Introduction
Liquidation is the process of winding up a company. This is done by selling off the company’s assets and paying its creditors. If there is any residue it is then distributed to the company’s shareholders.
Liquidation versus corporate rescue
I my previous articles on corporate rescue I have explained that according to the Insolvency Act (Chapter 6:07) of Zimbabwe, “the Insolvency Act” or “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.
Contrasted, liquidation involves winding up or terminating a company whereas corporate rescue seeks to revive the insolvent the company. A liquidation involves breaking a company up yet corporate rescue involves building the business. After liquidation there is nothing whereas after corporate rescue there may be something. The liquidator is like an undertaker whereas the corporate rescue practitioner is like a doctor seeking to treat a patient.
Voluntary versus involuntary liquidation
Liquidation can be voluntary or involuntary as explained below. It is done in terms of the Insolvency Act.
Voluntary liquidation of a company
This is done in terms of section 9 of the Insolvency Act. This involves the company which is unable to pays its debts or whose liabilities exceed its assets passing a liquidation resolution resolving that the company be liquidated voluntarily.
Involuntary liquidation
Section 6 of the Insolvency Act applies. In this case a creditor who has a liquidated claim may apply to a Court for the liquidation of the debtor’s estate. In the case of a company or private business corporation (“PBC”):
- Corporate rescue proceedings have ended in the manner contemplated in part XXIII of the Act and it appears to the Court that it is just and equitable in the circumstances for the company or PBC to be liquidated.
- It is otherwise just and equitable for the company or PBC to be liquidated.
According to section 6(2) a claim in respect of a liquidated debt which is payable at some determined time in the future may be taken into account.
In terms of section 6(3)(a) an application contemplated in section 6(1) must be made with the notice to the debtor unless the Court dispenses with the notice where the Court is satisfied that it would be in the interest of the debtor or creditors to dispense with it.
According to section 6(4) the allegations in the application must be supported by an affidavit and the application must be accompanied by a certificate from the Master (of the High Court) issued not more than 14 days before the Court date.
Sections 6(7) allows the company which wishes to oppose the application to lodge an opposing affidavit with the registrar and serve a company thereof on the applicant. It is a requirement in terms of section 6(8) that a copy of the application and every affidavit in support of the allegations in the application shall be sent by standard notice to the Master when the application is lodged with the registrar.
Conclusion
Liquidation brings to an end the life of a company or PBC. It is done in terms of the Insolvency Act.
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), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
