RDB roots for formal business closure

Rwanda Development Board (RDB) intends to roll out a sensitisation campaign for the business community and the legal society, aimed at increasing awareness to encourage formal business closure by applying the existing insolvency law.
John Gara, RDB's CEO (File photo)
John Gara, RDB's CEO (File photo)

Rwanda Development Board (RDB) intends to roll out a sensitisation campaign for the business community and the legal society, aimed at increasing awareness to encourage formal business closure by applying the existing insolvency law.

Enacted in May last year, the law spells out legal provisions relating to commercial recovery and settling of issues arising from insolvency.

In a recent interview with Business Times, John Gara, the Chief Executive Officer (CEO) of RDB, said the move would improve Rwanda’s doing business ranking in the World Bank’s annual Doing Business (DB) Report. This would boost the country’s performance, particularly on the closing business indicator.

“Rwanda has consistently done badly (in the closing business indicator).  When many of our businesses collapse, they do not do it through the (formal) system – This gives an impression that we do not have a system which works for the dissolution of companies,” he said.

This year, while Rwanda yet again took the lead, globally, in facilitating the business community to acquire construction permits, getting credit and trading across borders, it lagged behind in the closing business indicator.  

The report analyses regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, protecting investors, dealing with construction permits, access to credit, trading across borders, paying taxes, enforcing contracts and closing a business.
“We are increasingly going to encourage companies to do it through the formal system.”Gara said.

Karim Tushabe, the Legal Consultant with RDB’s Doing Business unit, noted that the law provides a framework for closing a business.

He said in a separate interview that the law provides options, where by the company might be saved from bankruptcy by restructuring.

Tushabe observed that,  while liquidation is a common option preferred by businesses, it is considered to be the last resort.

According to the Company Law, every year businesses are required to file their financial statements to the Registrar General (of companies), where the essence is to check if the business is doing well, and if it is not, find out what is necessary, he said

“We are seen as a country which is not practicing insolvency,” observed Tushabe.

For Rwanda to be recognised as practicing insolvency under the DB report, Tushabe said it has to, at least, show five companies that have undergone through the process.
With the sensitisation of the various stakeholders, the legal officer said this will help to make the law more operational.
According to the DB2011 report findings, sub- Saharan Africa has the largest share of economies with little or no insolvency practice.  

Twelve of the region’s 46 economies— more than a quarter—have had fewer than 5 insolvency cases annually in recent years, the report says.

In the report, Rwanda was ranked the 2nd best reformer in doing business, moving up 12 places, only beaten by Kazakhstan.

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