The City of Freetown Financial Crisis: Legislating for Municipal Insolvency in Sierra Leone through the Lens of Chapter 9 of the United States Bankruptcy Code

Abstract

Modern day cities tend to operate much like companies (corporations) rather than merely as another strata of the executive arm of government, clothed with full sovereign powers and privileges, including state immunity. Cities engagement in commercial activities in the discharge of their obligations under the social contract have made them susceptible to the usual problems faced by corporate bodies, including debt default and insolvency. When cities go broke, the law should provide mechanisms for dealing with such a phenomenon in the least problematic or hazardous way possible. There are two main recognized systems of dealing with debt problems of cities, and that is either the bargain based debt adjustment through insolvency law; or through bailout by the central or federal governments via constitutional or administrative law. Sierra Leone has no municipal insolvency law and has relied on bailout overtime made possible by administrative law. To all intent and purposes, Freetown, the capital city of Sierra Leone, went broke in 2011. In the wake of this occurrence, this thesis examines the principles and elements of municipal insolvency through the lens of Chapter 9 of the United States Bankruptcy Code, and equally assesses the needs and benefits of adopting such a system in Sierra Leone. In doing so, this thesis employs both doctrinal and comparative law methods in addressing the effectiveness of the present fiscal arrangement of the City of Freetown. It finds that the present system creates an imbalance between the interest of municipalities and that of their creditors, and concludes that the use of municipal insolvency reduces the political and moral hazard associated with central government bailout and incentivizes creditors for more lending at an economic rate.