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 “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.
Factors leading to insolvency
I have written before that insolvency can be due to many factors such as corporate governance failures, imprudent financial management, adverse changes in the external factors affecting the business, internal constraints such as inadequate funding or old equipment, loss of key suppliers, customers or personnel.
Factors influencing effectiveness of corporate rescue
As explained before these factors include but are not limited to the state of the company when it was placed under corporate rescue, ability of the company to raise funding, skills of the corporate rescue practitioner, governance structures during proceedings, profile and attitudes of creditors, set timeframes, quality of corporate rescue plan and its effective implementation, legal requirements, disputes and litigation involving affected persons and standard operating procedures.
General powers and duties of practitioners
Section 133 of the Act gives the corporate rescue practitioner the following powers in addition to any other powers he or she might have in terms of the Act:
- Full management control of the company in substitution for its board and pre-existing management which is dissolved in terms of the provisions of section 130(2).
- May delegate any power or function of the practitioner to a person who was part of the board or pre-existing management of the company.
- May appoint a person as part of the management of a company, whether to fill a vacancy or not.
- Developing a corporate rescue plan to be considered by affected persons, in accordance with the Act.
- Implementing any corporate rescue plan that has been adopted in accordance with this Act.
- The corporate rescue practitioner must, as soon as practicable after appointment, inform all relevant regulatory authorities having authority in respect of the activities of the company, of the fact that the company has been placed under corporate rescue proceedings and of his or her appointment.
- Except with the approval of the Court on application by the corporate rescue practitioner, a practitioner may not appoint a person as part of the management of the company, or an advisor to the company or to the practitioner, if that person:
(a) has any other relationship with the company such as would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by that relationship; or
(b) is an associate of a person who has a relationship contemplated in part (a) above.
- During a company’s corporate rescue proceedings, the corporate rescue practitioner:
(a) 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; and
(b) has the responsibilities, duties and liabilities of a director of the company.
- He or she is not liable for any act or omission in good faith in the course of the exercise of the powers and performance of the functions of a practitioner
- But may be held liable in accordance with any relevant law for the consequences of any act or omission amounting to gross negligence in the exercise of the powers and performance of the functions of a practitioner.
Effect of proceedings on shareholders and directors
Section 130 of the Act clarifies the effect corporate rescue proceedings have on two important groups of stakeholders, namely shareholders and directors. According to the Act:
- During corporate rescue proceedings an alteration in the classification or status of any issued securities (such as shares) of a company, other than by way of a transfer of securities in the ordinary course of business, is invalid except to the extent that the Court otherwise directs or is contemplated in an approved corporate rescue plan.
- 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.
- During a company’s corporate rescue proceedings 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 corporate rescue practitioner with any information about the company’s affairs as may reasonably be required.
- If, during a company’s corporate rescue proceedings one or more directors of the company at the time the corporate rescue proceedings commenced purports to take any action on behalf of the company, that action is void unless approved by the corporate rescue practitioner.
Conclusion
The corporate rescue practitioner is clothed with wide ranging powers. He replaces the directors but not the shareholders. His powers as regards the company’s securities such as shares are not without restriction.
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 and consultant in deal structuring and is an experienced director of companies. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
