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INTRODUCTION:
Under corporate governance, creditors play a vital role in the stated capital of a company. They
provide credit to the company for running its business, as without finance, a company holds no
position to carry on the business for which it came into existence. The creditors lend money to the
company, thereby creating a debtor-creditor relationship, with the company becoming a debtor to the
creditor, and hence, the company comes under an obligation to take proper care of the interests of the
creditors. There is therefore a need to protect creditors, especially during the winding up of a
company. The assertion that general law places its primary focus on granting special protection
to unsecured creditors as opposed to secured creditors opens the door to a profound inquiry into the
nature and implications of such legal dynamics. This discusses the general law on creditors,
insolvency, the practical challenges faced by creditors, and the relationship between the law and the
protection of creditors in both distressed and stable financial environments.

GENERAL LAW ON CREDITORS.

A CreditorA Creditor under corporate law is an individual or institution that lends money or credit to
a company, usually through a loan agreement or contract. The company becomes a debtor to the
creditor. Under corporate governance, creditors play a vital role in a company's stated capital. They
serve as a source of capital for companies to carry out their businesses. Since the landmark case of
Salomon v. Salomon & Co. Ltd., a company has been known to be a juristic person.1 It has a
separate legal personality and is capable of acquiring rights and liabilities. Thus, under a limited
liability company, creditors’ claims could not extend to shareholders but were limited to company
property.
Creditors, upon lending money to a company, create a debtor-creditor relationship with the company,
with the company being liable to the creditor. Credit may be obtained by a company in different
ways. They include;

Credit by offering security: where companies borrow money from a bank, an individual, or
institutions by offering security, which reduces creditors loan risks by giving them privileged claims
to repayment in the event of the company’s insolvency. Such securities may include the building, the
machinery, and the plants of the company, etc.

Credit by unsecured loan- where a company seeks a loan without offering security, and the
creditor bears the risk that if the company becomes insolvent their debts will be satisfied after the
secured creditors have been paid; and

1
[1897] AC 22 ( House of Lords)
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Credit by resorting to a third-party guarantee: This is where a loan from a creditor, such as a bank,
will be guaranteed by a third party, which may be an individual director of the debtor company. The
guarantor undertakes to answer for the default of the principal debtor.2

SECURED CREDITORS AND UNSECURED CREDITORS

Secured Creditor is a creditor who holds some security for a debt due him fro the company, such as
a mortgage, charge or lien. The creditor give credit for the realized or estimated value of his security
unless he forgoes it.3 Upon insolvency, the sale of the specific asset of the company over which
security is held provides repayment for this category of creditors. A secured creditor enjoys certain
advantages which include; the right to take control of asset on default by the company to make
payment; and the advantage to be given priority in payment when assets are sold upon a company
becoming insolvent.
A secured creditor can be asked to contribute to the expenses incurred by the liquidator in
maintaining the secured assets before realization, and such liability would cease only when the
option to surrender the security is exercised. It has been held in the case of Board of Industrial and
Financial Reconstruction v. Swadeshi Mills Ltd. 4 that the secured creditor holding the first charge
on the property is responsible for paying the guards and for protecting the property. It was further
directed to the official liquidator not to appoint security guards from private agencies but to send his
requisitions to the Security Guards Board constituted under the Act.5

Unsecured Creditors are creditors that lend money to a company without obtaining specified assets
as collateral. The creditor does not hold any security or asset of the company for the debt due to him
from the company, such as a mortgage, charge, or lien. This poses a higher risk to the creditor
because it will have nothing to fall back on should the borrower default on the loan. When
insolvency procedures are applied, all unsecured creditors are required to produce evidence of their
debts and pay them all equally. It is important to remember that, in contrast to secured creditors,
unsecured creditors must provide proof of their debts before the liquidator, and they cannot collect
their outstanding balance until the liquidator is satisfied. Both court-ordered and voluntary winding
ups are subject to the pari passu rule, which stipulates an equal distribution of a company's assets to
its unsecured creditors upon winding up.

INSOLVENCY
2
Daizi Hazarika, Protection Of Creditors, p. 1
3
Charlesworth & Morse, Company Law, 1999, p. 570
4
(2002) 112 Com Cases 698 (Bom)
5
The Companies Act, 1956
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Insolvency is a financial condition where an individual or enterprise's total liabilities exceed its total
assets, preventing the payment of creditors' claims. Insolvent debtors are those whose financial
position does not permit fulfilling their obligations either in the short term (they cannot meet their
payment obligations as they fall due) or in the medium term (their assets do not cover their
liabilities), or both. The insolvency legislation generally outlines creditors and debtors’ rights and
obligations, describes the role of courts, and outlines the steps and timeframe to be followed once the
procedure starts.6

PROTECTION OF CREDITORS UNDER THE GENERAL LAW OF CORPORATE

GOVERNANCE.
Under Ghanaian corporate jurisprudence, the Corporate Insolvency and Restructuring Act, 2020 (Act
1015) grants creditors protections over their rights and interests throughout the administration
process of an insolvent company. These include;
1. Commencement of the administration process (appointment of the administrator) 7: The
appointment of the administrator marks the start of administration. Administration commences
with the appointment of the administrator. An administrator may be appointed by the company
through a creditor or a liquidator. This enables creditors to step in and stop the company's
circumstances from getting worse, particularly if the directors' chosen course of action is
detrimental to the company's operations and the interests of its creditors. The administration
process, a quicker insolvency procedure than liquidation, allows creditors to control the
appointment of an administrator, ensuring competence and independence and allowing them to
explore options like debt restructuring, management changes, asset sales, or liquidation..8

2. Approval of remuneration and terms of engagement of the administrator: The appointment of

an administrator and their remuneration are subject to creditors' approval, protecting their
interest in the distressed company's assets. This ensures creditors can manage expenses incurred
during administration, preventing unnecessary depletion and ensuring the company can meet its
existing liabilities and obligations to creditors.

3. Attendance, Participation and Voting at meetings: 9 During administration proceedings, the

administrator holds creditors' meetings to present the company's state and consider restructuring
proposals. All creditors are entitled to attend, participate, and vote, ensuring they are well-
6
Leonor Coutinho, Andreas Kappeler and Alessandro Turrini; Insolvency Frameworks across the EU: Challenges after COVID-19,
DISCUSSION PAPER 182, 2023
7
Corporate Insolvency and Restructuring Act, 2020 (Act 1015); Section 3
8
Akua Chrappah Ayippey, AB and David: An Overview of Creditors’ Rights and Protection in Corporate Administration in Ghana
9
Corporate Insolvency and Restructuring Act, 2020 (Act 1015); Section 20
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informed and can determine the outcome. Creditors can also establish a committee to receive
reports and communicate feedback, serving as a direct link between creditors and the
administrator.
4. Enforcement of security or recovery of property under special circumstances: During
company administration, recovery and enforcement actions are prohibited, except for secured
creditors and property owners. They can apply for court leave to enforce security or take
possession of property if serious prejudice to the secured creditor outweighs other creditors'
prejudice. Secured creditors may enforce security, which will remove the secured asset from the
assets under the management of the administrator.

WHETHER A SECURED CREDITORS DO NOT REQUIRE SPECIAL PROTECTION

UNDER GENERAL LAW.
The reasoning for the assertion that unsecured creditors require more protections under general
corporate law is on the basis of priorities in times of insolvency. Where are company becomes
insolvent, the security interest held by creditors appears to afford them a distinct advantage. In the
event of default by the debtor, secured creditors can enforce their rights over the collateral,
potentially recovering the owed amount. This protection might suggest that secured creditors need
not be given additional legal safeguards. Insolvency cases involve the distribution of assets among
creditors, raising questions of fairness and equitable treatment. Unsecured creditors, lacking the
security enjoyed by their counterparts, may argue for equal consideration in the distribution of
remaining assets. Therefore the assertion that unsecured creditors should be afforded special
protection over secured creditors.

However, with secured creditors, the nature of collateral itself can impact the need for special
protection. Tangible assets, such as real property or equipment, may be more straightforward to
handle in the event of default. However, intangible assets or financial instruments may pose unique
challenges, requiring careful consideration in legal frameworks to ensure the efficacy of security
interests. In Re Stanford International Bank Ltd (No 2)10 involving a Ponzi scheme, the challenges
of realizing value from real property held as collateral were highlighted. The court addressed issues
related to the enforcement of security interests in real estate, emphasizing the importance of legal
clarity in the documentation to facilitate efficient enforcement. Also in Re T&N Ltd. (No 2),11
intellectual property rights were among the assets in question. The case emphasized the complexities

10
[2010] 1 WLR 1027
11
[2006] EWHC 1482 (Ch)
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of enforcing security interests in intangible assets and the need for careful consideration of
intellectual property rights in insolvency proceedings. Therefore, there is a need to ensure balance
and fairness in the protection granted to both secured and unsecured creditors.

THE IMPACT OF INSOLVENCY LAWS ON THE PROTECTIONS AFFORDED TO

CREDITORS.
The relationship between the law and the protection of creditors is crucial in insolvency cases. The
law provides a framework that allows creditors to assert their rights and seek repayment from the
debtor company. It also establishes procedures for creditors to participate in insolvency proceedings,
such as attending creditors' meetings and voting on restructuring proposals. The legal framework
aims to balance the interests of both debtors and creditors, ensuring that creditors have a fair
opportunity to recover their debts while also considering the financial viability of the debtor
company.

In Re T&N Ltd. (No 2),12 the court considered the distribution of assets in a complex asbestos-related
insolvency. The decision reinforced the principle that unsecured creditors, despite the intricacies of
the case, should be treated fairly in the allocation of remaining assets. The court stressed on the
importance of fairness and equality among unsecured creditors, even in situations involving mass tort
claims and complex liability issues. This case exemplifies the commitment of the legal system to
ensure that unsecured creditors receive equitable treatment, particularly in scenarios where the
insolvency involves significant challenges.

In Re Nortel Companies13, the Court dealt with the allocation of assets among different classes of
creditors in the context of a multinational insolvency. The case resonates with the protection of
unsecured creditors. The Supreme Court emphasized the need to strike a fair balance among various
classes of creditors, including unsecured creditors, when distributing the assets of an insolvent estate.
The decision highlighted the importance of considering the interests of unsecured creditors in the
broader context of insolvency proceedings, reinforcing the principle that their rights should be
safeguarded in a manner consistent with fairness and equity.
The UNCITRAL Model Law on Secured Transactions provides a framework that many jurisdictions,
including the UK, have considered in developing or amending their domestic laws. This international
perspective reinforces the importance of aligning national legal systems with broader principles to
foster international economic cooperation. These provisions have been adopted under the Corporate

12
[2006] EWHC 3096 (Ch).
13
[2013] UKSC 52
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Insolvency and Restructuring Act, 2020 (Act 1015) of Ghana and other jurisdictions to provide
protection for all creditors.

CONCLUSION
The assertion that secured creditors do not require special protection under the general law, whether
in the insolvency of the company or outside the insolvency of the company, is a dynamic subject
influenced by statutory law, case law, academic discourse, international conventions, and economic
analyses. The legal landscape of corporate law continually evolves to address the difficulties of
modern finance while striving to maintain a delicate balance between the rights of secured and
unsecured creditors to ensure fairness, efficiency, and adaptability in the treatment of creditors.