THE LEGAL ROLE OF GOVERNMENT IN COMPANY RESTRUCTURING AND THE RESCUE PHILOSOPHY

Abstract

Before the advent of the idea of salvaging or rejuvenating a company in financial distress is the procedure at some point for a terminally ill company to be wound up and its assets sold, to the extent that is possible, to satisfy any outstanding debts. In most cases under that regime, there was no viable alternative, as the documents which provided for security over a company’s property demanded in return for finance by financial institutions to protect the interests of such institutions ahead of those of other creditors. Where a company is unable to satisfy its debts, it was most often the right of the creditors so empowered to place the company under receivership with the priority to be reimbursed even if it led to the creditors receiving nothing or resulted in the eventual liquidation of the company. This result led to thoughts on the fairness or otherwise of such a process, particularly as it relates to those companies that had the potential to be revitalized. These thoughts also gave rise to the philosophical question as to whether it is better to restructure a company in financial difficulties to enable it remain in business as a going concern or to dispose of the remaining assets of the company in liquidation. Since the overall performance of trading companies has a direct impact on the economic well-being of a country, the government cannot afford to play a passive role in ensuring the sustenance of such companies. It is thus the legal role which government plays in this regard and the philosophy of rescuing a company in distress that are discussed here with focus on the situations in Nigeria and South Africa.