Corporate rescue also known by other terms such as business rescue or judicial management is done in terms of the Insolvency Act (Chapter 6:07), (hereinafter “the Act”) of 2018. It involves, inter alia, temporary supervision and management of the company by a corporate rescue practitioner, temporary moratorium (relief) on the rights of claimants (creditors) against the company, and development of a plan to rescue the company.
Section 142 of the Act requires a corporate rescue practitioner, hereinafter “the practitioner”, to prepare and publish a corporate rescue plan within 45 days after the appointment of the practitioner. The section specifies the minimum details required in the plan.
The corporate rescue plan is central to the intended revival of a company. It involves financial and legal trouble-shooting as well as strategic planning. The practitioner has to be at the top of his or her game otherwise the plan will be rejected by creditors, and if applicable by shareholders.
Meeting to determine future of the company
Section 143 has the following key provisions:
- Within 10 business days of the corporate rescue plan being published the practitioner must convene and preside over a meeting of creditors and other holders of voting interests to consider the plan,
- At least five (5) business days before the aforementioned meeting the practitioner must deliver a notice of the meeting to all affected persons setting out a) the date, time and place of the meeting, b) the agenda of the meeting, c) a summary of the rights of affected persons to participate in and vote at the meeting.
Consideration of the corporate rescue plan
The corporate rescue plan, at the above mentioned meeting, is considered in terms of section 144 of the Act.
Conduct of the meeting
At the meeting the practitioner must:
- Introduce the corporate rescue plan for consideration,
- Inform the meeting whether the practitioner continues to believe that there is reasonable prospect of the company being rescued,
- Provide an opportunity for the employees’ representatives to address the meeting,
- Invite discussion, and entertain and conduct a vote on any motion to amend the plan or adjourn the meeting,
- Call for a vote for preliminary approvals of the proposed plan.
Preliminary approval of plan
The proposed corporate rescue plan will be approved on a preliminary basis if:
- It was supported by holders of more than 75% of the creditors’ voting interests that were voted, and,
- The votes in support included at least 50% of the independent creditors’ voting interests, if any, that were voted.
Further steps
If a corporate rescue plan:
- Is not approved on a preliminary basis the plan is rejected,
- Does not alter the rights of holders of any company securities, the preliminary approval constitutes final adoption of the plan, subject to certain contingent conditions,
- If the plan alters the rights of holders of any company securities the practitioner must immediately hold a meeting of holders of the affected securities and call for a vote by them to approve the adoption of the proposed plan.
Adopted corporate rescue plan
A corporate rescue plan that has been adopted is binding on the company and on each of the creditors and holder of the company’s securities.
Implementation of the adopted plan
Results come from effective and efficient implementation of a plan, something usually difficult. In terms of the Act, the company, under the direction of the practitioner must take all the necessary steps to:
- Attempt to satisfy any conditions on which the plan is contingent,
- Implement the plan as adopted.
- Amongst other issues, section 114 authorises the practitioner, in accordance with the plan, to issue any authorised securities of the company for consideration (monetary value).
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows Hofisi is a legal practitioner, chartered accountant, corporate rescue practitioner, and consultant in deal structuring and tax. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
