Liquidation: Whether Or Not The Liquidation Of A Licensed Insurance Company In Ghana Can Be Commenced By An Originating Motion On Notice
Author:Vanessa Awurabena Davis Esq, AB Lexmall & Associates
The High Court, Accra, has ruled on the legality of commencing the liquidation of a licensed insurance company by an originating motion on notice. The Respondent in the case had questioned whether the Applicant had properly invoked the jurisdiction of the court by filing an Originating Motion on Notice as opposed to a Petition for Liquidation. The court ruled that a person may commence proceedings for the liquidation of an insurance company by an Originating Motion on Notice. In its ruling, the Court reasoned that the application was brought under specific provisions of the Insurance Act, 2021 (Act 1061) and the Corporate Insolvency Act, 2020 (Act 1015), both of which are enactments and thus falls squarely within the scope of Order 19 rule 1(2) of the High Court (Civil Procedure) Rules, 2004 (C.I. 47) which provides for the form in which an application may be made.
This article explores the various provisions of Acts 1061 and 1015 relating to the liquidation of licensed insurers and their impact on the procedure for liquidating insurance companies.
Brief Facts of the Case
The Applicant, the National Insurance Commission (NIC), applied to the High Court for an order to wind up a licensed insurance company in Ghana. This was in line with the mandate given to the NIC under Section 94 of the Insurance Act. Section 94 of Act 1061 permits the NIC as regulator to present a petition to the Court for the official liquidation of a licensed insurer.
The NIC decided to commence proceedings to wind up the Respondent because of the Respondent’s failure to operate in accordance with the terms and conditions of the license issued by the NIC. The NIC argued that the Respondent’s non-compliance with the terms and conditions of its licence had led to a severe erosion of the Respondent’s capital base. In summary, the Respondent was in financial distress.
Prior to commencing the liquidation proceedings, the NIC appointed a Statutory Manager over the Respondent to rescue the Respondent from further decline. In spite of the diligence of the Statutory Manager, all the potential investors failed to meet the necessary requirements to inject the needed capital into the Respondent. The Statutory Manager, in her report to the NIC after the expiration of her mandate, indicated that there were no prospects now or in the future for the Respondent to be rescued by an investor. The Statutory Manager also indicated that the Respondent was unable to pay its just debts and outgoings when they fell due and so must be wound up.
Following the recommendation of the Statutory Manager, the NIC exercised its right by applying to the High Court for an order to officially wind up the Respondent. On the face of the motion paper filed by the NIC (Applicant), it was indicated that it was ‘In the matter of the Insurance Act and In the matter of the Corporate Insolvency and Restructuring Act and In the matter of a Petition by the Commissioner on behalf of the NIC for an order for the official liquidation of the Respondent.’
It was further stated on the face of the motion paper that it was ‘An originating motion on notice for the official winding up of the Respondent under Order 19 rule 1(2) of C.I. 47.’
This caused Counsel for the Respondent to raise a preliminary legal objection on the validity of the application and whether or not the Court’s jurisdiction had been properly invoked. In the view of the Respondent, a Petition under the Corporate Insolvency and Restructuring Act, 2020 (Act 1015) should have been filed to properly invoke the jurisdiction of the court.
The Corporate Insolvency and Restructuring Act, 2020 (Act 1015) is the general law applicable to the winding up/liquidation of a company in Ghana. Act 1015, among other things, specifies the grounds and procedures for liquidating companies incorporated in Ghana.
However, insurance companies are specifically regulated under the Insurance Act of 2021 (Act 1061). The NIC is given broad powers under this Act to regulate insurance companies in order to ensure the stability of the insurance sector, including the ability to apply to the High Court to have a licensed insurance company wound up under certain conditions.
Section 92 (a) of Act 1061 provides that, ‘the provisions of Act 1015 relating to the official liquidation of companies shall, with the necessary modifications, apply to a licensed insurer to the extent provided for in Act 1061.’
According to section 93 (1) of Act 1061, ‘the official winding up of a licensed insurer or licensed reinsurer shall commence with a petition to the Court.’ Section 94(1) of Act 1061 states that, ‘the Commission (referring to the NIC) may present a petition to the Court for the official liquidation of a licensed insurer in accordance with Act 1015.’ Section 84 of Act 1015 specifies who may petition the Court for the official winding up of a company and the procedure to be followed.
As a result, a combined reading of Acts 1061 and 1015 grants a shareholder, a creditor, the Registrar of Companies, the Attorney-General and the NIC the right to apply to the Court for the liquidation of a company.
In the High Court (Civil Procedure) Rules, 2004 (C.I. 47), Order 19 rule 1(2) provides that, ‘proceedings by which an application is to be made to the Court or a Judge of the Court under any enactment shall be initiated by motion and where an enactment provides that an application shall be made by some other means an application by motion shall be deemed to satisfy the provision of the enactment as to the making of the application.’
In the case of Republic v High Court Winneba, Ex parte University Teachers Association of Ghana Winneba Chapter, Civil No. J5/65/2017, the Supreme Court explained when a party can invoke the jurisdiction of the High Court under Order 19 R 1(2). The court stated;
“That refers to court proceedings that are directed to be taken by provisions of an enactment either by way of application or otherwise. In many instances, the legislature in passing statutes create rights for the benefit of classes of persons or remedies for persons aggrieved by the exercise of authority conferred by a statute to have recourse to the courts for redress. The statute would usually provide that the beneficiary of the right or the aggrieved person may have recourse to the court by application or some other means. It is where such provision has been made in a statute that a person alleging to be entitled to a right created by that statute or aggrieved by the exercise of authority under the statute may properly invoke the jurisdiction of the High Court by using the procedure provided for in Order 19 R 1(2) of C.I.47.”
The court in giving examples of such rights cited the right of a member to seek redress for oppression under section 217 of the repealed Companies Act 1963, Act 179 (now section 218 of the new Companies Act 2019, Act 992), and the right granted to a person interested in an asset being frozen under the Economic and Organized Crime Act, 2010 (Act 804). The exercise of such rights implies some level of haste, which necessitates the use of the court’s powers under Order 19.
Applying through an originating motion on notice therefore allows the NIC as a regulator to go to Court when a licensed insurer is unable to pay its debts as they fall due and has become a threat to the insurance industry in Ghana to use an expeditious process to bring that company to an orderly end. As the learned author, S. Kwami Tetteh wrote on page 429 of his book Civil Procedure: A Practical Approach, “An originating motion on notice properly utilized would dispose of the matter in dispute expeditiously avoiding the cumbersome procedure for commencing proceedings by writ of summons.” Order 82 Rule 3 of C.I. 47, defines a writ to include a petition.
Although Act 1061 refers to a petition, that petition cannot be compared to the nature of petitions in election petitions or matrimonial causes, which are governed by specific rules of procedure. This is not the case when it comes to the Insurance Act. The use of the word ‘petition’ in the Insurance Act is to be thought of as simply a set of facts leading to a plea or prayer for the winding up of the insurance company.
As a result, while Act 1061 mentions petition, in such cases of commencing winding up proceedings of a licensed insurer, a petition in the form of an originating motion on notice will suffice.
Ruling of the Court
In ruling on the Respondent’s preliminary legal objection, the High Court stated that the Court’s jurisdiction had been properly invoked and overruled the objection. The Court reasoned that the application was brought under Acts 1061 and 1015, both of which are enactments and thus falls squarely within the scope of Order 19 rule 1(2) of C.I. 47. The Court then stated that ‘in effect a petition is an application and therefore properly situated under Order 19 rule 1(2). A petition is also an originating application because it originates or commences an action.’
The NIC when exercising its right under Section 94 of Act 1061 may apply to the High Court by way of an originating motion on notice and the jurisdiction of the High Court would be said to have been properly invoked.