Duration of company corporate rescue proceedings
From time to time I receive inquiries on what the law says on the duration of corporate rescue proceedings. This comes from shareholders whose companies will be under or facing corporate rescue proceedings or creditors or other affected persons contemplating approaching the court to have
a defaulting debtor company placed under corporate rescue proceedings.
In this article I look at what the Insolvency Act (Chapter 6:07) (the Act or the Insolvency Act) says.
Understanding corporate rescue In my previous articles, I have explained that 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. According to the Act corporate rescue proceedings are meant to facilitate the rehabilitation of a company that is financially distressed. This will benefit affected persons who include the company’s creditors.
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 byrestructuring its affairs, business, property, debt and other liabilities and equity.
Duration of corporate rescue proceedings
Section 125 of the Insolvency Act applies and addresses when insolvency proceedings begin and when they end. This is explained below.
Beginning of corporate rescue proceedings
According to section 125(1) of the Insolvency Act corporate rescue proceedings begin when:
The company
(i) files a resolution to place itself under supervision in terms of section 122(3); or
(ii) applies to the Court for consent to file a resolution in terms of section 122(5)(b); or
An affected person applies to the Court for an order placing the company under
supervision in terms of section 124( l ); or
A Court makes an order placing a company under supervision during the course of liquidation proceedings or proceedings to enforce a security
interest, as contemplated in section 124(7).
A company can be placed under voluntary corporate rescue proceedings in terms of section 122 of the Act or involuntary corporate rescue
proceedings when an affected person such as a creditor makes an application to Court in terms of section 124 of the Insolvency Act.
End of corporate rescue proceedings
According to section 125(2) of the Insolvency Act corporate rescue proceedings end when:
The Court
(i) sets aside the resolution or order that began those proceedings; or
(ii) has converted the proceedings to liquidation proceedings; or
The practitioner has filed with the Master a notice of the termination of corporate rescue proceedings; or
A corporate rescue plan has been;
(i) proposed and rejected in terms of Sub-Part D of this Part, and no affected person
has acted to extend the proceedings in any manner contemplated in section 145; or Sponsored video
(ii) adopted in terms of Sub-Part D of this Part, and the practitioner has subsequently filed a notice of substantial implementation of that plan.
It is a requirement in terms of section 125(3) of the Act that if a company’s corporate rescue proceedings have not ended within three (3) months
after the start of those proceedings, or such longer time as the Court, on application by the practitioner, may allow, the practitioner must:
Prepare a report on the progress of the corporate rescue proceedings, and update it at the end of each subsequent month until the end of those
proceedings; and
Deliver the report and each update by standard notice to each affected person, and to the Court, if the proceedings have been the subject of a Court
order; or Master, in any other case.
Conclusion
There are views from corporate rescue practitioners that the timelines in the Insolvency Act are not realistic. Practically corporate rescue
assignments are known to take long.
The situation can be compounded by litigation, usually by shareholders resisting dilution or by creditors unhappy with the pace of the proceedings
or whose claims have been rejected or for other reasons.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Profile
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-herald.cl.zw
