Corporate Rescue
Corporate rescue is also known by other terms such as business rescue or judicial management. According to Section 121 of the Insolvency Act (Chapter 6:07) (hereinafter “the Act”) of 2018 corporate rescue means the proceedings to facilitate the rehabilitation of a company that is financially distressed. It involves providing for:
- Temporary supervision of the company and of the 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.
Many people are curious to know the implications of corporate rescue proceedings on the status of the company’s shareholders, directors and employees. This is explained below.
Shareholders
These are the owners of the company. In terms of Section 130 of the Act, during corporate rescue proceedings an alteration in the classification or status of any issued securities of a company, other than by way of transfer of securities in the ordinary course of business, is invalid except to the extent:
- That the Court otherwise directs or,
- Contemplated in an approved corporate rescue plan.
In terms of Section 144 of the Act a practitioner may issue any authorised securities of a company for consideration (monetary value) pursuant to an adopted corporate rescue plan.
Directors
Section 130 regulates the status of directors of a company. In terms of Section 130(2) during a company’s corporate rescue proceedings the board (of directors) of the company will be deemed 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.
During a company’s corporate rescue each director of the company at the time the corporate rescue proceedings commenced must attend to the requests of the corporate rescue practitioner at all times, and provide the practitioner with any information about the company’s affairs as may reasonably be required.
If during the proceedings one or more directors, at the time the proceedings commenced purports to take any action on behalf of the company, that action is void unless approved by the practitioner.
Employees
In terms of Section 129 of the Act, despite any provision of an agreement to the contrary:
- During a company’s corporate rescue proceedings, employees of the company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that:
- Changes occur in the ordinary course of attrition, or
- The employees and the company, in accordance with applicable labour laws, agree different terms and conditions.
- Any retrenchment of such employees contemplated in the company’s corporate rescue plan is subject to the Labour Act (Chapter 28:01) and any other applicable employment related legislation.
Further rights of employees
Further rights of employees during a corporate rescue proceedings are contained in Section 137 of the Insolvency Act.
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
