SAIPAR Case Review

Volume 5 Article 8
Issue 3 November 2022

11-2022

Chimanga Changa Limited v Export Trading Limited (SCZ Appeal

No. 3 of 2022)
Ntemena Mwanamwambwa
University of Lusaka, School of Law

Chenela Mwale-Simbotwe
University of Lusaka, School of Law

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Recommended Citation
Mwanamwambwa, Ntemena and Mwale-Simbotwe, Chenela (2022) "Chimanga Changa Limited v Export
Trading Limited (SCZ Appeal No. 3 of 2022)," SAIPAR Case Review: Vol. 5: Iss. 3, Article 8.
Available at: https://scholarship.law.cornell.edu/scr/vol5/iss3/8

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 Chimanga Changa Limited v Export Trading Limited (SCZ Appeal No. 3 of 2022)

Ntemena Mwanamwambwa 1and Chenela Mwale-Simbotwe 2

Facts
The brief facts of the case are that the appellant and respondent entered into a contract for the
supply of maize grain to the appellant, by the respondent valued at K9, 032, 713.05. However,
in a surprising turn of events the appellant refused to take delivery of the whole consignment
thereby prompting the respondent to commence legal action in the commercial division of the
High Court, for breach of contract seeking among other reliefs, specific performance of the
contract by the appellant.
The trial court entered judgement in favour of the respondent, a decision which aggrieved the
appellant prompting it to appeal against the judgement in the Court of Appeal. However,
unbeknownst to the respondent, two special resolutions were passed by the appellant’s board
of directors and members for the commencement of voluntary business rescue proceedings and
the appointment of a business rescue administrator, respectively. 3
The passing of the two resolutions was brought to the respondent’s attention through a
newspaper advert and acting through its counsel, when its efforts to inquire into the authenticity
of the appellant’s resolutions proved futile, the respondent was left with no choice but to
challenge the proceedings in the High Court pursuant to the provisions of section 22 of the
Corporate Insolvency Act 2017 4. However, the Appellants filed a motion to raise preliminary
issues 5on several fronts chief among them being the nexus between sections 22 and 25 of the
Act, the latter being a provision relating to moratorium or stay on legal proceedings against the
company or its assets during ongoing business rescue proceedings. The motion was dismissed
by the High Court in its ruling and subsequently also dismissed by the Court of Appeal when
the appellants lodged an appeal whose grounds were based on the motions raised in the lower
court.
The appeal was lodged in the supreme court on the grounds that:
That The Court of Appeal erred in law and fact when it upheld the holding of the High Court
to the effect that there is no interplay between the provisions of section 22(1) and 25(1) of the
Corporate Insolvency Act, 2017; The Court of Appeal erred in law and fact when it held that
proceedings commenced under section 22(1) of the Corporate Insolvency Act, 2017 do not
amount to legal proceedings against the company; The Court of Appeal erred in law and fact
when it failed to take into account that both sections 22(1) and 25(1) fall under the same
1
LLB (hons) (University of Wales), LLM (Kingston University London), law lecturer in the School of Law at the
University of Lusaka.
2
LLB (UNZA), LLM (UNILUS), law lecturer in the School of Law at the University of Lusaka
3
The two respective special resolutions were passed pursuant to the provisions of section 21(1) relating to the
resolution for the commencement of voluntary business rescue proceedings and section 21(3)(b) relating to the
appointment of a business rescue administrator subsequent to the filing of the first resolution, with the Registrar
of Companies.
4
The provision allows any affected person to challenge the commencement of business rescue proceedings on
grounds that thwe company is not financially distressed; there are no reasonable prospects of rescuing the business
of the company; or that the procedural requirements of section 21 have not been satisfued.
5
The said motion was filed pursuant to the provisions of orders 14A and 33 of the Rules of the Supreme Court
Of England and Wales 1965, (White Book).
division of the Corporate Insolvency Act and to hold that there is no interplay between sections
22(1) and 25(1) offends the intention of the legislature in placing the safeguards in section
25(1).
Holding
The Supreme Court upheld the decision of the Court of Appeal only to the extent that an
application made pursuant to section 22(1) of the Act, by an affected person seeking to
challenge the propriety and legitimacy of the voluntary business rescue proceedings neither
requires the consent of the business rescue administrator nor leave of court.
Significance
It should be considered a relief that the apex court in this jurisdiction has had occasion to
pronounce itself on matters relating to business rescue, thereby setting precedent for future
cases like Chimanga Changa 6. The court’s judgement is therefore significant for several
reasons as highlighted herein.
Firstly, like the Court of Appeal, the Supreme Court acknowledged that the introduction of the
concept of business rescue proceedings in the Corporate Insolvency Act was novel within our
jurisdiction. The court further stated that this was done in response to government’s deliberate
policy to inculcate a rescue culture within the Zambian business circles with the aim of
avoiding liquidation altogether 7, by possibly saving as many financially distressed companies
as possible as envisaged by the Act. It is also worth noting at this juncture, that with financial
distress and reasonable prospects of rescue 8 being the two condition precedents for the
commencement of the voluntary mode of the proceedings, a company’s financial distress is an
early warning sign of insolvency which if not addressed through business rescue as soon as it
arises, may result in insolvency within the next ensuing six months.9 It follows therefore, that
an insolvent company is incapable of being rescued as such rescue may come too little too late.
Section 3 of the Act thus defines the term ‘business rescue’ to mean:
The process of facilitating the rehabilitation of a company that is financially distressed
by providing for
(a) the temporary supervision of the company and management of its affairs, business
and property;
(b) a temporary moratorium on the rights of claimants against the company or in respect
of property in its possession; or
(c) the development and implementation, if approved in accordance with this Act, 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

6
Chimanga Changa Limited v Export Trading Limited (SCZ Appeal No. 3 of 2022).
7
Chungu, Chanda (2021) “Chimanga Changa Limited v. Export Trading Limited CAZ Appeal No. 76/2020 and
CAZ Appeal No. 053/2021,” SAIPAR Case Review: Vol. 4: Iss. 2, Article 13 at page 62.
8
As per section 21(1) of the Corporate Insolvency Act No. 9 of 2017.
9
Section 2 of the Corporate Insolvency Act No. 9 of 2017.

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 in a better return for the company s creditors or shareholders than would result if the
company was to be liquidated;
It can thus be deduced from the above cited provision that the gist of business rescue, is to hand
over the management of the company to an external manager called the business rescue
administrator, whose major responsibility it is to formulate a business rescue plan, setting out
how he intends to turnaround the company’s business and return it to profitability. This is
therefore in line with one of the four paramount objectives of corporate insolvency namely to
return a company to profitability where possible or practicable. 10
Secondly, the Supreme Court also stressed that voluntary business rescue proceedings
commence the moment a resolution passed by the board of directors and the members, is filed
with the registrar of companies. In fact, the wording of section 21(1) explicitly indicates that
the passing of the resolution as aforesaid, is subject to subsection 2(a) of the same section.
Which essentially means that the resolution is only the first step in setting the scene for the
commencement of this mode of business rescue. Section 21(1) provides as follows:
Subject to subsection (2) (a), the member may by special resolutions, resolve that the
company voluntarily begins business rescue proceedings and place the company under
supervision, if the board has reasonable grounds to believe that
(a) the company is financially distressed; and
(b) there appears to be a reasonable prospect of rescuing the company; and there is need
to (i) maintain the company as a going concern;
(ii) achieve a better outcome for the company s creditors as
a whole than is likely to be the case if the company
were to be liquidated; or
(iii) realise the property of the company in order to make a
distribution to one or more secured or preferential
creditors.
Subsection (2) of the above provision further states:
(2) A resolution made in accordance with subsection (1)
(a) shall not be adopted if liquidation proceedings have been
initiated by or against the company; and
(b) becomes effective after it has been filed with the Registrar.
The above provision further highlights the fact that business rescue proceedings cannot occur
simultaneously with liquidation proceedings as the two proceedings are in complete contrast
with each other. The latter being a means to the end of the company, namely winding-up while
the former is aimed at resuscitating, saving, and turning around the business of the company in
the state of financial distress. But most importantly, the taking ‘effect’ of the resolution is

10
Goode, R. Principles of Corporate Insolvency Law 3rd edition. (London: Sweet & Maxwell, 2010). The
possibility or practicability of rescue is highlighted in section 21(1)(b) of the Corporate Insolvency Act No. 9 of
2017, namely that in addition to the company being ‘financially distressed’, ‘there appears to be a reasonable
prospect of rescuing the company’.

34
subject to its being filed with the registrar of companies. Thus, the filing is what actually
commences the process. The supreme court’s proper interpretation of this provision clarifies
the court of appeal’s turbid interpretation of the provision namely that the proceedings only
commence upon the adoption of the proposed business rescue plan tabled before the affected
persons by the business rescue administrator, in line with section 43 of the Act. 11
Thirdly, as regards the interplay between sections 22(1) and 25(1) of the Act, the court adopted
the literal interpretation of the two provisions and concluded that the former is not subject to
the latter. Section 25 of the Act provides as follows:
A legal proceeding shall not be brought against a company or in relation to any property
belonging to the company or lawfully in its possession, during business rescue
proceeding, except

(a) With the written consent of the business rescue administrator;

(b) With the leave of the Court and in accordance with any terms and conditions the
Court considers suitable in any particular matter related to the business rescue
proceedings;
(c) As a set-off against any claim made by the company in any other legal proceedings,
irrespective of whether those proceedings commenced before or after the business
rescue proceedings concerning any property or right over which the company
exercises the powers of a trustee.
(2) A guarantee or surety by a company in favour of any person may not be enforced
by any person against the company during business rescue proceedings, except with the
leave of Court and in accordance with any terms and conditions the Court considers
just and equitable in the circumstances.
(3) if any right to commence proceedings or otherwise assert a claim against a company
is subject to a time limit, the measurement of the time shall be suspended during
business rescue proceedings. 12
An interrogation of the above cited provision reveals that the said moratorium is in relation to
the company, or to any assets belonging to the company or lawfully in its possession during
business rescue. By that token, a further dissection of this provision reveals the following:
A legal proceeding in order to effect a moratorium within the ambit of section 25, must be one
which , is authorized or sanctioned by law and brought or instituted in a court of justice or legal
tribunal for the acquiring of a right or the enforcement of a remedy. 13 Furthermore, the South
African case of Van Zyl v Euodia Trust (Edms) Bpk 14, the court stated that the ordinary meaning
of ‘legal proceedings’ is a ‘law suit’ or a ‘hofsaak’.
The provision further states that no legal proceedings shall be brought against any property
belonging to the company or in its possession. The term “property” is defined in section 2 of
the Act to mean:
the assets of the company, including money, goods, choses in action and land, whether
real or personal, legal or equitable and situated in Zambia or elsewhere, and obligations,

11
section 43 of the Corporate Insolvency Act No. 9 of 2017.
12
Corporate Insolvency Act No. 9 of 2017.
13
Carson v beall, 55 Ohio App. 245, 9N. E. 2d 729, 731.
14
1983 (3) SA 394.

35
 easements and every description of estate, interest and profit, present or future, vested
or contingent and arising out of, or incidental to the property 15
Thus, the definition of property in the Act for purposes of interpreting section 25 in the instant
case, is wide enough to encompass both real property and things or choses in action.
Furthermore, the provision emphasizes that where an action is commenced in respect of the
company’s property, the property in question must be in the possession of the company to for
the statutory moratorium to apply. The English case of Re Atlantic Computer Systems Plc 16, is
thus instructive in this regard. In that case, the Court had an opportunity to consider the meaning
of the phrase ‘possession’ in the context of a lessor-lessee agreement where the Lessee of
equipment had sub-let equipment to a sub-lessee and in determining whether physical
possession of the sub-lessee could be considered possession by the lessee, it was held that the
sub-lessee’s possession of the equipment could be considered to be the lessee’s possession and
therefore repossession of the equipment from the sub-lessee would amount to repossession
from the lessee. On that premise, therefore, leave of court was required to facilitate the
repossession. Thus, in the context of business rescue proceedings anything in the possession of
the company or in the possession of its sub-lessees would be deemed to be lawfully in the
possession of the company and therefore leave of Court or permission from the Business
Rescue Administrator would be needed to institute legal proceedings.
Therefore, as was rightly stated by the Supreme Court, there is no interplay between Section
22 (1) (a) and Section 25 (1) of the CIA as the moratorium for legal proceedings is against the
company and the company’s property or the property in its possession. Therefore, this right
which has given by the Act to affected persons under Section 22 (1) does not fall within the
ambit of Section 25 (1), in that it is not a legal proceeding against the company per se but rather
against the decision of the company to place the company under business rescue. Furthermore,
it must be noted that it is not a legal proceeding against the company’s property or the property
within the lawful possession of the company therefore it is not covered by the moratorium
under section 25 (1) of the Act.
Conterminous to the foregoing, the court also addressed its mind to what the statutory
moratorium seeks to protect. When a company is undergoing business rescue proceedings, a
plaintiff is precluded from suing or instituting court proceedings against the company, to enable
them to enforce their rights against it. This is the case as the purpose of a statutory moratorium
is to grant the company some breathing space to enable it to reorganize its affairs and can
continue to be a going concern rather than it becomes insolvent and eventually being wound
up.
Conclusion
The Supreme Court’s decision in Chimanga Changa 17 has set a clear and resounding tone as
well as a sound precedent in the Jurisprudence of Zambian Corporate Insolvency law,
specifically in relation to how voluntary business rescue proceedings should be commenced,
when they commence and most importantly that an application objecting to the commencement
of business rescue proceedings pursuant to section 22(1), does not answer to the definition of
a legal proceeding for purposes of effecting a moratorium within the confines of section 25 of
the Act.

15
Section 2 of the Corporate Insolvency Act No. 9 of 2017.
16
[1992] Ch. 505.
17
Ibid, supra note 6.

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