Introduction
I have written extensively on corporate rescue in the past five years. Being a legal practitioner and corporate rescue practitioner I have been asked what a creditor should expect in the first meeting of creditors. In this article I share with you what the law says on the first meeting of creditors. Corporate rescue proceedings are regulated by the Insolvency Act (Chapter 6:07) hereinafter the “the Insolvency Act”.
Corporate rescue
For ease of reference and for the benefit of first time readers I will define corporate rescue. In terms of section 121(1)(b) of the Insolvency Act corporate rescue means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for:
- the temporary supervision of the company, and of the management of its affairs, business and property.
- a temporary moratorium on the rights of claimants against the company or in respect of property in its possession, and
- the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.
Voluntary and involuntary corporate rescue proceedings
In some of my previous articles I have explained that corporate rescue proceedings can be voluntary through a resolution of the board of directors per section 122 of the Insolvency Act. Proceedings may also be involuntary through a court order on application by an affected person in terms of section 124 of the Insolvency Act. According to section 121(1) (a) an “affected person” in relation to a company, means:
- a shareholder or creditor of the company,
- any registered trade union representing employees of the company,
- if any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.
First meeting of creditors in corporate rescue proceedings
This meeting is regulated by section 140 of the Insolvency Act. According to section 15(1) the first meeting of creditors must be held within 15 business days after being appointed, which I interpret to mean within 15 days of the corporate rescue practitioner being appointed.
In that meeting the Master must inform the creditors whether he believes there is reasonable prospect of rescuing the company. The Master may also receive proof of claims. The creditors may determine whether or not a committee of creditors should be appointed and, if so, may appoint the members of the committee.
Many creditors will be so curious to know if there are chances of the company being turned around and for the creditors to be paid. Such creditors will be anxious and desperate to lodge their claims for amounts allegedly owed by the company. In the same meeting the creditors may form a committee to represent their interests.
It is inevitable for creditors to ask questions on the whole process of corporate rescue i.e. the stages involved and timeframes, rights of creditors, role of the Master, duties of the corporate rescue practitioner and so on. It is common for creditors to have their legal representatives in attendance to advise them.
Notice of the meeting
According to section 15(2) of the Insolvency Act, the Master must give notice of the first meeting of creditors to every creditor of the company whose name and address is known to, or can reasonably be obtained by, the Master and set out the following in that notice:
- date, time and place of the meeting.
- agenda for the meeting.
Voting at the creditors meeting
This is regulated by section 15(3) of the Insolvency Act. It is provided that at any meeting of creditors, other than the meeting contemplated in section 141 (which provides for a meeting of the committee of affected persons), a decision supported by the holders of a simple majority of the independent creditors’ voting interests voted on a matter, is the decision of the meeting on that matter.
Conclusion
In summary the first meeting of creditors in corporate rescue proceedings will be presided over by the Master of the High Court and thereat the Master will inform creditors if he believes there is reasonable prospect of rescuing the company, the Maser may receive proof of claims and the creditors may form a committee of the creditors to represent their interests.
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), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles. He writes weekly articles in the newspaper since 2020.
