Introduction
As explained in my previous articles corporate rescue in Zimbabwe is known by other terms such as business rescue or in the past as judicial management. The proceedings are regulated by the Insolvency Act (Chapter 6:07) of 2018, hereinafter called “the Act”. According to the Act corporate rescue proceedings are meant to facilitate the rehabilitation of a company that is financially distressed.
Section 121 of the Act provides for:
- Temporary supervision of the company and management of its affairs, business and property, and
- Temporary moratorium (relief) on the rights of claimants against the company or in respect of property in its possession, and,
- The development and presentation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities and equity.
In this article I explain the general powers and duties of a corporate rescue practitioner following requests made by some readers.
Placement of company under corporate rescue
Corporate rescue proceedings can be classified into voluntary in terms of section 122 of the Act or involuntary in terms of section 124.
Voluntary corporate rescue proceedings
According to section 122(1) of the Act the board of a company may resolve that the company voluntarily begin corporate rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that:
- The company is financially distressed,
- There appears to be a reasonable prospect of rescuing the company.
According to section 122(2) a resolution contemplated in section 122(1) may not be adopted if liquidation proceedings have been initiated by or against the company and has no force or effect until it has been filed with the Master of the High Court and the Registrar of Companies.
Section 122(3) requires that within five business days after a company has adopted and filed the resolution or such longer time as the Master of the High Court may allow, the company must:
- Give notice of the resolution and its effective date , by standard notice to every affected person (as defined in section 121(1)), including with the notice a sworn statement of the facts relevant to the grounds on which the board resolutions was founded, and
- Appoint a corporate rescue practitioner who satisfies the requirements of section 131 (Qualifications of practitioners) and who has consented in writing to accept the appointment.
Involuntary corporate rescue proceedings
This is the type of corporate rescue many people are familiar with and is used mostly by creditors. According to section 124(1) of the Act an effected person may apply to a Court for an order placing the company under supervision and commencing corporate rescue proceedings.
An applicant must serve a copy of the application on the company, the Master and the Registrar of Companies and notify each affected person of the application by standard notice. Each affected person has a right to participate in the hearing of an application.
According to section 124(4) after considering an application in terms of section 124(1) the Court may make an order placing the company under supervision and commencing corporate rescue proceedings if satisfied that:
- The company is financially distressed, or
- The company has failed to pay over any amount in terms of an obligation under or in terms of a public regulation, or contract, with respect to employment related matters, or
- It is otherwise just and equitable to do so for financial reasons.
According to section 124(5) if the Court makes an order in terms of section 124(4)(a) the Court may make a further order appointing as interim practitioner a person who satisfies the requirements of section 131, and who has been nominated by the affected person who applied in terms of section 124(1), subject to ratification by the holders of a majority of the independent creditors’ voting interests at the first meeting of creditors.
General powers of corporate rescue practitioner
Section 133 of the Insolvency Act bestows and places upon the corporate rescue practitioners certain general powers and duties. According to section 133(1) and 133(4) of the Act the corporate rescue practitioner shall have the following powers and duties:
- Full management control of the company in substitution for its board and pre-existing management which is dissolved in terms of section 130(2).
- May delegate any power or function to a person who was part of the board or pre-existing management.
- May appoint a person as part of management of a company, whether to fill a vacancy or not.
- Is responsible for developing a corporate rescue plan and implementing any corporate rescue plan that would have been adopted by affected persons.
- Is an officer of the Court and must report to the Court in accordance with any applicable rules of or orders made by the Court.
- Has the responsibilities, duties and liabilities of a director of the company.
For the benefit of readers, I wish to amplify the position on directors. According to section 130(2) of the Act during a company’s corporate rescue proceedings the board of the company will be deemed to be dissolved, and each director of the company:-
- May no longer exercise the functions of director, and
- May only exercise a management function within the company in accordance with the express instructions or direction of the corporate rescue practitioner, to the extent that it is reasonable to do so.
Conclusion
During corporate rescue proceedings the practitioner assumes manage control of the company and the board is deemed dissolved. So essentially the practitioner assumes the roles otherwise played by the board of directors and management.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deals and transactions. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
