Can innovative reforms and practices efficiently resolve financial distress?

Business Rescue and Insolvency Regulation and Practice In Nigeria: The Imperatives of Globalization

“…Insolvency is a situation where there is a temporary or sustained reduction in the liquidity and cash flow of a business such that the company is not able to meet its financial obligations to its creditors. (Idigbe, 2011;Okolo, 2015;Nigam & Boughanmi, 2017;. While the exact procedure will vary based on the legal rules in the relevant jurisdiction, and the specific context of each case, the general statutory provisions is that where a creditor(s) brings a proceeding against an insolvent borrower, and the court determines that the borrower is not able to repay his indebtedness, such a firm / debtor will be declared insolvent or bankrupt and should be liquidated under the supervision of a court appointed liquidator, and the proceeds from the liquidation of the firms' assets will be distributed among the creditors in the order of priority of their security, in settlement of outstanding obligations.…”

“…Two types of insolvency are identified in the literature, cash flow insolvency and balance-sheet insolvency (Idigbe, 2011;Okolo, 2015;Nigam & Boughanmi, 2017). Cash flow insolvency is a temporary case where a company cannot meet its financial obligations in the short-term, while the balance-sheet insolvency is a situation in which the firm's liabilities are far in excess of its assets (net liability position), with little prospect of reversal of the situation without a recapitalization or restructuring of the operations and capital of the business through some court sanctioned scheme of arrangement (Idigbe, 2011;Okolo, 2015;.…”

“…Idigbe (2011) and Okolo (2015) noted that cash flow insolvency may very often be resolved by means of business rescue intervention. The premature declaration of a company as insolvent and incapable of being "rescued", may lead to unwarranted liquidation proceedings with attendant costs to the creditor(s) and debtor alike, and damage to the economy and society at large (Nigam & Boughanmi, 2017;Epeoglou, 2017;Okolo, 2015;Idigbe, 2011). Thus, the absence of robust business rescue and insolvency regimes and frameworks in an economy usually leads to premature winding-up of businesses, adds to financial and social losses and ultimately undermines economic growth (Epeoglou, 2017).…”

“…Modern business rescue and reorganization is premised on the logic that an enterprise not only has substantial value as a going concern, but its going concern value exceeds its liquidation value (Smith, 1999;Fromes et al 2000;Nigam & Boughanmi, 2017). Business rescue according to Fromes et al (2000) involves the process where the management and resolution of insolvency is taken out of the formal setting of the jurisprudence of court in favor of an out of court informal resolution.…”

“…THE NIGERIAN SITUATION AND GLOBAL COMPARISONS Following the oil price plunge of 2014 and fall in other commodity price, growth in other major countries of the world has not been impressive ( Figure 3). Studies indicate however, that countries with better business rescue and insolvency regimes (as measured by the World Bank Ease of Doing Business Ranking and Ease of Resolving Insolvency Issues Ranking) have been better able to manage the challenges of the global economic vagrancies , Nigam & Boughanmi, 2017Conradie & Lamprecht, 2015).…”