Introduction
I have previously written on corporate rescue which is based on the Insolvency Act (Chapter 6:07), “the Insolvency Act” or “the Act”. According to section 121(1)(b) 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, and
- Temporary moratorium on the rights of claimants against the company or is 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 its 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.
Court order to commence corporate rescue proceedings
In terms of section 124 of the Insolvency Act unless a company has adopted a resolution for voluntary corporate rescue in terms of section 122 an affected person may apply to a Court at any time for an order placing the company under supervision and commencing corporate proceedings.
An affected person, according to section 121(1)(a) of the Act, in relation to a company, means:
- A shareholder or creditor of the company, and
- Any registered trade union representing employees of the company, and
- If any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.
Serving copy of an application
According to section 124(2) an applicant must serve a copy of the application on the company, the Master (of the High Court) and the Registrar of Companies.
Notification of corporate rescue application to affected persons
According to section 124(2)(b) an applicant must notify each affected person of the application by standard notice. In other words each affected person must be notified of the application. In terms of section 124(3) each affected person has a right to participate in the hearing of an application in terms of this section.
Standard notice is defined in section 2 of the Insolvency Act to mean notice by registered mail, fax, e-mail or personal delivery.
Practical difficulties in notifying each affected person by standard notice
In my view, standard notice, as contemplated in the Act presents practical challenges in that the applicant, such as a creditor who is normally an external third party, has to obtain details including contacts of each affected person to be able to notify them. Such information is normally internal therefore not readily available to an outsider. In my respectful view, much as it is what the law says, fulfilling this requirement may at times be onerous. There are views that serving effected persons through for example notice in the Government Gazette and a local newspaper could be easier, or lowering the threshold from each affected person to maybe at least 50%.
Recent Court decisions on notifying each affected person
In the Supreme Court matter Redwing Mining Company (Private) Limited versus Associated Mine Workers Union of Zimbabwe and others, SC327/20, Judgment no. SC96/22, amongst other findings, the Supreme Court ruled that affected persons had not been properly notified in terms of section 124(2)(b) as the requirement for notification by standard notice had not been fully complied with.
The same decision was made in the matter Metallon Gold Zimbabwe (Private) Limited and others versus Shatirwa Investments (Private) Limited and Others, SC107/21. The other appellants in the case were Goldfields of Shamva (Private) Limited, Goldfields of Mazowe (Private) Limited and Mazowe Mining Company (Private) Limited.
In the Redwing Mining Company case reference was made to the case of Top Trailers (Pty) Ltd and Anor versus Kotze (2017) on the obligation of the applicant to notify all affected persons.
Conclusion
The section 124(2) requirement to serve the application on the company, the Master and the Registrar of Companies is peremptory. The section 124(2)(b) requirement to notify each affected person must be complied. Failure to do so will render an application defective.
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), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
