Jordan’s economy – alarming rise in insolvencies

Amidst challenging economic conditions, more companies seek refuge in insolvency law, raising alarms among experts and labor advocates

bankruptcy form with wooden gavel coins
(Photo: Envato Elements)
AMMAN — The increase in the number of companies resorting to the insolvency law has raised concerns among economic experts and labor rights specialists, who are calling for urgent measures to protect the national economy and preserve thousands of threatened jobs. These worries have emerged amid the challenging economic conditions currently faced by the Kingdom.اضافة اعلان

The Companies Department recently announced that 14 local companies, operating in various economic sectors, have sought refuge in the insolvency law, Amman Net reported. Their aim is to restructure and rehabilitate these companies, enabling them to get back on the right track and resume their operations. The latest addition to this list is a company that owns a group of commercial centers in the retail sector.

2018 Law No. 21
The 2018 Law No. 21 was enacted to assist companies encountering financial difficulties or those on the brink of insolvency. It aims to help them navigate through crises and ensure their continuity by providing the necessary rehabilitation and support.

Insolvency is defined as the debtor's inability to regularly settle their outstanding debts or when the total obligations exceed the total assets.

Due to economic growth rates
Economic analyst and academic, Dr. Qasem Hamouri, attributes this trend to the overall weak economic performance in Jordan over the past years, with economic growth rates hovering around 2 percent. This rate is deemed insufficient to generate alternative employment opportunities, resulting in the deterioration of economic conditions for many institutions and investments.

Rising unemployment rates, poverty rates, and other company difficulties
The impact of this weak growth is evident in rising unemployment rates, poverty rates, and companies facing difficulties and being liquidated due to incurring losses instead of profits.

Unemployment rate around 24 percent
According to recent statistics, the unemployment rate is around 24 percent, and it is even higher among youth, reaching more than 50 percent. Moreover, the debt recently reached 39.046 billion dinars, the highest figure in Jordan's history.

The danger lies in these companies contributing to the Gross Domestic Product (GDP), making their operational disruption a significant threat to the economy. Additionally, investors fear the repercussions and might flee to neighboring countries, according to Hamouri.

To address this problem, he believes that a study should be conducted to understand the reasons behind these companies' difficulties. It should identify the actual causes, whether they are related to income tax laws or the abundance of oversight in economic activities and the private sector, which has pushed them to this stage.

Meanwhile, Lawyer Salah Daoud explains that bankruptcy the insolvency law poses a danger to workers, as the agent might terminate or amend their contracts. In case of contract termination, the compensation the worker is entitled to receive is a minimum of three months, regardless of their years of service in the company.

The law grants the authority to form a specialized committee to assess the company's financial and economic situations. Based on its findings, appropriate measures are taken to restructure and rehabilitate the company.

Losing jobs could lead to social problems
Regarding the workers, Hamouri points out that the number of workers in these struggling companies is significant, and many of them have families they support. Losing their jobs could lead to social problems, such as increased crime rates and psychological depression.

Despite the deepening economic problems in Jordan, the government has not taken substantial action to address them. Hamouri holds the government entirely responsible for this and emphasizes the importance of citizens developing and enhancing their skills and education to increase the available job opportunities.

‘Voice of Workers’ campaign
The "Voice of Workers" campaign recently issued a statement holding successive governments and the current government accountable for the flight of investments and the bankruptcy of many institutions due to policies based on borrowing, tax hikes, and favoring capital without considering support for the national industry, which provides employment opportunities for hundreds of thousands of workers.

For example, the Jordanian Cement Factories Company "Lafarge" is one of the companies that resorted to the insolvency law, and a judicial decision approved the declaration of its insolvency, making it the first company to be subject to this law since its enactment.

In 2001, the company terminated the services of around 2,400 employees, despite the management's commitment not to do so according to the purchase agreement between the government and the company. However, after three years, their services were terminated, according to the employees of the company.

The decision to resort to this law was due to the deterioration of the company's financial situation, exacerbated by the COVID-19 pandemic, affecting its ability to fulfill its commitments to employees and retirees.

The company laid off several employees and stopped providing healthcare services to retirees before resorting to bankruptcy. Using the insolvency law is seen as an option that allows terminating the services of more employees at lower costs, according to previous statements from the member of the Construction Workers Union and a retiree from the company, Ahmad Zaid.

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