Corporate Insolvency and Rescue in Zambia.

The 2017 amendments to the Companies Act Chapter 388 of the Laws of Zambia introduced the
concept of corporate rescue as alternative to the abrupt winding up of companies facing financial
problems. It also removed liquidation from the Companies Act and added it to the Insolvency Act, so
that the Companies Act No. 10 of 2017 now deals with formation and management of companies
only, while the Corporate Insolvency Act No. 9 of 2017 deals with Receivership, Business Rescue and
Winding up or Liquidation. The amendments also demonstrated need for professionalism, requiring
that insolvency practitioners or liquidators should be either Chartered Accountants or Legal
Practitioners (s. 9 and s.112 of the CIA).

Previously, a financially distressed company had one option of liquidation. This avenue involved
orderly realisation and collection of assets by a liquidator for the benefit of creditors. The net value
of the collective debt would be distributed among creditors, thus ending the life of the company.
Now, liquidation is the last option after receivership and business rescue have failed to resuscitate
the company.

m
Receivership

er as
A public company raises capital by offering shares for sale or borrowing from banks and charging its

co
property as securities for the loans. When the companies default on the loan repayment, the bank

eH w
appoints a Receiver or may apply to court so that the court appoints a receiver, to recover the loan

o.
on behalf of the bank by disposing of the property attached to the loan. A receiver is a disinterested
rs e
individual appointed by a person under a deed 1, or by a court on application of the chargee 2, to
ou urc
manage the property the charge has become enforceable. Within 14 days, the appointed receiver
notifies the PACRA registrar who publishes the appointment in a Government Gazette. Thereafter,
directors submit to him within 3 months a statement of affairs regarding the company.
o

The role of the receiver is to manage the property to realise monies owed to the secured creditor,
aC s

thereafter he may dispose of it if the monies have not been realised. Sale must be by public tender
v i y re

after notifying the PACRA Registrar 21 days before the intended sale. A receiver is doing a service to
the company and therefore is paid by the company first before the creditors. He can be removed
from office by death, by the court, upon application to court by a charge holder and when removed
ed d

from the register of insolvency practitioners.

ar stu

Business Rescue
This is the process of facilitating the rehabilitation of a company that is financially distressed by
providing for:
sh is

a. Temporary supervision of the company and management of its affairs, business and property
Th

b. A temporary moratorium (prohibition of claims) on the rights of claimants against the

company or in respect of property.
c. The development and implementation 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.
d. If its not possible for the company to continue in existence, results in a better return for the
company’s creditors or shareholders.
This process is determined by a special resolution of directors, or upon a person applying to court
that the company be placed under supervision. But according to a South African case of Welman v
Marcelle Props 193 CC JDR 0408 (GST), the court stated that “business rescue proceedings are not for

1 Answerable to the company

2 Answerable to the court

This study source was downloaded by 100000793781178 from CourseHero.com on 05-31-2021 12:42:55 GMT -05:00

https://www.coursehero.com/file/61952555/Corporate-Insolvency-and-Rescue-in-Zambiadocx/
 terminally ill corporations.. nor for the chronically ill, but they are for ailing corporations, which given
time will be rescued and become solvent”.

Circumstances that may compel the court to make an order of business rescue proceedings are
summed up as financial distress, for example failure to pay salaries or retirement benefits, or it is fair
and equitable to do so for financial reasons, and there is a chance of rescuing the company. Once the
order has been made, the company can not make special resolution to place itself under liquidation.
Any affected person may object to the court order and apply to set aside the rescue proceedings, to
set aside the appointment of the business rescue administrator or requiring that the business rescue
administrator provide security for the interest of the company and affected persons.

The administrator must be either a Chartered Accountant or Legal Practitioner, and is paid a fee
determined by statutory instrument issued by the Minister of Commerce and Trade. He has power to
manage the company, and although directors remain in place, they only have a duty to cooperate as
their powers are usurped by the administrator. The administrator has power:
 Appoint any person in managerial capacity

m
 Remove any body from management

er as
 Delegate his powers as he deems fit

co
eH w
 Manage the business of the company without the board
 To develop and implement the rescue plan

o.
 Issue notices regarding business of rescue proceedings.
rs e
If the rescue plan does not work, then the company may be liquidated.
ou urc
The administrator may be removed from office in three ways:
 By a court order pursuant to s. 22 of the CIA 2017
o

 If he dies or resigns
aC s

 Dismissal by the company or creditor

v i y re

Effect of rescue proceedings on employment contracts

Employees shall continue on the same terms as before the rescue, except:
ed d

 Changes occur in the ordinary course of business

ar stu

 The employees and the company in accordance with applicable labour laws agree to
different terms.

Liquidation
sh is

When the business rescue fails to resuscitate the company, then it must be wound up pursuant to
Th

part V - VIII of the Corporate Insolvency Act 2017. The company may be liquidated in two ways, by
Compulsory winding-up and Voluntary Winding-up.

Compulsory Liquidation
This is where the winding-up of the company is sanctioned by an order of the court by way of a
petition to wind-up the company. The following parties have the legal standing to petition the court,
namely, the company, any creditor, a member or shareholder, the liquidator and the registrar of
patents and companies. Circumstances, which may trigger winding-up of a company, are:
 When a company has by a special resolution decided that it be wound-up
 If a company has failed to commence business within a year
 When a company is unable to pay its debts

This study source was downloaded by 100000793781178 from CourseHero.com on 05-31-2021 12:42:55 GMT -05:00

https://www.coursehero.com/file/61952555/Corporate-Insolvency-and-Rescue-in-Zambiadocx/
  When the time fixed by the articles of association for the existence of the company has
expired
 If in the court’s opinion it is just and equitable to wind-up the company

Voluntary Winding-up
This is done by either members or creditors.
Members Voluntary winding-up
A Members Voluntary Liquidation (MVL) is a voluntary closing-down process of a solvent company
looking to close the company and release cash and assets in the most efficient and orderly way. It is
initiated by directors but approved by shareholder by a special resolution vote, which is lodged with
the registrar, followed by appointment of a liquidator. Before a special resolution to wind up the
company is made, directors may issue a declaration of solvency, that the company is able to pay its
liabilities. If the company does not meet this solvency test, the directors who have issued the false
declaration commit an offence and may be imprisoned for not more than six months or pay a fine.
When the winding-up has commenced, the liquidator is appointed by an ordinary resolution of the
members and the powers of directors cease and vest in the liquidator. Directors submit to the

m
liquidator a statement of assets and liabilities of the company. A certified copy of the ordinary

er as
resolution appointing the liquidator is lodged with the registrar of patents and companies. If the

co
eH w
liquidator is satisfied that the company has passed the solvency test, he convenes a meeting of
creditors and presents before them a statement of the company’s assets and liabilities. Thereafter

o.
the liquidation continues as if it was a creditor’s voluntary winding up
rs e
ou urc
But if the resolution for voluntary winding has been proposed but company fails the solvency test,
the company convenes a meeting of creditors at which a resolution for the creditor’s voluntary
winding-up shall be put and passed by creditors. The Company will appoint a director and nominate
o

a liquidator. Creditors may also nominate their own liquidator. Thereafter, the liquidation will
aC s

proceed. The creditors may appoint a committee of inspection to supervise the liquidator and also
v i y re

determine his pay. The role of the liquidator is to collect assets, sell them and pay creditors. The
liquidator pays himself first, then employees and creditors. If there is any surplus left, it will be paid
to the shareholder as return of capital.
ed d
ar stu

If the liquidator has not completed the liquidation within one year, he must call a general meeting
and explain the delay. If he completes his work within one year, he calls the last general meeting of
the company at which he gives a report of his accomplishments. He submits the minutes of this last
meeting and the liquidation report to the registrar of patents and companies, who strikes the name
sh is

of the company from the register of companies and publishes the same in the Government Gazette.
Th

This is conclusive evidence that the company has been dissolved.

Powers of the liquidator

 To carry on business for the purpose of winding-up
 To pay creditors
 To take security for the discharge of any debt
 To sell property of the company
 To give notice of winding-up in the jurisdiction where the company is not trading
Priority of payment
When the liquidator is making payments, he pays
 Himself and the cost of liquidation
 Employees their wages and accrued benefits

This study source was downloaded by 100000793781178 from CourseHero.com on 05-31-2021 12:42:55 GMT -05:00

https://www.coursehero.com/file/61952555/Corporate-Insolvency-and-Rescue-in-Zambiadocx/
  Secured creditors
 Unsecured creditors
 Return of capital to shareholders

m
er as
co
eH w
o.
rs e
ou urc
o
aC s
v i y re
ed d
ar stu
sh is
Th

This study source was downloaded by 100000793781178 from CourseHero.com on 05-31-2021 12:42:55 GMT -05:00

https://www.coursehero.com/file/61952555/Corporate-Insolvency-and-Rescue-in-Zambiadocx/
Powered by TCPDF (www.tcpdf.org)