What does the insolvency of Lafarge mean?

Salameh daraawi
Salameh Darawi (Photo: Jordan News)
The Court of Cassation’s acceptance of the insolvency claim of the Jordanian cement manufacturing company Lafarge marks the first insolvency case since the Insolvency Law came into effect at the beginning of 2019, giving more positive flexibility to the local business environment and protecting companies from the threat of liquidation.اضافة اعلان

Under today’s insolvency decision, Lafarge evaded mandatory liquidation, after its total losses reached JD120 million, exceeding its paid capital (JD60 million). It has thereby protecting itself, its employees, its investors, and its 30,000 shareholders from a conclusive exit from the market as a result of liquidation.

The Insolvency Law is deemed one of the most important positive instruments that adds significant flexibility to the business environment by ensuring the continuation of companies that are no longer able to fulfill their financial obligations to their employees and creditors. It is the final means for companies to remain in the market and avoid mandatory liquidation — a situation in which everyone would lose, including investors, shareholders, creditors, suppliers, employees, and others with affiliations to the company and its business.

Once it is ruled insolvent, the courts appoint an insolvency agent to manage a large portion of the company. In agreement with all stakeholders, the agent draws up and executes a plan to reenergize the business, with the goal of, eventually, getting the company back on track in regards to investment, production, and marketing.

Insolvency would allow the company to restructure its finances with creditors on all levels, and reschedule its debts until the completion of the agreed-upon plan, as alleviating itself from financial burdens such as loan and interest payments can take time.

Insolvency offers protection to the company from any financial claims during the allotted period, and gives it the right to restructure its operations, including its workforce. However, there will not be heavy repercussions for Lafarge’s workers from labor restructuring in the coming period, as the company has already restructured itself a short while before the insolvency declaration, costing it tens of millions of dinars in sizable financial incentives for its employees.

Under the Insolvency Law, the company’s operational plan would be dependent upon the consensus of all company stakeholders, who will be represented by a committee formed for this purpose, hence, rendering them on equal footing with the company’s administration in saving the company and bringing it back on track.

Insolvency is the final tool for protecting companies from a final exit from the market and avoiding losses for everyone. Many companies around the world have filed for insolvency and were able to successfully navigate their way out of that insolvency.

Lafarge’s insolvency claim opens the door for other companies that are struggling financially to file for insolvency and avoid liquidation. The judiciary is today more aware and experienced in the statuses of companies and the market’s need for an Insolvency Law to protect the economy and sustain its various sectors.

Read more opinions