; Dai, Milkman & Riis, 2015; Dai,
Milkman & Riis, 2014; Alter & Hershfield, 2014). The idea is to remove the burden of past
debt and enable individuals to regain financial stability and contribute to the economy; the
rehabilitation theory focuses on rehabilitating the debtor and helping him to rebuild his
financial situation (Leplege, et al., 2000; Gendreau & Ross, 1987). It emphasises providing
support, guidance, and resources to help debtors regain financial independence and become
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
productive members of society; according to the economic efficiency theory on the other hand,
a Second Chance Policy promotes economic efficiency by allowing failed entrepreneurs or
businesses to re-enter the market (Murillo-Zamorano, 2004; Beckert, 2003; Camerer & Ari,
1988). The reasoning is that individuals with valuable skills or ideas may learn from their past
mistakes and contribute to economic growth if given the opportunity; the social justice theory
stresses the importance of reducing the social stigma associated with financial failure (Tyler, et
al.; 2019; Jost & Kay, 2010; Rizvi, 1998). It argues that providing a second chance enables
debtors to regain their dignity and reduces the negative societal impacts of insolvency.
Conceptual framework
Understanding the Second Chance Policy
The Second Chance Policy, also known as the Fresh Start Policy or the Rescue Policy is
normally entailed in a legal provision that aims to provide individuals or businesses with a
fresh start following insolvency (Efrat, 1999). This policy recognises that facing bankruptcy or
insolvency is often a challenging situation, and it allows debtors to rebuild their lives or
businesses without the burden of crippling debt. Under this policy, certain debts may be
discharged or restructured, depending on the laws of the specific jurisdiction. This allows
individuals or businesses to eliminate or reduce their outstanding debts, allowing them to
regain financial stability. In many regimes, the policy is not offered across the board but
prescribes some eligibility criteria for a distressed company to be a beneficiary. These criteria
may vary from country to country, as well as within different legal systems. One such criterion
is the application of the CAMEL model.
In addition to assisting with the discharge or restructuring of debts, the Second Chance
Policy might also provide support in terms of financial counselling, rehabilitation programmes,
or education on financial management. The goal is to help individuals or businesses learn from
their financial struggles and make informed decisions in the future to maintain financial
stability.
Principles of the Second Chance Policy
The second chance policy under entrepreneurship aims to provide individuals who have
experienced business failure an opportunity to try again. The policy aligns with Cope’s (ibid)
theory that failure does not automatically lead to long-term negative professional effects. He
argues that failure must be accepted as a “fact of life” (Cope, ibid, 3). This assurance is key to
motivating honest entrepreneurs to take risks and receive support for their innovations in case
of failure. The key principles of the second chance policy revolve around promoting
entrepreneurship, fostering economic growth, and supporting individuals in overcoming past
failures.
First, the policy on second chance contemplates promoting risk-taking among
entrepreneurs. As encouraged by Wood (ibid), Fletcher (ibid) and Goode (ibid), every
entrepreneur is a conscious risk taker. Other commentators argue that entrepreneurs are not
wild risk-takers but instead calculated risk-takers. Entrepreneurs are not “high-rolling,
riverboat” gamblers (Kurtz, 2004). According to researcher and former Inc. 500 Chief
Executive Officer, Keith McFarland, "the belief that entrepreneurs are big risk takers just isn’t
true” (Kurtz, ibid, 120). This principle encourages individuals to take risks and start new
businesses by providing them with a safety net after a previous business failure (Lattacher &
Wdowiak, ibid; Cannon & Edmondson, 2005). This helps to promote a dynamic
entrepreneurial environment where individuals feel more confident to innovate and create new
ventures. Another principle of this policy is to encourage entrepreneurs to learn from their
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
mistakes (Cope, ibid; Cannon & Edmondson, ibid; Baumard & Starbuck, 2005). Cope (ibid)
conceptualised venture failure as a learning process. He argued that “recovery and re-
emergence from failure is a function of distinctive learning processes that foster a range of
higher-level learning outcomes.” According to Lattacher and Wdowiak (ibid, 1093), “[F]ailure
plays a pivotal role in entrepreneurial learning.” The history of the study of failure in
entrepreneurship dates back to two decades ago (Walsh & Cunningham, 2017; Cope, 2005;
Shepherd, 2003). Since McGrath (1999) and Zahra and Dess (2001) work on the nuances of
entrepreneurship and failure, the phenomenon has become a critical area of academic
inquisition drawn on various perspectives (He et al., 2018; Jenkins & McKelvie, 2016;
Wennberg & DeTienne, 2014). Minniti and Bygrave (2001) states that “[E]ntrepreneurship is a
process of learning.” The policy recognises that business failure can often be a valuable
learning experience and yields opportunities (Shepherd, ibid; Minniti & Bygrave, ibid).
Giving entrepreneurs a second chance acknowledges that failure is a part of the entrepreneurial
journey and provides them with an opportunity to learn from their mistakes and apply those
lessons to new ventures (See Amankwah-Amoah et al., 2018; Cope, ibid; Frota Vasconcellos
Dias & Martens, 2019). Drawing from the theory of Lattacher and Wdowiak (ibid) that failure
may foster learning and successful entrepreneurial rescue, this paper argues that a policy on
second chance in an insolvency regime presents the best assurance for saving honest
entrepreneurs in times of financial distress.
Again, a fundamental principle underlying the policy is to offer financial support in the
form of access to capital, loans, or grants to individuals who face business failure. This support
aims to reduce the financial barriers that might prevent entrepreneurs from trying again and
helps them rebuild their businesses. Mentoring and guidance programme is another principle
upon which resources and guidance are given to entrepreneurs to gain insights, in their second
attempt to help them make better-informed decisions and mitigate risks. There is theorisation
that there is a "growing awareness that entrepreneurial skills, knowledge and attitudes can be
learned and in turn lead to the widespread development of entrepreneurial mindsets and
culture, which benefit individuals and society as a whole" (Bacigalupo, Kampylis, Punie &
Van den Brande, 2016). Such learning processes for honest entrepreneurs include mentoring
provided to help them reorganise.
Finally, the stigma of failure is one factor that drives some jurisdictions from
advancing the legal regimes of second chance policy (Shepherd, Williams, Wolfe, & Patzelt,
2016; Jia, 2015; Simmons, Wiklund & Levie, 2014; Qi, ibid; Landier, 2005). Entrepreneurship
can be a challenging journey, and failure is a common occurrence (Khelil, 2016; Artinger &
Powell, 2016). The second chance policy helps reduce the stigma associated with business
failure and encourages society to view it as a stepping stone rather than a career-ending
setback (Hwang & Choi, 2021).
In a nutshell, the second chance policy under entrepreneurship seeks to create a
supportive ecosystem that acknowledges the lessons learned from failure, provides resources
and support, and encourages individuals' entrepreneurial spirit, ultimately leading to economic
growth and prosperity.
Key components of the second chance policy
The second chance policy, often referred to as the "fresh start" (Efrat, ibid) or "rescue relief"
policy (Bridge, 2013), is a framework that aims to provide individuals or businesses facing
insolvency with an opportunity for a new financial beginning. The specific aspects of the
policy can vary depending on the jurisdiction and legal framework. Some common elements
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
usually expected to yield to beneficiary entrepreneurs are identified below. One of the primary
aspects of the Second Chance Policy is debt relief or discharge (Spooner, 2019). This means
that eligible debts are either partially or completely forgiven, allowing individuals or
businesses to start afresh. However, it is important to note that not all debts may be discharged,
particularly those related to certain legal obligations like child support or taxes. To protect
individuals or businesses from aggressive debt collection actions, the Second Chance Policy
often includes an automatic stay provision (Zinn, 2020; Ayer, Bernstein & Friedland, 2004;
Westinghouse Credit Corp. v. D’Urso, 2002; Reiter v. Cooper, 1993). This provision halts all
collection efforts, including lawsuits, wage garnishment, or foreclosure, giving the debtor
some breathing room to reorganise their finances (Zinn, ibid). Another aspect typically tied to
this policy is financial rehabilitation. This often involves creating a plan to repay creditors,
either in full or through restructuring (Suman, 1994; Flint, 1991). The goal is to ensure that
those who benefit from the policy can regain their financial stability over time. While the
Second Chance Policy grants a fresh start, it usually comes with credit consequences (Chang,
2018; Yuille, 2015). Filing for insolvency can impact one's credit score and make it
challenging to secure loans or credit in the future (Acton, 2018; Irby, 2018; Chang, ibid).
However, with diligent financial management, it is possible to rebuild credit over time.
Different jurisdictions have varying eligibility criteria for the Second Chance Policy. Factors
such as income, debt levels, previous bankruptcy filings, and the type of debt owed may be
taken into account to determine eligibility. It is important to underscore the role of the specific
laws and regulations in a jurisdiction for a comprehensive understanding of the Second Chance
Policy under insolvency, hence the position of the paper to reinforce the policy by integrating
relevant provisions in the existing legal framework or make a policy a necessary to save honest
entrepreneurs.
Honest entrepreneurs versus fraudulent entrepreneurs
The objective criteria to distinguish between an honest entrepreneur and a fraudulent
entrepreneur can be based on the actions and intentions of the entrepreneurs. First, honest
entrepreneurs operate with a strong sense of integrity, emphasising honesty, transparency, and
ethical behaviour in all their business dealings. They adhere to legal and moral standards,
ensuring fairness and accountability. Second, honest entrepreneurs genuinely believe in their
products or services and aim to create value for their customers and society. They focus on
building long-term relationships, understanding customer needs, and developing innovative
solutions. Third, honest entrepreneurs comply with all applicable laws, regulations, and
industry standards. They understand the importance of following legal requirements, obtaining
necessary permits or licenses, paying taxes, and protecting intellectual property rights. Fourth,
honest entrepreneurs maintain accurate financial records, report income truthfully, and operate
within their means. They prioritise ethical financial practices and avoid fraudulent activities
like embezzlement, money laundering, or misusing investors' funds (Pizzi, et al. 2020;
Huddleston Jr, 2019; Kocher, 2014).
On the other hand, fraudulent entrepreneurs engage in deceptive practices and exploit
others and/or customers for parochial aggrandizement. First, fraudulent entrepreneurs
commonly engage in deception, misrepresenting their products, services, or business
operations. They may provide false information about their qualifications, financial status, or
performance to attract investors or customers (Scheaf & Wood, 2021; Andoh, Quaye, &
Akomea-Frimpong, 2018; Aidis, van Praag, 2007). Again, fraudulent entrepreneurs often
resort to unethical practices to gain an advantage. This can include promising unrealistic
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
results, engaging in price fixing or cartel behaviour, or using unfair tactics to eliminate
competition (Twellium Industrial Co. Ltd v Nutrifood Ghana Ltd, 2023). In addition,
fraudulent entrepreneurs evade legal requirements, such as evading taxes, operating without
necessary licenses, or ignoring safety regulations. Their actions indicate disregard for the law
and potential harm to stakeholders. Also, fraudulent entrepreneurs intentionally set out to
deceive others, seeking personal gains at the expense of investors, partners, or customers.
Their primary focus is often on making quick profits or carrying out illegal activities. To save
honest entrepreneurs in insolvency proceedings, it will be beneficial to have a clear policy
framework alongside Act 1015 that identifies and addresses fraudulent entrepreneurs to protect
consumers, investors, and the overall business ecosystem. An enduring legal framework, due
diligence, and increased awareness are recommended as this paper seeks to argue for
preventing and penalising fraudulent behaviour in entrepreneurship (Scheaf & Wood, ibid;
Andoh, Quaye, & Akomea-Frimpong, ibid; Aidis, van Praag, ibid).
The CAMEL framework
The CAMEL is a popular model for assessing distressed companies during insolvency
proceedings for rescue interventions. It is the model which measures the financial performance
of financial institutions in terms of five features or factors: Capital adequacy, Assets quality,
Management, Earning quality, and Liquidity (Kagan, 2023). The CAMEL rating system is a
useful model for rating financial institutions internationally (Kagan, ibid). This model helps
to identify financial institutions, for instance, that are weaker and potentially problematic for
assessment and rescue or reorganisation. In determining the “Capital Adequacy” authorities
assess the capital trend of the company. This involves examining the company’s regulatory
compliance with risk-based net worth or capital requirements3 (Glazman, 2022). This requires
compliance with interest and dividend rules and practices to stay within the requirement.
Additionally, the analysis of capital adequacy considers the company’s growth plans,
economic environment, and ability to control risk, and loan and investment portfolios. Data
shows that many defunct Ghanaian banks affected by recent banking reforms defaulted in this
domain (See Korankye-Sakyi, Abe & Yin, ibid; Sandow, Duodu & Oteng-Abayie, 2021;
Gadagbui & Amoah, 2016). In terms of “asset quality”, examiners are concerned with an
institutional loan's quality, which covers the earnings of the institution. Assessing asset
quality is done by comparing the financial institution’s balances with its capital earnings to
ascertain its investment risk factors. A positive rating determines the institution’s stability
during crises. It shows the efficiency of an institution's investment policies and practices
(Kagan, ibid; Xidonas, et al., 2007; Hsu, 2002). “Management assessment” looks into an
institution’s ability during financial crises (Singh & LaBrosse, 2012; Coffee, 2006). This
factor assesses management's ability to show measures in place to confront risks in the
institution's daily activities. It entails internal and external regulatory compliance by the
management (Hopt, Kumpin & Steffek 2009). A financial institution’s ability to produce
earnings to be able to sustain its activities, expand, and remain competitive is a key factor in
rating its continued viability. This is done by assessing the institution’s earnings, earnings
growth, stability, valuation allowances, net margins, net worth level, and the quality of the
bank's existing assets. A bank earns money both through interest on loans and non-interest
sources like fees, charges and commissions (Bank for International Settlements Press and
3
Risk-based capital requirement refers to a rule that establishes minimum regulatory capital for
financial institutions.
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
Communications, 2008; Kagan, ibid). To determine the institution’s liquidity, the model
examines interest rate risk sensitivity, availability of assets that can easily be converted to
cash, dependence on short-term volatile financial resources, and asset and liability
management technical competence of the institution (Bank for International Settlements Press
and Communications, ibid; Kagan, ibid).
Challenges faced by honest entrepreneurs
To make a case for a policy to save honest entrepreneurs, I will not hesitate to explore some
common challenges faced by honest entrepreneurs in the entrepreneurial ecosystem in Ghana.
As in many developing countries, entrepreneurs in Ghana are confronted with diverse
challenges in their management and operational stages (Silva, Beirão & Torres, 2023).
Cash is considered the life of every entrepreneur (Korankye-Sakyi, 2019; Lawal, Iyiola
& Adegbuyi, 2018; Greene & Storey, 2004). Limited access to capital is a common feature of
the challenges to most entrepreneurs in Ghana (Korankye-Sakyi & Oluyeju, 2022; Hwang,
Desai & Baird, 2019; Korankye-Sakyi, ibid). Studies have shown that a critical challenge
faced by entrepreneurs is the difficulty in accessing sufficient funding for startups or scale
businesses (Korankye-Sakyi & Oluyeju, ibid; Hwang, Desai & Baird, ibid; Korankye-Sakyi,
ibid; Bellavitis, Filatotchev, Kamuriwo & Vanacker, 2017; Barry & Mihov, 2015; Bates &
Robb, 2013; Alsos, Isaksen & Ljunggren, 2006). Again, additional financial resources are
often required to cater for inadequate infrastructure such as intermittent power supply, limited
access to technology and digital infrastructure, and inadequate transportation networks that
hinder efficient business output, especially in developing countries.
Honest entrepreneurs may face bureaucratic hurdles when starting or running a
business in an unsupportive business environment. This environment is characterised by
lengthy processes involved in business registration, licensing, and taxation. A more
streamlined and efficient system would greatly benefit entrepreneurs. Another challenge for
entrepreneurship in Ghana is competition and market access (Aidoo, 2020). Ghana has a
vibrant marketplace, but it can also be highly competitive. Entrepreneurs often struggle to
differentiate their products or services amidst intense competition. Additionally, accessing
wider markets, both domestically and internationally, can pose challenges due to trade barriers
and limited resources. To appreciate the theory of second chance policy for honest
entrepreneurs, I argue that the understanding of the problem dynamics as stated above would
influence the depth of stakeholders' understanding.
Unpacking the legal framework on second chance policy in Ghana
The Companies Act, 2019 (Act 992)
The Companies Act, 2019 (Act 992) of Ghana does not specifically address the Second
Chance policy. Act 992 mainly focuses on the regulation and governance of companies in
Ghana. It provides guidelines on the formation, operation, and dissolution of companies, as
well as rules regarding receivership, directors, shareholders, and other key aspects of corporate
governance.
The Second Chance Policy, on the other hand, pertains to the legal provisions and
mechanisms that allow individuals who have faced business failure or insolvency to have a
fresh start and an opportunity to rehabilitate themselves. While Act 992 does not directly
address this policy, Ghana's legal framework does have provisions related to business
rehabilitation, insolvency, and bankruptcy. These laws provide for mechanisms such as
company reorganisations, voluntary arrangements, debt restructuring, and liquidation
procedures. The implementation of specific aspects of the Second Chance Policy, including
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
provisions for debt forgiveness, discharge, and rehabilitation, are addressed fairly in separate
legislation beyond the scope of Act 992.
The Corporate Restructuring and Insolvency Act, 2020 (Act 1015)
The Corporate Restructuring and Insolvency Act, 2020 (Act 1015) is the main legislation
regulating corporate insolvency in Ghana. In the wake of the recent Ghanaian financial sector
reforms, the then law, the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) was
called into question as to its efficiency in dealing with the dynamics of the times. Its
inefficiencies were considered detrimental to the well-being of businesses in the country. The
passage of Act 1015 was welcomed as the responsive legal regime for administering the
corporate ecosystem of insolvency. Act 1015 effectively repealed Act 180 by introducing far-
reaching amendments to engender timely, efficient and impartial insolvency administration.
Act 1015 was introduced to provide individuals and businesses with an opportunity to
rehabilitate their financial situation and recover from insolvency. A key object of Act 1015 is
for “the administration of the business, property and affairs of a distressed company in a
manner that provides an opportunity for the company to as much as possible continue in
existence as a going concern” among others (Act 1015. s.1). This provision is a clear intent to
manifest the Second Chance Policy in the Ghanaian insolvency jurisprudence. It strikes a
balance between protecting the rights of debenture holders and affording failed businesses a
fresh start. Per ss. 1(2) of Act 1015: “A company shall be placed in administration or
restructuring if (a) the company is unable to pay the debts or current obligations of the
company as the debts or obligations fall due even if the total assets of the company exceed the
total liabilities of the company; or (b) the company has a negative net worth.”
As indicated earlier, experiences from recent insolvency and banking reforms under the
defunct Act 180 did not provide safeguards for rescuing distressed entrepreneurs; hence Act
1015 provides a safe schedule. The second chance regime under Act 1015 is elaborate with a
corporate restructuring and administration process (Act 1015, ss. 2-78). The purpose of this
insolvency regime is to place a temporary freeze on the rights of creditors and other claimants
against a distressed company and develop and implement a restructuring plan which results in
a better return for the creditors and shareholders of the company that would result from the
immediate winding-up of a distressed company (Act 105, s. 1(1) (c and d)).
First, entrepreneurs under the insolvency process may propose a repayment plan to
their creditors (Act 1015, s.1 (2)). It includes debt restructuring, rescheduling and reduction of
debts. The distressed business must show that it is incapable of fulfilling its financial
obligations and has made reasonable efforts to resolve the situation before seeking relief under
such a policy. I posit that, for many financial institutions that were liquidated and placed under
receivership recently, this provision would have served a greater purpose for a second chance
if this law was in force at the time. This demands a petition to the High Court from the debtor
company by filing documents on company assets, liabilities and debenture holders. A
determination by the court on the petition to accept or reject the request is crucial for the
appointment of a licensed administrator for the process who shall act as the restructuring
officer, unless the creditors at the watershed meeting by resolution appoint an individual to be
the restructuring officer or insolvency practitioner (Act 1015, s.39). An administrator may be
appointed by (a) the company; (b) the liquidator, where the company is in liquidation; (c) a
person holding a charge over the whole or substantially the whole of the property of the
company or the receiver appointed by that person; or (d) the Court (See Act 1015, s. 3(5)).
Second, the insolvency practitioner by law works with the parties to develop a reasonable
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
repayment plan. This plan is voted upon by the debenture holders to accept or otherwise. If the
majority of the creditors agree to the proposal, it becomes binding on all parties involved. If
the plan is successfully implemented, the debtor can obtain a discharge from their debts and
receive a second chance to rebuild their financial situation. Per section 49 of Act 1015,
Where the creditors at a watershed meeting pass an ordinary resolution that the company
executes a restructuring agreement, and the company fails to do so within the deadline for
execution, the restructuring officer shall apply to the Court for leave to convert the
administration of the company into official liquidation.
In sum, the second chance provisions under Act 1015 are for the administration of the
business, the property and affairs of a failing company to provide a chance for the company to
revitalise as a going concern; and offer temporary management interventions for the business
and assets of a distressed company through receivership (Act 1015, s. 1(1), a & b).
This law provides a structured framework to address insolvency issues and facilitate efficient
debt restructuring but fails to provide clear parameters for enabling distressed businesses to
benefit from the provisions based on factors such as Capital adequacy, Assets quality,
Management, Earning quality, and Liquidity offered by the CAMEL model.
Conclusion and Recommendations
Conclusions
Entrepreneurship is a major driver of national economic development in achieving goal nine of
the SDGs which partly seek to promote inclusive and sustainable economies. Risk is an
inherent feature of entrepreneurship. Every progressive society endeavours to resolve this
mischief through a deliberate legal mechanism to absolve honest entrepreneurs in times of
crisis. In this paper, I argued that many of the over 400 financial institutions that were
liquidated and collapsed in the recent financial sector reforms in Ghana could have been saved
if there were clear legal regimes that provided for saving honest entrepreneurs. It is established
that the absence of clear provisions in Act 180 and other mercantile laws at the time was
unhelpful. The second chance policy works effectively in supporting entrepreneurs to regroup
and reorganise after insolvency by giving a safety portfolio.
It is argued that the hiatus in the Act 180 regime informed a progressive position in the
current law under Act 1015. However, a further amendment to Act 1015 for clear provisions to
segregate honest entrepreneurs from fraudulent counterparts in future crises is required. Along
with a substantive legislative instrument, a Second Chance Policy framework focusing on the
CAMEL model can give a compass around the process.
Again, to strengthen the policy, comprehensive flexible debt repayment plans,
alternative dispute resolution mechanisms, sector collaboration, and robust data collection and
analysis are proposed.
Recommendations
Expanding the scope and reach of the second chance policy under insolvency law in Ghana
can provide a wider safety net for individuals and businesses facing financial distress. On this
score, the following proposals are recommended.
First, there should be an expansion in the scope of saving businesses under the law to
include individual honest entrepreneurs as the current regime fails to address such concerns.
This will enable individual entrepreneurs to reorganise their financial portfolios and apply for
a fresh start. Second, this paper proposes a sector-specific approach to the Second Chance
Policy, recognising that certain sectors and specialised individuals may require tailored support
Saving Honest Entrepreneurs through the Second Chance Policy in Ghana Francis Kofi Korankye-Sakyi
and regulations. This can include provisions for sectors such as banking, manufacturing, and
Micro, Small and Medium-sized Enterprises (MSMEs) which may face peculiar problems in
times of economic volatility. Third, it is also important to suggest a regular review of the laws
to meet the legal exigencies and requirements of the specific sectors in times of financial
crises. This would help prevent the exclusion of deserving individuals and businesses due to
rigid requirements.
By implementing these ideas, the Second Chance Policy under insolvency law in
Ghana can be broadened to offer a more embracing framework based on the CAMEL for
individuals and businesses in need of recovery and rescue.
The doctrinal desktop methodology is a valuable tool for certain types of research but
has limitations in capturing the lived experiences and perspectives of stakeholders. I
recommend that combining the methodology of this paper with other research tools such as
interviews or surveys in other studies in future may offer a more empirical appreciation of the
topic and its impact on honest entrepreneurs in Ghana for an effective advocacy on this
subject.
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Declaration of Interest
The author declares that he has no conflict of interest in the publication of the content of this paper
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