…otherwise, banks, businesses will continue to suffer – Ramson
By Abena Rockcliffe-Campbell
When businesses are interested in securing loans from banks, they are required to put several assets up as collateral. But when they are unable to honour their payment arrangements, those assets are seized by the financial institutions. In doing so, banks endeavor to recover the loss incurred. But this is easier said than done.
In fact, the six large commercial banks in Guyana are experiencing difficulties with turning over assets, a process often referred to as asset realisation. Speaking on the effects of this issue recently was Attorney at Law, Charles Ramson. He was at the time delivering remarks at the Business Development Forum organised by the Georgetown Chamber of Commerce and Industry (GCCI) and the Private Sector Commission.
Ramson said that there is a need for government to rewire the legal and institutional frameworks under which businesses operate.
Ramson said that bankruptcy and asset realisation are critical components of a market economy, but Guyana’s laws create a structural weakness that creates a drag on business development and economic growth.
In a subsequent interview with Kaieteur News, Ramson said that while the intention of every business is to make money, some do fail, “and businesses must be allowed to fail smoothly.”
“When I say fail smoothly, I mean we must cater adequately for the possibility of business failures so that our businessmen do not have to become stuck, and as a result their capital can go towards other productivity,” Ramson stated.
He told Kaieteur News that business failure is an important part of economic growth. He said that this very unfortunate occurrence can become a catalyst for improvement, innovation, and entering new areas of business opportunity. “Therefore, the process of moving out of one business is as important as the process of moving into one or moving into another.”
Ramson noted that the assets of a business are often used as collateral to secure a loan. “So if a business is failing, the creditor (bank or other lending agency) should be able to realise the value of the assets of the business quickly.”
Ramson said that currently, there are a number of issues that are making this process lethargic.
The lawyer noted that Guyana’s judiciary backlog is often used as a reason why many cases cannot be quickly resolved.
But Ramson said that “even after there is a decision, creditors complain that they are unable to execute on those assets because the judicial registry says that there is not enough space to store the assets until there is an auction.”
Ramson said that in such a situation where valuation and sale of an assets is delayed, depreciation can step in and “this will only make it worse for the borrower because this means the creditor still needs to go behind the debtor for the remaining debt. All of that continues to be a drag on business and the economy.”
But, once that value is realised quickly, the capital will likely be redirected to other viable businesses.
Ramson said that the mortgage market is yet another critical part of the market economy as a means for secured loans or collateral. But, “ask the banks right now how difficult it is to realise the value of their assets. All that sloth has a price and that price is a cost to businesses and does not have any value to the economy.”
The lawyer noted that many of Guyana’s problems are intertwined.
“There is the stigma and shame culture of bankruptcy here in Guyana. It’s so bad that some persons have been so ashamed of their debt that they committed suicide. Many times those persons were successful businessmen and women and if we lose them or their involvement in business we lose valuable practical business expertise which could be used to develop other businesses.”
Ramson said that there are many instances where people find themselves in debt and “go into hiding or fall into serious depression. Rice farmers contributed so much to the development of this country but there are instances where fortunes turned, the system failed and they saw no way out.”
The lawyer said that there are simple solutions to the problems. He made reference to the United States. He said that a defining characteristic of American capitalism and entrepreneurship is their Bankruptcy laws especially Chapter 7 – liquidation and chapter 13 – The Individual or Consumer Reorganization Chapter which does not wipe out debt but reschedules them.
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