The authors hereto take this instance to advise of
business rescue proceedings in the case of
business entities under financial distress.
Prior to the current Insolvency Act [Chapter 6:03],
which came into effect in 2018, our jurisdiction
(Zimbabwe) conducted judicial management
proceedings prescribed under the former
Companies Act.
The change from judicial management to business
was influenced by a number of issues, which
included the stigma attached to entities under
judicial management as unrehabilitated insolvents
and the contention that such proceedings would
be initiated to wind up such entity and liquidate.
Some analysts have stated that up to 90% of
entities, within Zimbabwe, have either failed to
survive or have been under judicial management
for extended periods.
Corporate rescue proceedings are focused on
bringing relief to financially distressed entities.
The definition as stated under s121(b) of the
Insolvency Act [Chapter6:03] notes the temporary
nature of such proceedings and the requirement
for the development and implementation of a
rescue plan to maximise the probability of such
entity continuing in existence and solvency
thereafter.
Business rescue proceedings may be commenced
either voluntarily, i.e. by virtue of a company
resolution passed in terms of s122 of the
Insolvency Act [Chapter 6:03], or by virtue of a
court order obtained pursuant to s124 of the
Insolvency Act [Chapter 6:03].
The option to voluntarily commence corporate
rescue requires the board resolution effecting
such commencement to state there are
reasonable grounds to believe the company is
distressed and there appears to be reasonable
prospects of rescuing the respective company.
To ward off errant insolvents from evading their
creditors and related obligations, the Insolvency
Act [Chapter 6:03] s122 (2) (a) and (b) notes that
such resolution will only take effect upon filing the
same with the Master of the High Court or when
there are ongoing liquidation proceedings.
In instances were corporate rescue is commenced
pursuant to a court order, an applicant ; being
either a shareholder or creditor, a registered trade
union representing the company or any of the
employees not represented by a registered trade
union or their respective representatives; may
approach the court to seek an order commencing
corporate rescue.
The key benefit of commencing corporate rescue
proceedings is the moratorium extended to
financially distressed entities in respect of legal
proceedings, including the enforcement against
property owned by the company.
This includes creditors rights. S126 of the
Insolvency Act [Chapter 6:03] places limits on the
said moratorium, such that entities under
corporate are not placed in an enclave devoid of
legal rights or execution thereof by creditors.
The previous regime of judicial management
brought into focus the competency of judicial
managers. It is an indictment on that process and
the custodians thereof, that successful judicial
management cases are far and few between in
addition to the protracted process such judicial
managers took their respective company’s
through.
It is therefore pertinent to note the qualifications
set out for persons assuming the role of corporate
rescue practitioner set out under s131 of the
Insolvency Act[Chapter 6:03].
The limitation stated under the s131 are meant to
offer safeguards to ensure that the practitioners
as custodians of the corporate rescue
proceedings.
Further to the individual requirements of the
practitioner s142 of the Insolvency Act [Chapter
6:03] requires the corporate rescue practitioner to
compile a proposal of the rescue plan possible for
the adoption at a meeting of creditors and any
other holders of voting rights.
The corporate rescue plan together with
prescribed competencies of the business rescue
practitioner seemingly address the stigma
attached to the previous judicial management
regime and mandate such proceedings commence
with an end in sight, as prescribed by the rescue
plan, and the return to solvency of such distressed
entities.
Overall the corona virus pandemic has had far
reaching economic impact on all businesses As
most seek to rebound, some may continue to
struggle as issues of solvency attack their
viability.
It is therefore imperative directors and
shareholders alike, to remain cognisant of
business rescue proceedings and shake any
stigma attached thereto and avoid crumbling from
excessive creditor obligations.
