Since 2020, I have written several articles on insolvency practice covering both corporate rescue proceedings and liquidations.
I have explained both voluntary and involuntary corporate rescue proceedings. In this article, I cover the procedures to be followed when placing a company under voluntary corporate rescue.
Corporate rescue
In terms of section 121 (1) (b) of the Insolvency Act (Chapter 6:07) (the Insolvency Act), corporate rescue means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for:
the temporary supervision of the company, and of the management of its affairs, business and property.
a temporary moratorium on the rights of claimants against the company or in respect of property in its possession and
the development and implementation, if approved, 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 in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.
Types of corporate rescue proceedings
There are basically two types of corporate rescue proceedings:
Voluntary corporate rescue proceedings in terms of section 122 of the Insolvency Act, and
Involuntary corporate rescue proceedings in terms of section 124 of the Insolvency Act.
The main difference is that voluntary corporate rescue proceedings are done at the instance of the company, whereas involuntary or forced corporate rescue proceedings are caused by the affected persons, such as creditors, through securing a court order.
Voluntary corporate rescue proceedings through company resolution
According to section 122(1), the board of directors of a company may resolve that the company voluntarily begin corporate rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that:
The company is financially distressed and
There appears to be a reasonable prospect of rescuing the company.
According to section 122(2), the resolution shall only have force or effect if it has been filed with the Master of the High Court and the Registrar of Companies.
Procedures
The procedures are as recorded hereunder.
a) The directors of the company will meet and pass a resolution for the placement of the company under voluntary corporate rescue proceedings. It is common for the meeting to appoint the company representative and also the corporate rescue practitioner.
b) The company will then file the following documents with the Registrar of Companies:
Resolution passed by the directors.
The resolution will be accompanied by the documents listed below.
The company/applicant’s sworn statement signed by an authorised representative in terms of section 122 outlining the application for voluntary corporate rescue.
Notice of corporate rescue resolution in terms of section 122.
Sworn statement by the appointed corporate rescue practitioner accepting his/her appointment.
Statement of affairs of the company, which is in line with the First Schedule to the Insolvency Act.
Filing of documents at the Master of the High Court
Soon after the above documents have been filed at the Registrar of Companies, the same documents, bearing the stamp of the Registrar of Companies, must be immediately filed at the Master of the High Court. It is common for this to be done on the same day.
The office of the Master of the High Court will carry out a diligent examination of the documents in the public interest. If satisfied, the documents will be accepted, thereby placing the company under corporate rescue proceedings.
Serving a resolution to affected persons
In terms of section 122(3)(a) of the Insolvency Act, it is a requirement that, within five business days after the company has adopted and filed a resolution, unless the period is extended by the Master, the company must give notice of the resolution and its effective date, by standard notice to every affected person, including with the notice a sworn statement by the company of the facts relevant to the grounds on which the board resolution was founded.
Standard notice is defined in section 2 of the Insolvency Act to mean notice by registered mail, fax, e-mail or personal delivery.
Appointment of corporate rescue practitioner
According to section 122(3), within five business days after adoption of the voluntary corporate rescue resolution, the company must appoint a corporate rescue practitioner who satisfies the requirements of section 131 of the Insolvency Act and who has consented in writing to accept the appointment.
According to section 122(4), the company must, within two business days of appointing a practitioner, notify the Master and the Registrar of Companies. It is common and convenient to file the notice of appointment at the same time as filing the resolution and other accompanying documents.
The company must publish a copy of the notice of appointment of the corporate rescue practitioner to each affected person within five business days after the notice was filed.
The Master will issue a certificate of appointment to the practitioner upon:
Production of a valid practising certificate by the practitioner.
The practitioner depositing a bond of security acceptable to the Master.
Meeting any other conditions as may be set by the Master.
Conclusion
Voluntary corporate rescue is done in terms of section 122 of the Insolvency Act and the procedures are outlined therein.
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), ACCA(Business Valuations) MBA(EBS, Heriot-Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, a chartered accountant, an insolvency practitioner, a commercial arbitrator, registered tax accountant and advises on deals and transactions. /He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He sits on the Board of the Council of Estate Administrators in Zimbabwe./He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@ gmail.com. Visit www//:hofisilaw.com for more articles.-herald
