An Analytical Overview of The Effectiveness and Adequacy of Corporate Insolvency Laws in Zambia

CAVENDISH UNIVERSITY ZAMBIA
FACULTY OF LAW
AN ANALYTICAL OVERVIEW OF THE EFFECTIVENESS AND

ADEQUACY OF CORPORATE INSOLVENCY LAWS IN ZAMBIA IN
COMPARISON WITH OTHER JURISDICTIONS
BY
NOZIPHO NKOMO
005-048
A Dissertation submitted to the Faculty of Law of the Cavendish University in partial

fulfilment of the requirements for the award of the Degree of Bachelor of Laws
(LLB).
CUZ 2020
i
DECLARATION
i. Author’s Declaration
I, Nozipho Nkomo, hereby declare that this dissertation is done under my hand
certifying the originality of the work contained herein with the sources of information
cited herein duly acknowledged and that it has not been previously submitted for the
award of the bachelor’s degree in Law at this or any other university hereto. I make
this declaration conscientiously believing the same to be true by virtue of the
provisions of the Statutory Declarations Act, 1835 of the United Kingdom.
SIGNED: ……………………………………………………………………………
DATE: ………………………………………………………………………………
ii. Copyrights Declaration
I, Nozipho Nkomo, hereby declare that this dissertation is done under my hand. No
portion of this dissertation or the work contained herein may be reproduced or
photocopied in any form or format without prior written consent or permission by the
author or the University. All rights reserved.
SIGNED: ……………………………………………………………………………
DATE: ………………………………………………………………………………
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CERTIFICATION OF APPROVALS
I certify that this dissertation authored by Nozipho Nkomo with Student Number:
005-048 and titled “Corporate Insolvency: A Critical Evaluation of the Adequacy
of Corporate Insolvency Laws in Zambia” has been approved as partially fulfilling
the minimum requirements for the award of the Bachelor of Laws by the University.
NAME: ______________________________________________
DESIGNATION: _______________________________________
SIGNED: ______________________________________________
DATE: ________________________________________________
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DEDICATION
This dissertation is dedicated to my parents, family and friends all who contributed to
the production of this dissertation for their love, encouragement and support rendered
during my studies. May the Almighty God of all creation guide you in your
deliberations!
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ACKNOWLEDGEMENT
I would like to acknowledge and thank God Almighty for His sufficient grace for
indeed, it is not by power nor by might but it is by the spirit of God that I have come
this far. My gratitude goes to my parents for the academic inspiration, encouragement
and financial support rendered throughout my studies. May God richly bless you.
Lastly, I would like to thank my supervisor Mr Kwazinkosi Ndlovu a charismatic

academician and all my lecturers for the guidance rendered during my studies.
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ABSTRACT
The study sought to critically evaluate the adequacy of corporate insolvency laws in
Zambia. The study had three specific objectives, which were: to identify and examine
the existing legal framework in relation to corporate insolvency laws in Zambia; to
establish the extent of effectiveness of insolvency laws in Zambia; and to compare the
legal framework in relation to corporate insolvency laws in Zambia compared to that
of other jurisdictions.
The study being a qualitative one was conducted using a desk review methodology
through the collection of both primary and secondary data in the form of local and
foreign legislations, law reports of both local and foreign jurisprudence, text books,
newspaper articles, published journals, internet and other past research studies hereto.
It is also a quantitative one as a survey through questionnaires was carried out to
measure the extent in which the law is practically effective.
The study discovered that the main book of law or the existing legal framework in
relation to corporate insolvency laws in Zambia was the Companies Act No. 10 of
2017 the Laws of Zambia which gave rise to the Corporate Insolvency Act No. 9 of
2017 of the Laws of Zambia. The study also found that the current legal framework
fell short of expected international standards as outlined in the United Nations
Commission on International Trade Laws Legislative Guide to Corporate Insolvency
Laws. As well as the World Bank’s principles on effective and adequate insolvency
and creditor rights’ systems in the sense that they lacked effective mechanisms for
corporate rescue and cross border insolvency thereof. It was also discovered that the
said provisions were also incapable of fostering accountability, transparency and
fairness among liquidators and corporate receivers.
The study concluded that the current corporate insolvency laws in Zambia consisted
of a number of loopholes. In view of the above mentioned, the study did not support
the maintenance of the current corporate insolvency laws in Zambia due to some
loopholes that exist therein. The study recommended that corporate insolvency laws
in Zambia and the world at large should undergo much reform to provide for effective
corporate rescue mechanisms and that liquidation of limited companies on account that
vi
insolvency should be the very last option available. Finally, the study recommended
that future similar studies of this nature should focus more on research questions not
contained herein.
vii
Table of Contents
1.1 Background of the Study. ................................................................................................... 1
1.2 Statement of the Problem ............................................................................................. 8
1.3 Aims and Objectives of the Study .................................................................................. 9
1.4 Research Questions ....................................................................................................... 9
1.5 Significance of the Study ................................................................................................ 9
1.6 Scope of the Study ....................................................................................................... 10
1.7 Limitation of Study ....................................................................................................... 10
1.8 Methodology................................................................................................................ 10
1.9 Outline of Chapters ...................................................................................................... 10
1.10 Conclusion .................................................................................................................. 11
2.0 Introduction ..................................................................................................................... 12

2.1 Identifying and examining the existing legal framework in relation to corporate
insolvency laws in Zambia.................................................................................................. 12
2.1.1 Insolvency Procedures under the Zambian Companies Act ..................................... 14
2.1.2 Schemes of arrangement .......................................................................................... 14
2.1.3 Shortcomings of schemes of arrangement as a corporate rescue mechanism ........ 15
2.2.4 Corporate Receivership............................................................................................. 17
2.2.5 Shortcomings of receivership as an effective business rescue mechanism ............. 20
2.2.6 Liquidation ................................................................................................................ 22
2.7 Critical Analysis and Evaluation ................................................................................... 23
3.0 Introduction ............................................................................................................... 25

3.1 Research Design ........................................................................................................... 25
3.1.1 Research Choice ........................................................................................................ 25
3.1.2 Research Strategy ..................................................................................................... 26
3.1.3 Time Horizon ............................................................................................................. 26
3.1.4 Sampling Frame ........................................................................................................ 26
3.1.5 Sampling Size ............................................................................................................ 26
3.1.6 Sampling Technique .................................................................................................. 26
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3.2 Sources of Data ............................................................................................................ 26
3.3 Data Collection Technique ........................................................................................... 27
3.3.1 Questionnaire ........................................................................................................... 27
3.3.2 Interviews.................................................................................................................. 27
3.4 Ethical considerations .................................................................................................. 27
3.5 Limitation of the study ................................................................................................. 28
3.6 Conclusion .................................................................................................................... 28
4.0 Introduction ..................................................................................................................... 29

4.1 A Comparison of the legal framework in relation to corporate insolvency laws in
Zambia with that of other jurisdictions ............................................................................. 29
4.1.1 Examination of the corporate insolvency law in the jurisdiction of Zambia, United
Kingdom, New Zealand and the United States of America................................................ 30
4.1.2 Developments that have taken place in relation to corporate insolvency law in
other jurisdictions from which Zambia can learn lessons ................................................. 36
4.1.3 Evaluation of the mechanisms for protection of creditor interests by a critical

examination of provisions of the Zambian Companies Act relating to receivers and
liquidators and determining the potential of the said provisions to encourage
accountability, fairness and expertise, cross border insolvency provisions and the United
Nations Commission on International Trade Law Model Law on Cross Border Insolvency,
insufficiency of protection for creditors of group companies, and inappropriateness of
directors’ fraudulent trading provisions in relation to liquidators and receivers ............. 38
4.1.4 The potential for unfair treatment stems from the ability of a parent company’s
directors to move resources around the group companies. Creditors of subsidiaries
within a group may be misled about the ownership of assets that are available to pay
their debts. Furthermore, creditors of a subsidiary company may not even find comfort in
the common law governing directors’ duties. The tradition of the law dictates that
directors owe their duties to their own company not to the subsidiaries that their
decisions may nevertheless affect. .................................................................................... 48
4.1.5 Common features of corporate rescue mechanisms................................................ 55
4.1.6 Challenges in implementing the Corporate Rescue Legislations in Zambia ............. 60
4.2 Qualitative Data ........................................................................................................... 62
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4.2.1 Respondents background ..................................................................................... 62
4.2.2 Education .............................................................................................................. 62
4.2.3 Gender .................................................................................................................. 62
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CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background of the Study.

The Companies Act No. 10 of 2017, the Laws of Zambia sets out the key provisions
of the Zambian Corporate Insolvency Act No. 9 of 2017. Traditionally, insolvency
legislation in Zambia has been part of the Companies Act, the Laws of Zambia. In
2017, the Parliament of Zambia enacted the country’s first stand-alone Corporate
Insolvency Act No. 9 of 2017.1 The new legislation was brought into force through a
Commencement Order, Statutory Instrument No. 47 of 2018, issued in June 2018. The
prescribed forms for the implementation of the Act were issued in July 2019, through
statutory orders No. 40 and 41 of 2019.2
New legislation signals a shift in approach from recovery to business rescue. As with
the legislative changes in other countries, the focus of the reformed insolvency
legislation has changed as this move has come with the recognition that the rescue
approach (rather than the traditional recovery only approach) leads to a better overall
outcome for all parties involved.3
The key objectives of this new insolvency Act are to: align Zambian insolvency law
with international best practices; enhance transparency and accountability in
insolvency proceedings; and provide a mechanism for salvaging financially distressed
but viable companies. Insolvency practitioners now need to be licensed by the Patents
and Companies Registration Agency (hereinafter referred to as ‘PACRA’).4 Under the
new Act, a person is eligible for accreditation as an insolvency practitioner only if that
person is a chartered accountant or a legal practitioner who has practiced for at least
seven years, as defined in the Accountants Act of 2008 or Legal Practitioners Act,
respectively. Accreditation by the Registrar is valid for one year subject to renewal. 5
1
The Companies Act No. 10 of 2017, the Laws of Zambia
2
Commencement Order, Statutory Instrument No. 47 of 2018 of the Laws of Zambia
3
The Corporate Insolvency Act No. 9 of 2017 of the Laws of Zambia
4
ibid
5
1
This is in line with international best practices such as in the United States, United
Kingdom, South Africa and Kenya, where insolvency practitioners require licenses
from defined regulatory agencies. Finch noted that other jurisdictions require
insolvency practitioners to have prior experience in the insolvency space before
accreditation. This is a requirement that the Zambian regulator might consider
including in future, amendments to strengthen the insolvency practice in Zambia.6
The Corporate Insolvency Act No. 9 of 2017 introduces a new insolvency proceeding,
that is, business rescue (BR) route of insolvency. BR proceedings can be commenced
or started through a board resolution if the company’s board believe that: the company
is ‘financially distressed’; and that there appears to be a reasonable prospect of
rescuing the company; and there is need to i. Maintain the company as a going concern;
or ii. Achieve a better outcome for the company’s creditors than is likely to be the case
if the company were to be liquidated; or iii. Realize the property of the company to
make a distribution to one or more secured or preferential creditors.7
Alternatively, an affected person may apply to the court for an order to place the
company under supervision and begin BR proceedings. The BR process benefits from
a moratorium during the period of the BR proceeding that prevents any legal or
enforcement action from being taken against the company by any other creditor. This
allows the appointed administrator to execute his mandate to rescue the business
without the pressure of enforcement action or litigation from other creditors.8
BR proceedings have the potential of yielding better results to the key stakeholders
because they involve the participation of all creditors. This provides a better platform
for building consensus and focus on the going concern of the business as opposed to
winding up proceedings.9 According to the Corporate Insolvency Act No.9 of 2017,
‘financially distressed’ means, a company is likely to be insolvent within the
immediately ensuing six months.10 ‘Insolvent’ in the context of this legislation has
6
ibid
7
ibid
8
ibid
9
10
ibid
2
been interpreted in recent cases to mean a situation where the value of a company’s
liabilities exceeds the value of its assets.11
The limitation in the definition of ‘financially distressed’ to cover only balance sheet
insolvency is likely to deny entities that are eligible for business rescue but do not fit
the above definition a chance to be rehabilitated through business rescue. 12 In other
jurisdictions, such as the South African Companies Act 2008, Section 28 (f), for
example, in addition to the balance sheet insolvency definition. ‘Financially distressed’
is defined as ‘that it appears to be reasonably unlikely that the company will be able to
pay all of its debts as they fall due and payable within the immediately ensuing six
months’.13
The Supreme Court of the United Kingdom in the case of BNY Corporate Trustee
Services Ltd v Eurosail [2013] UKSC 28 found that the ‘balance sheet’ test for
insolvency must take account of the wider commercial context. In addition, that courts
must look beyond the assets and liabilities used to prepare a company’s statutory
accounts when deciding whether a company is insolvent.14 For example, a company
that is balance sheet insolvent might still have enough cash flow from trading activities
to meet all its debt obligations coming due. On the other side, a company can be
balance sheet solvent but not be able to generate adequate cash to settle the short-term
debt obligations falling due. There may be a need to address this going forward if the
envisaged positive impacts of preservation of value while rehabilitating distressed
entities are to be fully realized.15
The Corporate Insolvency Act provides for the winding up of companies. Winding up
is the process of settling accounts and liquidating assets in anticipation of a company’s
dissolution. The new legislation provides for either voluntary winding up or winding
up by the court. On the other hand, voluntary winding up can take two forms:16 a) A
member’s voluntary winding up, which is the termination of a corporation, initiated by
11
ibid
12
ibid
13
Section 28 (f) of the South African Companies Act 2008
14
BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28
15
ibid
16
3
the board of directors and approved by the shareholders; or b) A creditor’s voluntary
winding up, which is the voluntary winding up of a company by the creditors. 17
Member’s voluntary winding up may be initiated through a special resolution of the

directors of the company. The directors may make a declaration of solvency before
issuing a notice for a meeting to wind up the company voluntarily and would need to
provide a statement of affairs of the company showing the company assets, liabilities
and the estimated winding up expenses.18 A director who makes a written declaration
knowing that the company does not satisfy the solvency test commits an offence and
is liable to a fine upon conviction. This provision will promote transparency in the
company winding up process by promoting accountability in the provision of accurate
information to the relevant parties.19
Where a resolution for the voluntary winding up of a company has been proposed, and
no declaration of solvency was made, the company shall convene a meeting of the
creditors at which the resolution for a creditor’s voluntary winding up shall be put and
passed by the creditors. The new regulation provides that in the case where different
persons are appointed by the creditors and the company, then the person nominated by
the creditors shall be the liquidator.20
Although winding up provisions were present in the old Companies Act, the new
insolvency legislation includes a lot more detail on the route any type of liquidation
should take and the duties of all parties in this respect. 21 In particular, the duties of
liquidators and the role of creditors in all three types of liquidations are clearly
delineated. It should be expected that this additional clarity would improve the
transparency with which liquidations will be handled over time making them less
costly to undertake.22
The new legislation has also facilitated the introduction of voluntary arrangements. A
voluntary arrangement (VA) is an agreement between a company and its creditors to
renegotiate or restructure its obligations to them. The proposal for a VA is usually
17
Belcher, A.1997. Corporate Rescue. London: Sweet Maxwell.
18
ibid
19
ibid
20
Cassim, F. 2000. Contemporary Company Law. Cape Town: Juta & Co
21
ibid
22
Cassim, F. 2000. Contemporary Company Law. Cape Town: Juta & Co
4
made by the directors of a company to the company and its creditors but can also be
initiated by a creditor or a member of a company. 23 VAs can be made whether the
company is in financial distress or not. The directors will also propose a supervisor, an
individual who will supervise the implementation of the VA. The supervisor must be
a qualified and licensed insolvency practitioner. 24
A company, creditor or member of a company may apply to the court for an order that
a meeting of the creditors or shareholders be convened and conducted to consider a
VA. Approval of a VA is reached by passing an extraordinary resolution, which
requires ‘seventy-five percent of the votes of the members entitled to vote in person or
by proxy at a meeting of creditors. The voting power at a meeting of creditors is
assigned to the creditors in proportion to the amount of the debt outstanding from the
company to each creditor.25 Where a meeting, by extraordinary resolution, agrees to a
VA, the VA: shall be binding on all the creditors or class of creditors as may be the
case; and shall be binding on the company. When it is approved by order of the court
and a copy of the order of the court has been lodged with the Registrar. Creditors then
become unable to take any alternative action to recover their debt in full.26
In a VA, creditors are typically able to get more involved in the solution to rescue the
company or to recover their debts as they may modify the proposals presented to them
before voting and, as such, influence the way in which the company handles their debt.
In this way, VAs are more flexible than administrations.27 Belcher provided further
clarity on cross-border insolvency stating that whether in Africa or Europe, cross-
border insolvency is difficult to navigate between differences in insolvency processes
in different jurisdictions and possible instances of legal action being taken to protect
local creditors or to ring-fence local assets for the benefit of local creditors.28
The Corporate Insolvency Act No. 9 of 2017 includes provisions of the Model Law on
Cross-Border Insolvency adopted by the United Nations Commission on International
Trade Law. Some of the provisions have been adapted to the Zambian context, but, in
general, the legislation aims at clarifying the provisions for cross-border insolvency
23
ibid
24
ibid
25
26
ibid
27
ibid
28
5
where a Zambian company is concerned to facilitate trade and investment and clarify
the route cross-border insolvency proceedings should take.29
Even with this clarity on basic principles, considerations regarding cross-border

insolvency will vary greatly on a case-by-case basis depending on the circumstances
of the jurisdiction involved, among other factors. Cross-border insolvency proceedings
will rely on a commercially aware and business-minded judiciary for successful
implementation.30 The Corporate Insolvency Act No. 9 of 2017 caps the fees payable
to insolvency practitioners, enforced through the Statutory Instrument No. 41 of 2019.
The fee payable to a receiver, business rescue practitioner or liquidator shall not exceed
10% of the net proceeds of receivership or liquidation and 5% of the net assets of the
company in the case of business rescue.31
‘Net assets’ means the amount by which the aggregate amount of the company’s assets
exceeds the aggregate amount of its liabilities taking the amount of both assets and
liabilities to be stated in the company’s accounting records; and ‘Net proceeds’ means
gross proceeds of the receivership or liquidation less expenses and disbursements.32
The overall purpose of business rescue is to rehabilitate companies that are financially
distressed and are highly likely to become insolvent in the short term. Financially
distressed entities in most cases have minimal net assets by the time they seek business
rescue.33 This makes the introduced fee cap based on a percentage of net assets
problematic. It might result in some distressed entities missing the opportunity for
rehabilitation and resorting to winding up, which spells the death of such entities.34
The new legislation assumes that in business rescue proceedings, the company will
always be solvent enough for the 5% of net assets fee cap on be sufficient to settle the
costs of business rescue. However, Garner noted that expenses and disbursements of
business rescue proceedings are often neither predictable nor easily controllable, due
to external factors such as long litigations that may arise during the business rescue
29
Finch, V. 2009. Corporate Insolvency law: Perspectives and Principles. Cambridge: Cambridge University Press.
29
The Corporate Insolvency Act No. 9 of 2017
30
ibid
31
ibid
32
Garner, B.1999. Black’s Law Dictionary. Dallas: West Group Publishing.
33
ibid
34
6
proceedings.35 The Corporate Insolvency Act of 2017 makes no exceptions for
situations when the business rescue fees may be higher than 5% of the net assets of the
company undergoing business rescue proceedings.36
The enactment of the Corporate Insolvency Act No. 9 is a positive milestone in the
Zambian insolvency legislative framework. Through proper implementation, Zambia
can replicate the success of similar legislations in other jurisdictions. 37 For example,
in Kenya, the implementation of the Insolvency Act 2015 of the Laws of Kenya has
had a positive impact on the insolvency practice in the country. The legislation played
a big role in the elimination of rogue insolvency practitioners, through clear definition
of the requirements and qualifications of insolvency practitioners. This had the impact
of increasing transparency and boosting public confidence in insolvency processes.38
Kenyan banks have since been more proactive in seeking business rescue focused
solutions for their non-performing accounts. Additionally, banks are embracing
proactive approaches in assisting their distressed clients to ease loan repayment
pressures, through processes such as independent business reviews, which culminate
in informed debt restructuring solutions.39 A good insolvency law is a useful tool, but
not all situations call for an insolvency process. There has been an increase in out-of-
court financial restructuring cases across the East African region. These mainly relate
to several large distressed private corporations that have multiple fragmented facilities
with various lenders in non-syndicated situations.40
Keay suggests that the success of such restructuring initiatives depends on the level of
coordination. This is more effectively achieved where one involved party takes
leadership of the exercise and coordinates activities to assist in building consensus on
the restructuring solution, as well as in the implementation.41 Thus, lenders and
borrowers’ main objective should be to act early, decisively and collaboratively to
avoid costly and time-consuming insolvency proceedings. This is made possible
through close and regular monitoring of financial information, focusing not only on
35
ibid
36
ibid
37
The Insolvency Act 2015 of the Laws of Kenya
38
ibid
39
ibid
40
The Insolvency Act 2015 of the Laws of Kenya.
41
Keay, A., and Walton P, 2003. Insolvency law; Corporate and Personal. London: Longman.
7
profit forecasts but also on cash position and industry. Ensuring airtight credit policy
and loan security documentation at the outset helps to mitigate the risk of a debt going
bad.42
1.2 Statement of the Problem

Gates postulated that the main existing legal framework in relation to corporate
insolvency laws in Zambia is the Corporate Insolvency Act, the Laws of Zambia.43
However, he argued that the problem is that it is not known whether the mechanisms
provided for in the Corporate Insolvency Act are capable of providing safeguards that
can guarantee equitable and fair outcomes for all stakeholders of companies in
situations where debtor companies experience financial distress or become technically
insolvent.44 Munalula adds that there are a number of stakeholders with different
interests in a company. The stakeholders who include shareholders, employees,
creditors, tax authorities and customers, among others, are definitely interested in
seeing the company carry on as a going concern.45
The existing legal framework in relation to corporate insolvency laws in Zambia is

designed in such a way that it is supportive of an environment in which Companies are
able to carry on as going concerns even though they may occasionally experience
financial distress hereto by the introduction of business rescues. Walton annotated that
even where it is not possible to rescue a financially troubled company and liquidation
proceeds, the existing legal framework in relation to corporate insolvency laws in
Zambia should provide effective mechanisms to guarantee that the outcome of the
process serves the interests of not just one or some but all of the stakeholders as
aforementioned herein.46 The legal framework carry the tools to avoid a business from
being insolvent but the main concern is if the mechanisms are practical and effective.
From the research and literature review that are available, it has been clearly observed
that very little work has been carried out before to evaluate the adequacy of insolvency
provisions in the current Zambian Corporate Insolvency Act.. It is therefore the
42
ibid
43
Gates, R.B. 2019. Gates on Understanding Zambian Corporate Insolvency Law.. Gates Legal Practitioners
44
ibid
45
ibid
46
Walton, R.1983. Kerr on the Law and Practice as to Receivers. London: Sweet & Maxwell.
8
endeavor of the study to investigate and critically evaluate the adequacy of corporate
insolvency laws in Zambia with specific comparisons to other jurisdictions.
1.3 Aims and Objectives of the Study

The main aim of the study is to critically evaluate the adequacy of corporate insolvency
laws in Zambia.
Specific Objectives of the Study
The specific objectives of the study are:
1. To identify and examine the existing legal framework in relation to corporate

insolvency laws in Zambia
2. To establish the extent of effectiveness of insolvency laws in Zambia
3. To compare the legal framework in relation to corporate insolvency laws in
Zambia compare to that of other jurisdictions.
1.4 Research Questions

1. What is the existing legal framework in relation to corporate insolvency laws
in Zambia?
2. What is the extent of effectiveness of corporate insolvency laws in Zambia?
3. How does the legal framework in relation to corporate insolvency laws in
Zambia compare with that of other jurisdictions?
1.5 Significance of the Study

As earlier delineated in the problem statement of the study, from the past research
studies, it has become clear that very little research work has been undertaken before
to evaluate the corporate insolvency provisions in the current Zambian Companies Act
No. 10 of 2017 of the Laws of Zambia.47 Thus, it is anticipated that the study will
definitely identify the gaps in corporate insolvency provisions under the Zambia
Companies Act and suggest practical legal reforms that would enable corporate
insolvency law in Zambia conform to international best practices hereto.48 It is also
anticipated that the findings of the study will be particularly useful to policy and
lawmakers, as it would inform best policy and legal reforms in Zambia and other
47
Munalula, M. 2004. Legal Process: Zambian cases, legislation and commentaries. Lusaka: UNZA Press.
48
ibid
9
extraterritorial jurisdictions. Therefore, the significance of the study cannot be
overemphasized hereto.49
1.6 Scope of the Study

The subject matter jurisdiction of the study is Corporate Insolvency Law, specifically
the laws that govern the corporate sector in Zambia. The study goes as far as drawing
comparisons of the legal framework in relation to corporate insolvency laws in Zambia
with legislations that govern corporate insolvency in other jurisdictions.
1.7 Limitation of Study

The study refers to the Zambian insolvency laws but does not limit jurisdictions to
compare. It gives an overview of Zambia and other nation’s like USA, Canada, Kenya,
South Africa and New Zealand’s insolvency laws, examining their adequacy and
effectiveness.
1.8 Methodology
The study being a qualitative one shall be conducted using a desk review approach
through the collection of both primary and secondary data in the form of local and
foreign legislations, law reports of both local and foreign jurisprudence, text books,
newspaper articles, published journals, internet and other past research studies hereto.
1.9 Outline of Chapters

Chapter One has provided the general introduction of the study and has covered the
background to the study, the statement of the problem, aims and objectives of the study,
research questions, significance of the study, scope of the study, literature review as
well as the methodology of the study.
Chapter Two identifies and examines the existing legal framework in relation to
corporate insolvency laws in Zambia. It provides a critical evaluation of the corporate
insolvency provisions in the current Zambian Corporate Insolvency Act in terms of its
capacity to provide effective protective mechanisms for corporate business rescue. The
chapter critically examines the Zambian Corporate Insolvency Act against the
benchmarks of international instruments such as the United Nations Commission on
International Trade Law guide on insolvency legislation as well as the World Bank
recommendation on creating an effective insolvency and creditor rights system.
49
ibid
10
Chapter Three establishes the extent of effectiveness of corporate insolvency laws in
Zambia. In this regard, the chapter examines the extent to which the insolvency
provisions in the Zambian Companies Act are capable of being an effective mechanism
for protecting the interests of all stakeholders when a company is technically insolvent.
It also considers and evaluates the effectiveness of the Zambian Judiciary in insolvency
matters. The chapter evaluates the role of the judiciary in the insolvency legal regime
by examining its capability to contribute to the efficacy and adequacy of Corporate
Insolvency Law.
Chapter Four compares the legal framework in relation to corporate insolvency laws
in Zambia with that of other jurisdictions. It examines insolvency law in England, New
Zealand and the United States of America. The main purpose of this chapter is to
highlight developments that have taken place in other jurisdictions from which Zambia
can learn lessons.
The chapter further evaluates the mechanisms for protection of creditor interests by a
critical examination of provisions of the Zambian Companies Act relating to receivers
and liquidators and determining the potential of the said provisions to encourage
accountability, fairness and expertise by liquidators and receivers. Furthermore, the
chapter examines the provisions relating to floating charges with the aim of assessing
the potential of the provisions to adequately safeguard creditor interests. Finally, the
chapter examines the challenges faced in implementing the Corporate Rescue
Legislations in Zambia.
Chapter Five being the final chapter gives the findings, conclusions and
recommendations of the study.
1.10 Conclusion
This Chapter has introduced the topic, background, statement of problem, objectives
of the study as well as significance of the study. It has demonstrated that the law on
Corporate Insolvency in Zambia is effective and adequate. Thus, the core of this study
is to analyze giving an overview of Zambia’s Corporate Insolvency Act No. 9 of 2017
in comparison with other jurisdictions.
11
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter identifies and examines the existing legal framework in relation to
corporate insolvency laws in Zambia. It provides a critical evaluation of the corporate
insolvency provisions in the current Zambian Companies Act (hereinafter referred to
as the “Companies Act”) in terms of its capacity to provide effective protective
mechanisms for corporate business rescue. The chapter critically examines the
Zambian Companies Act against the benchmarks of international instruments such as
the United Nations Commission on International Trade Law guide on insolvency
legislation as well as the World Bank recommendation on creating an effective
insolvency and creditor rights system as a means by which financially troubled
companies may be saved from collapse.
2.1 Identifying and examining the existing legal framework in relation to

corporate insolvency laws in Zambia
Keay and Walton suggested that an ideal corporate insolvency law is one that embraces
principles, practices and procedures capable of influencing the restoration of debtor
companies to profitable positions where practicable.50 This chapter therefore seeks to
identify and examine the existing legal framework in relation to corporate insolvency
laws in Zambia as well as examining the procedures to which an insolvent company
may be amenable and determine whether such procedures are capable of providing the
means for the rescue of a company in financial distress. Corporate rescue may be
defined as a major intervention necessary to avert eventual financial failure of the
company.51
Although a study by Moss has also noted the need for corporate insolvency laws or an
effective business rescue mechanism. Its scope is wider as it has been extended to
evaluation of the provisions in respect of ability to promote the rights of all the
creditors, ability of the law to engender accountability and efficiency of insolvency
practitioners as well as enable the Judiciary to play an effective role in insolvency
50
51
ibid
12
matters. Moss draws examples from the United States of America, New Zealand and
England.
Morse outlines a host of changes that have reshaped corporate insolvency laws and
practice notably the consolidation of the business rescue culture in the United
Kingdom, the rise of pre-packaged administration and the substantial replacement of
administrative receivership with administration. Morse also considers the implications
of recent and dramatic changes in the provision of credit, the movement of an
increasing amount of insolvency work to non-formal procedures and the arrival on the
scene of a new cadre of specialists in corporate turnaround. Morse argues that
changes in approach are needed if the corporate insolvency laws are to develop the
coherence and purpose and offers a proper legal framework for such an approach
hereto.
Mwenda points out the context within which sub-Saharan Africa may undertake
legislative reform in respect of cross border corporate insolvency. He raised issues that
are likely to arise during the reform process and challenges that may be faced. Mwenda
provides useful insights especially that one of his recommendations is the introduction
of cross border insolvency provisions in the law. Mwenda compared insolvency law
in the United Kingdom to that of Malaysia and delineated numerous areas of strength
and weakness in either regime. He provides useful analysis that have informed some
of the recommendations in many research studies done by different scholars.
Hussain and Wihlborg postulated that the main objectives of corporate insolvency laws
are: to allocate risks among participants in a market economy in a predictable
equitable, and transparent manner; and to protect and maximize value for the benefit
of all interested parties and the economy in general without effective procedures that
are applied in a predictable manner; creditors may be unable to collect on their claims,
which will adversely affect future availability of credit. The law should recognize the
interest of secured creditors over those that may be unsecured such as employees.
Similarly, the rights of debtor companies (and their employees) may not be adequately
protected and different creditors may not be treated equitably. The capitalist run
economy will thus not foster growth and competition and will result in increased risk.
Consequently, this may lead to economic failure and financial crisis as the world has
experienced.
13
Mwenda adds that corporate insolvency laws in many jurisdictions are evolving with
a large number of the reforms focusing on reorganizing or rescue of the ailing entity
rather than its liquidation. The arguments put across in this study will be against the
background that corporate insolvency law, just like any other branch of law, is intended
to serve a particular purpose(s). The study in most of the arguments has been
influenced by the multiple values theory of corporate insolvency law as opposed to the
creditor wealth maximization theory.
Morse identifies the main existing legal framework in relation to corporate insolvency
laws in Zambia as being the Companies Act, the Laws of Zambia. He highlighted the
three procedures available to an insolvent company in the Act namely; schemes of
arrangement, receivership, and liquidation. Each of these procedures is then examined
in terms of its suitability as a corporate rescue mechanism in corporate insolvency law.
52
2.1.1 Insolvency Procedures under the Zambian Companies Act

Corporate Insolvency provisions in the Companies Act are in three parts, first,
provisions relating to the appointment and functions of receivers are contained in part
V division 5.3 entitled “Receivers”. 53 Secondly, provisions relating to liquidations are
in part XIII entitled “Winding-Up” and third, schemes of arrangements are in part XI
of the Act entitled “Schemes of arrangement, take-overs and the protection of
minorities”. Thus, there is no other procedure to which an insolvent debtor is amenable
apart from receivership, liquidation or a scheme of arrangement hereto. 54
2.1.2 Schemes of arrangement

Pursuant to Section 234(2) of the Companies Act, a scheme of arrangement is where a
compromise or arrangement is proposed between a company and its creditors or any
class of its creditors , the Court may, on the application of the company or any creditor
or any member of the company, or, in the case of a company being wound up, of the
liquidator, order a meeting of the creditors, the class of creditors, the members or the
52
53
Morse, G.2007. Charlesworth’s Company Law. London: Sweet and Maxwell.
54
ibid
14
class of members, as the case may be, to be convened , held and conducted in such
manner as it thinks fit to consider the compromise or arrangement.55
Charles worth’s Company law states that the word “arrangement” has a very wide
meaning, which is wider than the word “compromise”. Further, that arrangement may
involve for example, debenture holders giving an extension of time for payment,
accepting a cash payment less than the face value of their debentures, giving up their
security in whole or in part and indeed exchanging their debentures for shares in the
company.56 To initiate the process of compromise or arrangement, the company itself,
a creditor, a member of the company or liquidator must apply to court for an order that
a meeting of the company and relevant category of stakeholders be held to consider
the compromise or arrangement. In a compromise or arrangement, a creditor will vote
in proportion to the amount of money owed to that creditor unless the Court orders
otherwise.57
2.1.3 Shortcomings of schemes of arrangement as a corporate rescue mechanism

The major weakness with an arrangement is that it is not easy in practice to provide
comfort to all creditors that their interests will be protected. A compromise requires
that all parties with contractual rights consent to waive, defer, or alter priorities.
Dissenting creditors have a right to trigger receivership or even liquidation. This
renders creditors’ arrangement a very fragile device that is dependent on a high degree
of co-operation from a range of parties. 58 In practice therefore, even if an attempt were
made to enter into arrangements with creditors, more likely than not, the end result
would be either a receivership or liquidation. Additionally, the fact that the
arrangement requires Court approval renders the procedure highly dependent upon the
Courts and therefore an undesirable insolvency procedure.59
One of the possible conditions that the court would attach to an order approving a
compromise or arrangement would be for the company to allow the affected member
to exercise his appraisal right. The challenge with this mechanism is that it is likely to
55
Section 234(2) of the Companies Act
56
Baird, D.G. 1986. The uneasy case for corporate reorganizations. Journal of legal studies, 15(55).p.89.
57
Baird, D.G. 1986. The uneasy case for corporate reorganizations. Journal of legal studies, 15(55).p.89.
58
Kloppers, P. (1999). Judicial Management – A Corporate Rescue Mechanism in need of reform. Stellenbosch Law Review,
10 (417)
59
ibid
15
impose unnecessary expense on an already financially troubled enterprise especially
that, the Act does not expressly provide limits or exceptions as to the shareholders
exercise of the appraisal right.60 It would have been helpful if a provision had been
included in the Companies Act that the court could only order a company to buy back
any shares if it would not further compromise the company’s solvency or liquidity.61
It is only logical to assume that for any company to contemplate a compromise with
creditors, that company would already be insolvent or at the very least on the verge of
becoming insolvent. The company would in those circumstances be experiencing
serious cash flow problems and would have very little or no cash at its disposal. 62
Further, allowing a shareholder to exercise an appraisal right technically means that

the shareholder’s interest take precedence over those of the creditors, which ordinarily
should not be the case. The numerous court applications throughout the process make
the whole procedure of schemes of arrangements very expensive and therefore
unattractive hereto.63
The practical challenge with the scheme of arrangement especially if it involves

conversion of a debt into equity is that it literally renders the creditor unsecured once
he has become a shareholder.64 A recent case SCZ Judgment No. 22/2013 in Zambia
illustrates the difficulties that maybe encountered when a creditor converts his debt and
thereafter seeks to exercise his right of appraisal. In this case, the plaintiff acting in
consortium with other banks provided a loan facility to a company and secured it by
fixed charges over the assets of the company. Following default by the company in the
repayment of the loan, the plaintiff agreed to participate in the restructuring of the
capital of the company. 65
The effect of the restructuring was that the plaintiff’s debt to the company would be
converted into equity, effectively making the plaintiff a shareholder in the company.
This was in consideration of three shareholders executing an equity buy-back
guarantee in favour of the plaintiff by which they would undertake to buy- back the
60
ibid
61
ibid
62
ibid
63
McCormack, G. 2009. Rescuing small business: Designing an efficient legal regime. Michigan Law review, 30 (43).
p.45-50.
64
ibid
65
SCZ Judgment No. 22/2013
16
plaintiff’s equity, in the event of occurrence of any default event.66 A few months after
execution of the said conversion, the plaintiff and other lenders were informed by the
debtor company’s directors that their board had resolved to suspend operations of the
company.67 As a consequence of this and the plaintiff’s perception of such act as being
default, the plaintiff made a demand for payment against the shareholders in terms of
the undertakings they had made.68 In an action for the recovery of the debt, the High
Court found the shareholders liable and further declared that one of the shareholders
who was also a director was amenable for prosecution under section 357 of the
Companies Act for contracting a debt whilst aware that the company would not be able
to pay.69
However, it should be noted that the decision in the above-cited case was later nullified
by the Supreme Court because of lack of jurisdiction on the part of the judge who heard
the case. The case was referred back to the High Court for re-trial and up to the date of
this report, the matter is still before the High Court.70 The case nevertheless
demonstrates a major weakness in a scheme of arrangement in terms of its ability to
protect the interests of a creditor who agrees to convert his debt into equity. This
therefore goes to show that a scheme of arrangement cannot be an attractive vehicle to
creditors given that it pauses so many challenges. 71
2.2.4 Corporate Receivership

Corporate receivership, in the context of insolvency is where a secured creditor of a
company enforces the security by appointing a receiver. According to Black’s Law
Dictionary, a Receiver is a disinterested person appointed by a court, or by a
corporation or other person, for the protection or collection of property that is the
subject of diverse claims (for example, because it belongs to a bankrupt or is otherwise
been litigated). Generally, the role of the Receiver is to realize the secured assets and
pay off the creditor from the proceeds of sale.72
66
ibid
67
ibid
68
ibid
69
ibid
70
Kunda, G. 1998. The Zambian Judiciary in the 21st Century. Zambia Law Journal, 30(43). p.45-50.
71
ibid
72
Moss, G. 2009. Comparative Bankruptcy cultures. Brooklyn Journal of international law vol. 23, 18
17
Walton writes that the general duty of a receiver is to take possession of the subject
matter in dispute in the action and under the sanction of the court make the property
productive or collect and realize as the owner himself could do if he were in possession.
Pursuant to Section 108 (2) of the Companies Act, an individual or company through
a Debenture appoints either by the court or out of court receiver. A person may be
appointed either as a receiver or as a receiver and manager.73 A receiver is normally
required to only receive rents and profits and to get outstanding property while a
receiver and manager additionally carries on or oversees a trade, business or
undertaking. 74 The receiver and manager has the power to deal with that property and
appropriate the proceeds in a proper manner. The Companies Act does not set out the
functions of a receiver, but a receiver appointed by the court is an officer of the court
and is expected to act in accordance with the directions and instructions of the court.75
In Zambezi Portland Cement Limited and another v Stanbic Bank Zambia

Limited, the High Court emphasized the dual role of a receiver as that of being an
agent of both the mortgagor and the mortgagee.76 This position was best illustrated by
the dicta of Fox L.J in the celebrated case of Gomba Holdings U.K Limited and
Others v Minories Finance Limited and others. Fox L.J observed that: The agency
of a Receiver is not an ordinary agency. It is primarily a device to protect the mortgagee
or debenture holder.77 Thus, a Receiver acts as agent for the mortgagor in that he or
she has the power to affect the mortgagor’s position by acts which though done for the
benefit of the debenture holder, are treated as if they were acts of the mortgagor.78
However, the relationship set up by the debenture and the appointment of the Receiver
is not simply between the mortgagor and the Receiver. It is tripartite and involves the
mortgagor, the Receiver and the debenture holder. 79
The Receiver is appointed by the debenture holder on the happening of specified events
and becomes the mortgagor’s agent whether the mortgagor likes it or not. As a matter
of contract between the mortgagor and the debenture holder, the mortgagor will have
73
Section 108 (2) of the Companies Act
74
ibid
75
ibid
76
Zambezi Portland Cement Limited and another v Stanbic Bank Zambia Limited
77
Gomba Holdings U.K Limited and Others v Minories Finance Limited and others
78
ibid
79
Rajack, H.1999. Business Rescue for South Africa. South African Law Journal, 116 (19).pp.33-34.
18
to pay the Receiver’s fees.80 Further, the mortgagor cannot dismiss the Receiver since
that power is reserved to the debenture holder as another of those contractual terms of
the loan. It is also to be noted that the mortgagor cannot instruct the Receiver on how
to act in the conduct of Receivership.81 The result is that the Receiver in the course of
the receivership performs duties on behalf of the debenture holder, as well as the
mortgagor. As these duties may relate closely to the affairs of the entity which is the
subject of receivership.82
The dual role of a receiver as indicated above has been found to be a source of
problems in practice. The difficulty arises from the fact that the interests of the
mortgagor and the mortgagee are obviously in conflict and therefore the position in
which the receiver is placed as an agent of both is difficult to comprehend.83 The
Supreme Court of Zambia made similar observations in the leading case of Goodwell
Siamutwa v Southern Province Co-operative Union and another, when it stated,
“It is trite law that a Receiver/ Manager, appointed pursuant to a debenture, and is an
agent of the company.84 However, the paradox is that while he or she is an agent the
Company, he or she is appointed to protect the interests of the debenture holder. There
is no doubt therefore that this dual and conflicting loyalty of a Receiver may at times
create untidy and difficult situations.” 85
Further, it is worth noting that a receiver appointed under the Companies Act is
personally liable for any contract that the receiver enters into unless the contract
provides otherwise. The receiver is however entitled to indemnity where that receiver
enters into a contract in the proper performance of the receiver’s duties. 86
A receiver
has several duties under the Companies Act. A receiver, who is appointed over the
whole or substantially the whole of the undertaking of any company, has the
responsibility to submit a preliminary report of the statement of affairs of the company
80
ibid
81
ibid
82
ibid
83
ibid
84
Goodwell Siamutwa v Southern Province Co-operative Union and another
85
ibid
86
Mwenda, K. 2007. The future of Corporate Insolvency Law and secured transactions in Commonwealth Africa”,
Africa growth Agenda, South Africa, Stellenbosch Law Review, 16 (19).pp.34-35.
19
to the court. The receiver also has a duty to lodge his accounts of receipts and payments
to the registrar and official receiver.87
Other duties of the receiver are to lodge an abstract of receipts and payments to the
registrar and to make a report to the registrar where the receiver, in the course of
performing his or her duties, discovers a contravention of the Companies Act or a
failure to comply with the Companies Act.88 Amendments effected to the Companies
Act in July 2011 revised the provisions relating to Corporate Receivership and
liquidation amongst other things, and the amendments related to qualifications and
remuneration of receivers, the receiver’s duty to prepare a statement of a Company’s
affairs and accounts of receivers.89
2.2.5 Shortcomings of receivership as an effective business rescue mechanism
Procedure: The major shortcoming of receivership as an effective business rescue
mechanism is the absence of an express provision requiring a receiver to draw up a
rescue plan as the receiver manages the charged assets on behalf of the charge holder.90
The High Court of Zambia in the case of Magnum Zambia Limited v Basit Quadri
(Receivers/Managers) & Grind lays Bank International Zambia Limited, ruled
that a receiver who was an agent of the company under receivership was there to secure
the interests of the debenture holder and in those circumstances the company
concerned is debarred from instituting legal proceedings against its
receiver/manager.91
A receiver, by this authority, is expected to exercise his or her powers in the best
interest of the company and in good faith, honesty and loyalty. Although, the law
considers a receiver to be a fiduciary and requires the receiver to exercise his or her
power in accordance with his or her fiduciary position, this still does not place an
express duty on the receiver to draw up or propose a rescue strategy for the company.92
One can argue that the duty to act in the best interests of the company does not extend
to the receiver drawing up a rescue strategy for the company, but simply to ensure that
87
ibid
88
ibid
89
ibid
90
Magnum Zambia Limited v BasitQuadri (Receivers/Managers) &Grindlays Bank International Zambia Limited
91
Magnum Zambia Limited v BasitQuadri (Receivers/Managers) &Grindlays Bank International Zambia Limited
92
Moss, G. 2009. Comparative Bankruptcy cultures. Brooklyn Journal of international law vol. 23, 18
20
that receiver, in recovering what is owed to the charge holder or creditor, manages the
assets in a manner that is not prejudicial to the company.93
A receiver who is appointed by the court is an officer of the court and is expected to
conduct his or her duties according to the direction of the court. Where a receiver is
also appointed, the court has the duty to make orders on how the receiver must manage
the assets of the company. The Companies Act does not expressly require the court to
order a receiver appointed by it to propose a rescue strategy for the company. 94 The
receiver’s bias towards realization of the creditor’s interest at the expense of all other
stakeholders of the company, has led to the reform in the insolvency law of several
jurisdictions. The New Zealand Receivership Act of 1993 imposes an obligation on the
receiver to act with reasonable regard to the interests of unsecured creditors, guarantors
and others claiming an interest in the property through the debtor. 95
Even with the inclusion of these provisions in New Zealand and Australia, the two
jurisdictions have enacted comprehensive business rescue legislation because of the
apparent inadequacies in their corporate and insolvency laws hereto.96 Although recent
amendments were made to some provisions relating to receiverships in Zambia, these
amendments did not impose a duty on the receiver to consider a rescue strategy for a
company in receivership to remedy the current problem. The amendments only
introduced a requirement for accreditation of receivers with the Registrar as well as
fixing of remuneration that a receiver may be entitled.97
An inclusion of an express provision in the Companies Act requiring a Receiver to

consider a rescue strategy for the company while managing the assets of the company
would be progressive. It would also compel Receivers to manage the assets of the
company responsibly. The chargees would most likely express objections to such a
provision.98 The likely argument to be advanced would be that the chargees would
93
ibid
94
ibid
95
The New Zealand Receivership Act of 1993
96
ibid
97
The New Zealand Receivership Act of 1993
98
Azmi, R. 2008. A comparative study of corporate Rescue in the UK and Malaysia: A dissertation submitted in partial
fulfilment for the award of Doctoral Degree. Aberdeen: University of Aberdeen.
21
have to incur a higher fee for the appointment of receivers because the receivers would
have to provide this extra service.99
Further, the consideration or proposal of a rescue strategy for the company would not
always be in the chargee’s interest. The apprehension is likely to emanate from the
realization that a receiver who has an added responsibility of rehabilitating or rescuing
the debtor company would not prioritize realization of the assets, as asset
dismemberment is obviously counter to rescue.100 The Chargee may also have fears
that attempts at corporate rescue would result into a prolonged waiting period, which
may consequently lead to erosion of the value of the assets, which are the subject of
the charge. 101
The shortcomings highlighted above justify the need for the enactment of a
comprehensive corporate insolvency or business rescue laws in Zambia. In addition,
the state of affairs presented above suggest that there is need for a specific procedure
apart from receivership and schemes of arrangement aimed primarily at providing a
mechanism for re-organizing and rescuing troubled companies. This is the current
situation in the United Kingdom and New Zealand.102
2.2.6 Liquidation
Liquidation is the end for a financially troubled company. Black’s Law Dictionary
defines liquidation as the act or process of converting assets into cash, especially to
settle debts. It involves its winding up and the gathering in of the assets for the
103
subsequent distribution to creditors. Quite clearly when a company goes into
liquidation, there is no room for its revival as the purpose of appointing a liquidator is
to dismember the assets of the debtor company as can be seen from the general
functions and powers of the liquidator in the Companies Act.104
Pursuant to Section 289 (2) of the Companies Act, in relation to the powers of the
liquidator. The liquidator may, with the authority either of the court or of the
99
ibid
100
Kloppers, P. (1999). Judicial Management – A Corporate Rescue Mechanism in need of reform. Stellenbosch Law Review,
10 (417)
101
ibid
102
ibid
103
Moss, G. 2009. Comparative Bankruptcy cultures. Brooklyn Journal of international law vol. 23, 18.
104
ibid
22
committee of inspection: carry on the business of the company, so far as is necessary
for the beneficial winding-up thereof, after the four weeks following the date of the
winding-up order; pay any class of creditors in full, subject to section three hundred
and forty-six; make any compromise or arrangement with creditors, persons claiming
to be creditors;105
Persons having or alleging themselves to have any claim against the company, whether
present or future, certain or contingent, ascertained or sounding only in damages or
whereby the company may be rendered liable; compromise any debts and liabilities
capable of resulting in debts and any claims of any kind, whether present or future,
certain or contingent, ascertained or sounding only in damages, that subsist or are
supposed to subsist between the company on the one hand and a member, a debtor or
person apprehending on the other;106 make arrangements on all questions in any way
relating to or affecting the assets or the winding-up of the company; and take any
security for the discharge of any such debt, liability or claim, and give a complete
discharge in respect thereof. The liquidator’s role is mainly the realization and
distribution of the assets to the creditors and therefore liquidation offers no room for
corporate rescue.107
2.7 Critical Analysis and Evaluation

This chapter aimed at identifying and examining the existing legal framework in
relation to corporate insolvency laws in Zambia. The chapter has examined the
optional legal procedures to which an insolvent company may be subjected and
whether any or all of these procedures is capable of providing the means for the rescue
of a company in financial distress. From the above discussion and the foregoing, it
has been established that the schemes of arrangement and receiverships are mainly the
two mechanisms in the Zambian Companies Act, which may be thought of as
providing a room for the rehabilitation and possible rescue of a financially distressed
company.108
However, critical analysis and evaluation has revealed that both procedures have
weaknesses, which render them unreliable forms of insolvency procedures for
105
Section 289 (2) of the Companies Act
106
ibid
107
ibid
23
purposes of corporate rescue. It has also been revealed that schemes of arrangement
may be inappropriate for corporate rescue in that there is a requirement that all
creditors should consent to the arrangement.109 In practice, it may not be easy to
provide comfort to all the creditors that their interests will be protected under the
110
schemes of arrangement. On the contrary, a receivership equally has its own
shortcomings in that there is no provision in the Companies Act, which compels
receivers to attempt to rescue the debtor company before realizing the assets, which
are the subject of the charge upon which the receiver was appointed. 111 Hence, the
best mechanism provided by the law is business rescue by setting up an administrator.
109
ibid
110
Munalula, M. 2004. Legal Process: Zambian cases, legislation and commentaries. Lusaka: UNZA Press.
111
ibid
24
CHAPTER THREE
RESEARCH METHODOLOGY AND DESIGN
3.0 Introduction
This chapter presents the research methodology and design of this study. Methodology
and design serve the purpose of creating information and knowledge in the critical
analysis of the laws of Corporate Insolvency laws in Zambia.
This Chapter will describe the methodology that was used in collecting data, the
research design, the data collecting technique and challenges encountered during the
research. Apart from desk review, questionnaires and an interview were conducted to
collect data and the use of personal observation was equally employed as an efficient
method of data collection in order to gather background knowledge, opinions, attitudes
and practices. This purpose of this study is to investigate the adequacy and efficiency
of Corporate Insolvency laws in Zambia.
3.1 Research Design

Desk research was the mainly used design. The research approach suitable for this
research is qualitative methodology as it relates to human aspects of experiences that
cannot be expressed or counted as numbers. Corporate insolvency laws are the core of
this study and the basis of both qualitative and quantitative methodology as it reflects
on the adequacy and effectiveness of the law. The researcher used qualitative and
quantitative methods as it revealed new information on both practical and theoretical
application of the law.
3.1.1 Research Choice

The flexibility of the study enabled the researcher to have a broad variety of methods
used to collect relevant data for the research. It employs documentary analysis in the
examination of the Corporate Insolvency law and its application by the judiciary. The
scholar in conducting the research used books, scholarly writings, articles and internet
materials from various websites.
25
3.1.2 Research Strategy
A study of multiple countries from the word over was undertaken in the research
design during the study in order to provide in depth undertaking. Journals were
essential in the research as they helped in giving a vivid assessment of current
situations.
3.1.3 Time Horizon

Time horizon constitutes of two approaches, cross sectional and longitudinal. Cross
sectional involves data from a population or representative. Longitudinal involves
changes and development over a period. The researcher used the cross sectional
approach as the research comprises of multiple samples of target populations.
3.1.4 Sampling Frame

A population is a group of people where research conclusions are derived and a sample
is a specific group of the population the researcher collected data from 112. The
population should be neither big nor small. The sampling frame represents the
individuals chosen in a sample selection procedure113. This research was conducted in
Lusaka, Zambia from various stakeholders from the judiciary and PACRA. The sample
was adopted and considered large enough to give requisite data and sizeable.
3.1.5 Sampling Size

Despite financial challenges and time to assess the entire population, the goal is to find
a representative sample of the population. Qualitative analysis requires less samples
compared to quantitative.
3.1.6 Sampling Technique

Sampling has been defined as the process of selecting individuals to ask questions
which a population would answer if they were given the same questions114. The
researcher based on availability and willingness of the participants used convenience
sampling, a type of non-probability sampling.
3.2 Sources of Data

There are two sources of data namely: primary and secondary data. The researcher
used both techniques. Primary data was obtained through unstructured face-to-face
112
https://www.scribbr.com/methodology/population-vs-sample/
113
Fowler F.J. (2009) Sampling Survey Research methods (4th Ed.) Thousand Oaks: Sage Publications.
Pg 19-47
114
ibid
26
interviews and questionnaires. Secondary data was obtained through books, journals
and statutes.
3.3 Data Collection Technique

The data collection technique comprised of two methods which are questionnaires and
face-to-face interviews.
3.3.1 Questionnaire
A questionnaire is a set of questions gathered for participants in order to acquire or
achieve some information115. Questionnaires are a reliable primary source of data. The
researcher in designing the questionnaires ensured that they were “valid, unambiguous
and reliable”116.
3.3.2 Interviews
It was the researcher’s aim to find information and knowledge. For Kumar, interviews
are a method of collecting data of verbal stimuli and oral responses 117. Interviews are
used as a method of collecting data hence the researcher relied on interviews to obtain
information. The interviews were structured as the researcher had set questions to
direct the interview. The interviewee was given a chance to further explain issue using
open-ended questions. A representative from the Judiciary (Zambia) and PACRA was
interviewed.
3.4 Ethical considerations

It is important for rules and regulations to be considered when carrying out a
research. The researcher must protect the respondent. Bryman and Bell 118
suggested the following when conducting a research:
a) Full consent must be obtained

b) Participants must not be subject to harm
c) Honesty and Transparency must be guaranteed
d) Respect for dignity of the participants must be prioritized
115
Patton Q.M. Qualitative Evaluation and Research Methods, 3rd Ed. Thousand Oaks, CA: Sage
Publications, Inc.
116
ibid
117
Kumar, R. (2011) Research Methodology: A step-by-step for beginners, 18th Ed. Los Angeles SAGE
pg218
118
Bryman A. (2008) Social Research Methods 5th Ed. London, Oxford University Press pg.25
27
e) Anonymity of individuals and organizations must be prioritized
f) Adequate level of confidentiality.
The researcher observed all the ethical considerations stated above. The researcher
obtained consent from all participants ensuring voluntary participation.
3.5 Limitation of the study

The Corporate Insolvency laws referred to in this study are specific though not limited
for comparison with other jurisdictions. The following are limitations encountered
during the study:
1. It is not a common area of study among authors in Zambia. Very few have
managed to write books on corporate insolvency, which are separate from
Company Law.
2. Respondents took long to answer the questionnaires whilst some did not get
back at all.
3. It was difficult to come across precedent set based on the Corporate Insolvency
Act No. 9 of 2017 hence the study relying on old or foreign precedent.
3.6 Conclusion
In summary, this chapter examines the research methodology used in carrying out the
research. This method used triangulation in collecting data to make a comprehensive
analysis.
28
CHAPTER FOUR
DATA ANALYSIS
4.0 Introduction
This chapter compares the legal framework in relation to corporate insolvency laws in
Zambia with that of other jurisdictions. It examines insolvency law in England, New
Zealand and the United States of America. The main purpose of this chapter is to
highlight developments that have taken place in other jurisdictions from which Zambia
can learn lessons. The researcher used triangulation to capture all the data in this
chapter. Desk review method was used for quantitative. Questionnaires and interviews
were used for the qualitative aspect.
The chapter further evaluates the mechanisms for protection of creditor interests by a
critical examination of provisions of the Zambian Companies Act relating to receivers
and liquidators and determining the potential of the said provisions to encourage
accountability, fairness and expertise by liquidators and receivers. Furthermore, the
chapter examines the provisions relating to floating charges with the aim of assessing
the potential of the provisions to adequately safeguard creditor interests. Finally, the
chapter examines the challenges faced in implementing the Corporate Rescue
Legislations in Zambia.
4.1 A Comparison of the legal framework in relation to corporate insolvency

laws in Zambia with that of other jurisdictions
This section compares the legal framework in relation to corporate insolvency laws in
the jurisdiction of Zambia, United Kingdom, New Zealand and the United States of
America (USA). The justification for selecting United Kingdom is that Zambian
company law is premised upon English common law jurisdiction and as such, there
can be no meaningful discussion of law reform without referring to developments that
have taken place in the United Kingdom. Secondly, New Zealand is one of the
countries within the commonwealth that have recently reformed their corporate
insolvency laws following developments that have taken place in the United Kingdom.
Finally, the jurisdiction of the United States of America becomes an ideal benchmark
in that the American corporate insolvency law one of the oldest and one that has
undergone consistent reforms over the past years hereto. Therefore, the study seeks to
highlight possible lessons that Zambia can learn from the three other jurisdictions. The
29
chapter also examines and highlights the common features of insolvency law in the
three other jurisdictions mentioned above and in particular the concept of corporate
rescue and how it is administered thereof.
4.1.1 Examination of the corporate insolvency law in the jurisdiction of Zambia,

United Kingdom, New Zealand and the United States of America
The Jurisdiction of Zambia: Zambia is not short of examples of companies that could
have been rescued for the benefit of many stakeholders including the country itself had
it not been for a legal regime that does not provide corporate rescue mechanisms.119
Examples of such companies include the Zambia Airways Corporation Limited and
Mansa Batteries Limited hereto. These companies had wide asset bases and potential
for re-organization but were rushed into liquidation. There have also been repeated
comments by many who to this day weep for the termination of these and other
companies.120
The study subscribes to the argument that these and many other companies that have
collapsed could have been saved as going concerns if the corporate insolvency law
provided a legal procedure that offered a window for corporate rescue.121 Therefore, a
suggestion that flaws in the corporate insolvency law have been the main reason why
the corporate rescue mechanisms of troubled companies in Zambia have not been
attainable in almost all cases and this cannot be said to be a far-fetched assumption
hereto.122
Mwenda postulated that the legal reform of corporate insolvency laws in Zambia and
other extraterritorial jurisdictions that follow the English common law jurisdiction
should introduce measures that enable corporate rehabilitation. He argues it should not
always be the case that a technically insolvent company should end up in liquidation.123
According to him, the legal regime should strike a balance between secured creditors
and the debtor company itself as well as other stakeholders such as unsecured creditors
119
Kaulungómbe, K.G. (2012). Business Rescue for Zambia, suggestions for legislative Reforms. Cape
Town: MIT Press.
120
ibid
121
Rajack, H. (1999). Business Rescue for South Africa. South African Law Journal, 11(19).
122
Mwenda, K. (2007). The future of Corporate Insolvency Law and secured transactions in
Commonwealth Africa. Boston: MIT Press.
123
ibid
30
and statutorily mandated preferential creditors in order that the secured creditors may
not have an upper hand and look after their narrow interests only.124
In response to a similar situation as is obtaining in Zambia, in the United Kingdom,

the Corporate Insolvency Act of 1985 was enacted which introduced the
‘Administration Procedure’. With several amendments over the years coupled with the
enactment of the Enterprise Act of 2002, the administration procedure has been
immensely enhanced.125 Administration has been defined as a procedure in which a
corporate insolvency practitioner is appointed in order to consider re-organization with
a view to restoring profitability or maintaining employment; ascertaining the chances
of restoring a company of dubious solvency to profitability; developing proposals for
realizing assets for creditors and stakeholders; and carrying on the business when this
would be in the public interest.126
The Jurisdiction of the United Kingdom: The United Kingdom began the process
of reforming corporate insolvency law and practice in 1982 when a review committee
was appointed to conduct the exercise and make recommendations for its legal
reforms.127 The Committee Report laid the foundation for a rescue culture and was
clear on the legitimacy of considering the broader picture than focusing mainly in
creating an Insolvency legal regime that could address only the narrow interests of the
creditors.128 Thus, the report was categorical in asserting that a modern system of
corporate insolvency law should provide means for preserving feasible companies
capable of making useful contributions to the economic life of the United Kingdom.129
The Committee’s Report stated that a concern for the livelihood and wellbeing of those
dependent upon a company, which may well be the lifeblood of a whole town or even
a region, is a legitimate factor to which a modern law of corporate insolvency must
have regard.130 The chain reaction consequences upon any given failure can potentially
be so disastrous to creditors, employees and the community that it must not be over
124
ibid
125
Walton, R. (1983). Kerr on the Law and Practice as to Receivers. London: Sweet & Maxwell.
126
Garner, B.(1999). Black’s Law Dictionary. Dallas: West Group Publishing
127
Finch, V. (2009). Corporate Insolvency law: Perspectives and Principles. Cambridge: Cambridge
University Press.
128
ibid
129
ibid
130
ibid
31
looked.131 In agreeing with the view of the Committee, one needs not to over-
emphasize the fact that the rescue mechanisms that an ideal insolvency law must
provide should not only relate to viable companies but even to those where there is no
immediate prospect of a return to profitability, if it is in the interest of the
community.132
The Administration Procedure in the United Kingdom places emphasis on the rescue
of troubled companies. The characteristic of re-organization is that the business is
preserved and an arrangement concluded with creditors by which the debts owed by
the company are restructured, for example by rescheduling, by acceptance by the
creditors of less than the amount due or by conversion of debt into equity, so that
creditors are converted into shareholders.133
In practice, by far the most commonly achieved purpose of administration to date has
been a more advantageous realization of the company’s assets than would be effected
on a winding-up. This involves restoring the company to a condition in which it can
be sold as a going-concern.134 The main effect of administration is to impose a
moratorium on the enforcement of creditors’ rights. This entails a suspension of the
creditors’ rights of enforcement of security including that of commencement of any
actions against the debtor company during the period of administration.135
Furthermore, under this procedure, the company is placed under the administration of
an external manager, a qualified insolvency practitioner. Pursuant to Section 3(i) of the
Corporate Insolvency Act of the United Kingdom, the administrator of a company must
perform his or her functions with the objective of: (a) rescuing the company as a going
concern, or (b) achieving a better result for the company’s creditors as a whole than
would be likely if the company were wound up (without first being in
administration).136
It can be seen that the distinction between the administration procedure. As provided
for in the Corporate Insolvency Act of the United Kingdom compared to Corporate
131
University Press.
132
ibid
133
Morse, G. (2007). Charlesworth’s Company Law. London: Sweet & Maxwell.
134
Keay, A., and Walton, P. (2003). Insolvency law; Corporate and Personal. London: Longman.
135
ibid
136
The Corporate Insolvency and Governance Act UK 2020
32
Receivership under the Zambian Companies Act is. The former places an explicit duty
upon the Corporate Insolvency Practitioner to focus on corporate rescue or at least if
rescue is not possible, preserve value in the assets for the benefit of not some but all
the creditors.137
The Jurisdiction of New Zealand. In addition to the above, there also exists a
procedure for corporate rescue in the jurisdiction of New Zealand that is very similar
to the one existing in the United Kingdom. The Companies Amendment Act of 2006
of New Zealand introduced the “Voluntary Administration” procedure into law.138 The
main reason for introducing this procedure was that until then, the existing choices,
that is, liquidation and corporate receivership available to a company in anguish or
financial distress were limited and in some cases defective. The situation then was very
similar to what is currently obtaining in the jurisdiction of Zambia. 139 It was clearly
recognized that even in New Zealand, the two available procedures were not suitable
for corporate rescue. The new Voluntary Administration procedure provides a rescue
mechanism by which the directors of the company or the court on application by a
secured creditor, any liquidator or the Registrar of Companies may appoint an
administrator.140
One main purpose of voluntary administration within the context of statutory objects
is to provide breathing space from creditor enforcement steps and proceedings, during
which the administrator can assess and investigate the company’s situation and put
together a proposal to save the company.141 In order to provide the debtor company
with such breathing space, a moratorium or “stay” commences from the time of
appointment of the administrator. The moratorium prevents court proceedings against
the company, other than with consent of the administrator or leave of court. It also
prevents other forms of rights by owners and property owners, with certain
exceptions.142
137
The Corporate Insolvency Act No. 9 of 2017, the laws of Zambia
138
The Insolvency Act No. 55 of 2006, the laws of New Zealand
139
Health, P., and Whale, M. (2011). Insolvency law in New Zealand. Auckland: LexisNexis
140
ibid
141
ibid
142
ibid
33
On the other hand, and in comparison with the jurisdiction of Zambia, the only time
that leave of court is required before a person can commence proceedings against a
company in Zambia is when a Winding-up Order has been made or a provisional
liquidator has been appointed.143 Since both of the circumstances can only occur at the
company’s terminal stage, the requirement for leave is not intended to give chance to
any rescue attempts but rather to give chance to the liquidator to properly carry out his
function of asset realization and distribution of proceeds according to priority ranking
of creditors.144
The Jurisdiction of the United States of America (USA): Walton annotated that the
corporate insolvency system encountered in the United States of America (USA) offers
contrasting characteristics but equally emphasizes corporate rescue.145 Pursuant to
Chapter 11 of the United States Bankruptcy Code of 1978, there is a ‘re-organization’
procedure whose policy objective is strongly oriented to avoiding the social costs of
liquidation and retention of the corporate operation as a going concern.146 The
procedure in the United States of America is unique in the sense that there is no
requirement that the debtor be insolvent or near insolvent in order to apply for chapter
11 protection. The process is an instrument for debtor relief, not a remedy for
creditors.147
Lawrence Westbrook and Elizabeth Warren observed that American Law claims many
innovations, from the Bill of Rights to the superfund. In the pantheon of extraordinary
laws that have shaped the American economy and society and then echoed throughout
the World, chapter 11 of the U.S. Bankruptcy Code deserves a prominent place.148
Based on the idea that a failing business can be reshaped into a successful operation,
chapter 11 was perhaps a predictable creation from a people whose majority religion
embraces the idea of life from death and whose central myth is the pioneer making a
fresh start on the boundless prairie. So powerful is the idea of reorganization, that
chapter 11 has influenced commercial law reform throughout the World.149
143
Kunda, G. (1998). The Zambian Judiciary in the 21st Century. Zambia Law Journal, 3, 10.
144
ibid
145
146
The United States Bankruptcy Code 1978
147
148
ibid
149
ibid
34
As in the United Kingdom, the central purpose is to preserve the value of the company
where this is likely to be greater than the liquidation value. There is an automatic
moratorium or stay on the enforcement of claims against the company and its
property.150 This is triggered by filing a chapter 11 petition by the debtor. Secured
creditors and property owners have a right to initiate court action to lift the stay but the
moratorium will be upheld if the debtor can show that they have provided the creditors
with sufficient security, which may consist of periodic payments. The debtor company
is in turn restricted in the use of cash as a means of providing security for the
creditors.151
In commenting on the American system compared to that of the United Kingdom

before the latter made legislative reforms aforesaid, Morse observed that in the United
States of America, business failure is often thought of as a misfortune rather than
wrongdoing.152 However, in the United Kingdom, the judicial bias towards creditors
reflects a general social attitude, which is inclined to punish risk takers when the risks
go wrong, and side with creditors who lose out. The United States of America is still
in the spirit of a pioneering country where the taking of risks is thought to be a good
thing and creditors are perceived as being greedy.153
Morse hereby asserts that jurisdictions should aim more at designing corporate
insolvency laws that are supportive of corporate rescue and that the dismemberment of
the assets of the company should be the last among the considerations especially given
the social costs of liquidating companies.154 However, this does not mean that the law
should then induce directors to run unnecessarily risks or even engage in wrongful acts,
which are injurious to the interests of other stakeholders including creditors.155
Corporate rescue is essential in that it not only ensures the survival and continued
existence of a company but also ensures that the company continues to contribute to
150
ibid
151
ibid
152
153
ibid
154
ibid
155
Kloppers, P. (1999). Judicial Management: A Corporate Rescue Mechanism in need of reform.
Stellenbosch Law Review 4,17.
35
the growth of the economy through the payment of taxes, the provision of other
services and the creation of employment opportunities hereto.156
While it is true that most companies in Zambia are small and may find it challenging
to meet the expenses associated with corporate rescue mechanisms, that in itself
should not prevent the country from putting up legislative mechanisms to facilitate
corporate rescue.157 The benefits of corporate rescue as opposed to liquidation far
outweigh the costs associated with the process. Again, the survival of a company as a
going concern is to the benefit of wider stakeholders and the nation at large.158
4.1.2 Developments that have taken place in relation to corporate insolvency law
in other jurisdictions from which Zambia can learn lessons
The objective of this section was to highlight possible lessons that Zambia can learn
from the jurisdiction of the United Kingdom, New Zealand and the United States of
America all of whom have undertaken extensive reforms in Corporate Insolvency Law
over the years. It has been established that the maintenance of financially distressed
companies as going concerns is dependent upon the design of the insolvency law
regime thereof.159
It has been noticed that most jurisdictions that have sought to encourage corporate
rescue mechanisms have perpetually focused on creating legal processes and
procedures that are supportive of corporate rescue such as provisions for moratoria,
prohibition of phoenix companies, among others.160 Cassim brings to light the fact that
the corporate rescue approach requires an environment in which players such as the
judiciary and legal practitioners alike are well trained in this specialized field of
corporate insolvency practice particularly corporate rescue.161
The United Kingdom, New Zealand and the United States have all introduced into their
corporate insolvency laws the procedures that focus on the company itself and grant it
some ‘breathing space’ where evidence suggests that there is room for reorganization
156
157
Town: MIT Press
158
ibid
159
160
Belcher, A .(1997). Corporate Rescue. London: Sweet & Maxwell
161
Cassim, F.(1995). Contemporary Company Law. Cape Town: Juta& C
36
and consequently rescue from collapse thereto.162 Therefore, Zambia should embark
on corporate insolvency law reform in order to bring about positive trends in dealing
with technically insolvent companies hereto.163
It is widely recognized today that small and medium companies play an important role
in the economy of any developing or developed economy and because of this, a small
company is as worthy of a corporate rescue as a big company with many employees.164
As can be seen from the overview of the business rescue in the United Kingdom, New
Zealand and the United States of America, each corporate rescue mechanism is similar
to the others but different in some aspects in order to suit the unique needs of that
particular jurisdiction or country. Therefore, it would be unwise for Zambia to simply
transplant or imitate one of these corporate rescue mechanisms and implement it.165
Therefore, the legislature and the policy makers must come up with a corporate rescue
mechanism that meets the needs of the Zambian corporate environment, the size and
type of registered companies and the planned national growth through the National
Development Plan. The corporate rescue law to be enacted also need to be cost
effective so that a wide range of registered companies may be able to utilize the
corporate rescue mechanisms.166
As pointed out earlier, attempts at enhancing accountability in corporate receiverships
have been made through legislative reforms pursuant to the Companies Amendment
Act No. 10 of 2017 of the Laws of Zambia.167 The justification for these amendments
was to regulate the corporate receivership and the fees charged for the receiver’s
services. In as much as the aim was good, it did not remedy the attendant inadequacy
of receivership as a corporate rescue mechanism hereto.168
However, in pursuance of Section 17 (1) of the Corporate Insolvency Act of Zambia,

a receiver shall before disposing of any charged assets, manage those assets so as to
162
163
ibid
164
McCormack, G. (2009). Rescuing small business: Designing an efficient legal regime”, Michigan
Law review, 34,23.
165
ibid
166
167
The Corporate Insovency Act No.9 of 2017, the laws of Zambia
168
ibid
37
realize the moneys owed to the secured creditor without selling the assets unless such
management will further deplete the assets of the company or will not satisfy the debts
owed to the secured creditor.169
However, it remains doubtful as to whether even this provision would render corporate
receivership as an effective corporate rescue mechanism hereto. This is so because the
receiver will still retain a power of sale and the determination as to whether
management of the assets would lead to further depletion of the assets will remain a
subjective issue to be determined by the receiver hereof.170
4.1.3 Evaluation of the mechanisms for protection of creditor interests by a

critical examination of provisions of the Zambian Companies Act relating to
receivers and liquidators and determining the potential of the said provisions to
encourage accountability, fairness and expertise, cross border insolvency
provisions and the United Nations Commission on International Trade Law
Model Law on Cross Border Insolvency, insufficiency of protection for creditors
of group companies, and inappropriateness of directors’ fraudulent trading
provisions in relation to liquidators and receivers
Kloppers postulated that one of the functions of corporate insolvency law is to provide
mechanisms by which the interests of the creditors will be protected. Thus, he asserted
that the law should aim at fostering commercial activity by providing some form of
assurance to financiers that their interests will be protected even in times of financial
troubles having afflicted the debtor company thereof.171
In light of this, this section begins by evaluating the nature of liquidators and receivers
as provided for under the Zambian Companies Act. The evaluation seeks to examine
the provisions relating to liquidators and receivers and further seeks to determine
whether these provisions are capable of engendering efficiency, expertise,
accountability and fairness among receivers and liquidators hereto. 172 However, this
section focuses on evaluating the two corporate insolvency procedures namely,
receivership and liquidation or scheme of arrangement hereto as already discussed
under chapter two of the study.173 Although these two procedures were discussed in
169
The Corporate Insolvency Act No. 9 of 2017, the Laws of Zambia
170
Moss, G. (2009). Comparative Bankruptcy cultures. Brooklyn Journal of international law, vol. 23,
18
171
Stellenbosch Law Review 4,17
172
173
ibid
38
chapter two, it can be noted that the focus of that discussion in that chapter was an
evaluation of the two procedures in terms of their being capable of functioning as
corporate rescue mechanisms. 174
However, under this section of the study, the two procedures are discussed in terms of
their ability to guarantee protection of creditor interests when a company is technically
insolvent. Further, the chapter evaluates provisions relating to floating charges and
fraudulent trading by directors.
Munalula pointed out that insolvency provisions in the Zambian Companies Act are
everywhere. For example, part XI of the Companies Act deals with schemes of
arrangements, take-overs and protection of minorities and consists of six chapters
while part XIII deals with winding up of companies and consists of over one hundred
sections.175 Perpetually, all these parts are full of provisions, which are aimed at among
protecting the interests of creditors, other things. However, this aim of this section of
the study is to focus only on areas of inadequacy in the law in pursuit of protecting
creditor interests hereof.176 Further, this section attempts to ask whether provisions
relating to corporate receivership and liquidation do provide sufficient safeguards
against misfeasance by corporate receivers and liquidators in order to guarantee
protection of creditors’ interests.177
Efficiency and Expertise: Accountants and Lawyers have dominated the practice of
corporate receivership and liquidation in Zambia for many years. However, until the
2011 amendments to the Companies Act, the law was silent on the professional
qualifications of persons eligible for appointment as corporate receivers or liquidators
hereto.178 The amendments introduced a new provision that the Minister shall prescribe
the qualifications for persons to be officially appointed as corporate receivers or
liquidators.179 However, to this day, no significant regulations have been formulated
as to which professional qualifications would render a person eligible for appointment

as a corporate receiver or liquidator hereto.180
174
ibid
175
Munalula, M. (2004). Legal Process: Zambian cases, legislation and commentaries. Lusaka: UNZA
Press
176
ibid
177
ibid
178
The Companies (Amendment) Act 2011 Cap 388 of the Laws of Zambia
179
ibid
180
ibid
39
In many jurisdictions, there is no doubt that insolvency practice is a complex field.
Both corporate receivers and liquidators practically face very complex situations
requiring high levels of legal knowledge and analytical skills including managerial
181
capacity, among others, to get the best result out of the situation thereof. Thus, a
lack of prescription in the corporate insolvency law regarding the minimum
qualifications of a person (s) capable of performing the functions of either a corporate
receiver or liquidator poses a greater risk in so far and in as much as professional
efficiency and effective performance of the insolvency practitioners is concerned.182
In fact, Rajack annotates that insolvency practitioners, particularly Receivers, must be
legally obliged to perform their functions with certain level and degree of skill of
competence.183
In the leading case of Medforth v Blake, it was clear from the decision of the House
of Lords that a Corporate Receiver, if managing the company, owes the company more
than a legal duty to exercise good faith thereto.184 In addition, reasonable competence
must be displayed and an equitable duty of care is owed. This is supplemental to the
assertion that the practice of insolvency law should not be left open to anybody without
regard to their qualification and experience hereof.185 There must be in existence a
strict regulatory legal framework to screen and scrutinize all those wishing to perform
the functions of corporate insolvency practitioners hereto.186
Mwenda delineated that while it is a creditable inventiveness to stipulate the

qualifications that one must possess in order to be eligible for legal appointment as a
corporate insolvency practitioner, the same may not produce any positive result in
terms of guaranteeing the efficiency, effectiveness and competency if not well thought
out.187 It is imperative to note that the skill set required to turn around a company may
not readily reside in an individual simply because they possess a certain qualification
or belong to a particular profession hereof.188
181
Walton, R. (1983). Kerr on the Law and Practice as to Receivers. London: Sweet & Maxwell
182
ibid
183
184
[1999] EWCA Civ 1482
185
Belcher, A .(1997). Corporate Rescue. London: Sweet & Maxwell.
186
ibid
187
Commonwealth Africa. Boston: MIT Press
188
ibid
40
There is also need for a person to undergo some formal training in corporate insolvency
practice and be subjected to some form of critical examinations thereto. For example,
in the jurisdiction of the United Kingdom, corporate insolvency is a regulated
profession pursuant to the Corporate Insolvency Act of 1986 and anyone who wishes
to practice, as a Corporate Insolvency Practitioner needs to pass a set of examinations
as set by the Joint Insolvency Examination Board (JIEB). 189 However, it must be
hereby clarified that once these critical examinations have been passed, it is necessary
to meet the authorizing body’s insolvency experience requirements as well.190
From the above mentioned, it is evident that the qualification provisions under the
Zambian Companies (Amendment) Act of 2011 do not provide a guarantee that the
law would assist in restricting the practice to appropriately qualified and experienced
people.191 It is not enough that a person is a lawyer, accountant, and a banker or belongs
to any other profession hereto. The law should create an environment in which
insolvency practice is regulated by a professional body designated primarily for that
purpose.192
According to Munalula merely listing down the professional bodies such as the Law
Association of Zambia (LAZ), the Zambia Institute of Certified Accountants (ZICA)
and others from which insolvency practitioners may be appointed would not resolve
the problem hereto.193 Thus, the law in its current form does not seem to adequately
address the question of expertise thereof. Taking a leaf from the United Kingdom
experience suggests that the answer lies in the law providing for the establishing of a
distinct corporate insolvency profession. With a cadre of members, who are duly
certified as qualified and experienced, possessing the appropriate managerial skills to
be able to turn-around financially troubled companies or at least be capable of
strategically realizing the best value for the debtor’s assets in case of a complete failure
to rescue the company.194
189
ibid
190
ibid
191
Town: MIT Press.
192
ibid
193
Press.
194
ibid
41
The dispute being put across herein is that corporate insolvency practice in Zambia is
an exceptionally specialized field, which should be left only to people who are
specifically qualified and experienced thereto.195 The regulation of the insolvency
practitioners should also be undertaken by a specific body rather than be left to depend
on other professional bodies such as Law Association of Zambia (LAZ) and Zambia
Institute of Certified Accountants (ZICA) as first above mentioned.196
Accountability and Fairness: As already discussed under chapter three of the study,
the receiver plays a pivotal and dual role as an agent of both the debtor company and
the creditor under whose charge he or she was appointed.197 This situation is likely to
affect the receiver’s effectiveness as he or she obviously has been placed in a position
of conflict given that he or she is expected to serve the interests of two parties who are
at the opposite ends of the pole.198 There have been instances when even the courts
have suggested that a company in receivership cannot bring an action against the
receiver since the company lacks locus standi independent of the Receiver hereto.199
In the leading case of Magnum (Zambia) Limited v Basit Quadri and another, the
plaintiff was a company in receivership and the first defendant the Receiver/ Manager.
The action was primarily an attempt by the plaintiff to restrain the Receiver/Manager
from further dealing with the assets of the company until such time that he had
accounted for his receipts and payments. 200 A preliminary issue arose as to whether it
would be in order for the Court to allow proceedings to continue on the basis that the
plaintiff was a company in receivership and the first defendant it is
Receiver/Manager.201 In the court’s own words, a Receiver who was an agent of the
company under receivership was there to secure the interests of the debenture holder
and in those circumstances; the company concerned was debarred from instituting legal
proceedings against its Receiver/Manager.202
195
Town: MIT Press.
196
ibid
197
198
ibid
199
ibid
200
(1981/HN/456) [1981] ZMHC 5 (23)
201
ibid
202
ibid
42
It would be an absurd proposition to suggest otherwise. If the action were allowed to
proceed in its present form, it would be tantamount to suggesting that the Receiver can
institute proceedings against himself.203 Quite clearly, a company under receivership
has no locus standi independent of its Receiver. As long as the company continues to
be subjected to receivership, it is the Receiver alone who can sue or defend in the name
of the company.204 Thus, on the preliminary issue, Kloppers holds that legal
proceedings in the instant case have been irregularly commenced because in law, the
plaintiff company, which is under receivership, is precluded from suing its
Receiver/Manager.205
Finch argues that although the position taken by the court in the above case can be
quite misleading in that it is now settled law that the company can commence
proceedings against its receiver if the latter commits a misfeasance. 206 Nevertheless,
the case goes to demonstrate the helpless situation in which companies in receivership
may find themselves, especially in circumstances where even the courts cannot allow
them audience to seek intervention where they suspect improper conduct on the part
of Receivers.207
However, it should be noted that the Supreme Court in a later leading case of Avalon
Motors Limited (In Receivership) v Bernard Leigh Gasden Motor City Limited.
It ruled that whenever the current Receiver is the wrong doer (as where he or she acts
in breach of his or her fiduciary duty or with gross negligence) or where the directors
of the company wish to litigate the validity of the security under which the appointment
has taken place or in any other case where the vital interests of the company are at risk
from the Receiver himself or herself, the directors should be entitled to use the name
of the company to litigate hereto.208 The brief facts of this case are that the company
borrowed money from a bank and upon defaulting, the bank appointed the first
respondent to be the receiver. There were allegations to the effect that the receivership
203
Stellenbosch Law Review 4,17
204
ibid
205
ibid
206
University Press.
207
ibid
208
S.C.Z. Judgement No. 7 of 1998 [ZMSC 6]
43
was being conducted in a delinquent fashion to the serious disadvantage of the
company, the shareholders and all concerned.209
As a result, a new receiver was appointed. Meanwhile, an action was commenced

against the former receiver who was the first respondent and against the second
respondent who sold the company’s properties and assets allegedly at a grossly
undervalued or give away price.210 The action was commenced in the company’s name
and a preliminary objection was taken by the defendants that the director and
shareholder was not entitled to sue in the name of the company as only the receiver
could do so.211 In the High Court, this argument was sustained. However, the Supreme
Court overturned the ruling emphasizing the ability of the director’s entitlement to
litigate in the name of the company where a receiver allegedly commits a wrong. The
position is similar in the United Kingdom where it has been decided that a company
can bring a direct action against its receiver.212
In substance, receivership turns out to be a private procedure that allows enforcement
of the appointer’s security rights to the potential detriment of other stakeholders.
Procedurally, it is unfair because the interests of these parties may be affected by the
Receiver’s actions but there is no appropriate legal obligation to allow access and input
into decision-making for such potentially prejudiced parties.213 The receiver’s statutory
obligations are minimal and limited to the production of an abstract showing receipts
and payments after a period of six months following the receiver’s appointment and
thereafter every three months.214
In this modern day of serious concern about corporate governance considerations,
receivership as an insolvency procedure is noticeably out of tune. It is one course of
action that allows the debtor company to be handed over and dealt with by one
interested party with little or no concern at all for the other claimants.215
Receivership places too much power in the hands of one creditor and causes unfairness
in so far and in as much as there is no incentive for the charge holder to consider the
209
University Press.
210
Walton, R. (1983). Kerr on the Law and Practice as to Receivers. London: Sweet & Maxwell
211
ibid
212
ibid
213
ibid
214
ibid
215
Health, P., and Whale, M. (2011). Insolvency law in New Zealand. Auckland: LexisNexis.
44
interests of any other party.216 The charge holder can make decisions having a
significant impact on the returns to other creditors without there being any requirement
for their consent. The widespread criticisms of the conduct of Receivers, with reference
to cases, which have taken inordinately long or where assets have diminished in value
and allegations that almost all proceeds have been absorbed in receivership fees, cannot
come as a surprise.217
In view of the above shortcomings, the United Kingdom reform process has sought to
drastically minimize the role of corporate receivership in the entire Corporate
Insolvency legal regime. 218
The Enterprise Act of 2002 of the United Kingdom has made ‘Administration’ as
opposed to ‘receivership’ as the governmentally preferred procedure for attempting to
219
rescue troubled companies. Therefore, it is sarcastic that the draft Insolvency Bill
of 2015 in Zambia proposed to re-introduce corporate receivership in its present form.
A critical analysis of part IX of the draft bill suggests that the provisions therein are
nothing but a mirror image of the provisions of the current Companies Act in respect
of corporate receivership hereto. 220
It is doubtful whether the proposed corporate rescue provisions would produce any
tangible results if receivership as a procedure would be retained in its current form
under the Zambian Companies Act.221 Belcher argues that, the time has come that on
grounds of efficiency and equity, the insolvency law should be twisted towards
collective corporate insolvency procedures in which all creditors participate and under
which a duty is owed to all creditors and in which all creditors may look to an office
holder for an account of his or her dealings with a company’s assets thereto. Thus,
while receivership may not be completely obliterated from the law, it should be
reserved for very limited qualifying circumstance hereto. 222
216
World Bank. (2008). Principles for effective Insolvency and creditor rights systems. London: World
Bank.
217
The Corporate Insolvency Bill 2015
218
University Press.
219
The Enterprise Act of 2002 of the United Kingdom
220
ibid
221
Town: MIT Press.
222
45
Cross border insolvency provisions: Cross border, insolvency is defined as one
where the insolvent debtor has assets in more than one state or where some of the
creditors or the debtors are not from the state where insolvency is taking place. 223 It
includes where proceedings concerning the same debtor have been commenced in
more than one jurisdiction, state, or country. A look at the wide provisions relating to
insolvency in the Companies Act which touch on critical issues such as appointment
and powers of liquidators and receivers clearly indicate that the law does not provide
for recognition of a liquidator or receiver appointed through proceedings outside the
jurisdiction. 224
Thus, safeguards provided for under the Zambian Companies Act such as the
mandatory requirement pursuant to Section 281 of obtaining leave of Court prior to
commencement of any legal action or proceeding against a company where a winding
up order has been made would not be available. 225 To this end, a single creditor would
proceed and enforce his or her debt against the company even despite that there are
corporate insolvency proceedings going on outside the Republic of Zambia which may
require that the assets of an incorporated company are pooled and the realization of
such assets conducted in a manner that takes care of the interests of all the creditors.226
The United Nations Commission on International Trade Law Model Law on

Cross Border Insolvency: The United Nations Commission on International Trade
Law (UNICITRAL) Model Law on Cross Border Insolvency provides an international
legal framework for co-operation and co-ordination in cross border insolvency
proceedings among member States that have adopted and ratified the Model Law.227
The objective of the Model Law are stated as: (a) co-operation between Courts and
other competent authorities of this state and other Foreign States involved in cases of
cross- border insolvency (b) create legal certainty for trade and investment;228 (c) fair
and efficient administration of cross border insolvencies that protects the interests of
all creditors and other interested persons including debtors; (d) protection and
223
18
224
ibid
225
The Companies Act No. 10 of 2017, the laws of Zambia
226
ibid
227
The United Nations Commission on International Trade Law (UNICITRAL) Model Law on Cross
Border Insolvency (1997)
228
ibid
46
maximization of the debtor’s assets; and (e) facilitation of the rescue of financially
troubled business, thereby protecting investment and preserving employment
thereof.229
Under the Model Law, member states are required to enact domestic legislations to
give effect to the provisions of this convention. The Model Law is anchored on co-
operation and co-ordination between judicial systems of member countries and is
meant to assist judges; law enforcement officers and corporate insolvency practitioners
in resolving cross-border corporate insolvency disputes hereto.230 Therefore, the
Model Law provides an international legal framework for resolving complex and
usually highly technical insolvency cases including those involving increasing
incidences of cross border insolvency proceedings and the difficulties associated with
such proceedings.231
The Model Law provides standards for ensuring that there is equitable sharing of
assets of the insolvent company, irrespective of which country the creditors are based.
The Model law seeks to achieve this by providing for direct access to the Courts by
foreign representatives and recognition of foreign proceedings. 232 Thus, Courts of
member countries are able to seek each other’s assistance in terms of interim reliefs;
standard stays as an effect of recognition and other discretionary reliefs.233 Therefore,
it is understood that lack of domestication of the Model Law in Zambia renders
corporate insolvency provisions in the Companies Act inadequate or insufficient to
deal with issues relating to cross-border insolvency hereto.234
Insufficiency of protection for creditors of Group Companies: There is now a

prevalence of group companies sometimes creating very complex group structures of
a parent-subsidiary relationship. In spite of this prevalence of group companies,
corporate insolvency laws in Zambia fail to take on board the interdependency of many
group companies because the law is focused almost exclusively on the individual
229
ibid
230
ibid
231
ibid
232
ibid
233
ibid
234
ibid
47
company. The creditors of companies within a group can only assert claims against
their particular debtor company and not the group.235
4.1.4 The potential for unfair treatment stems from the ability of a parent
company’s directors to move resources around the group companies. Creditors
of subsidiaries within a group may be misled about the ownership of assets that
are available to pay their debts.236 Furthermore, creditors of a subsidiary
company may not even find comfort in the common law governing directors’
duties. The tradition of the law dictates that directors owe their duties to their
own company not to the subsidiaries that their decisions may nevertheless
affect.237
In the United Kingdom, prior to the reforms, the Committee’s Report in analyzing the
law described it as being “seriously inadequate” and that the position of the law was
‘offensive to ordinary canons of commercial morality’ thereto and also ridiculous and
unreal to allow the commercial realities to be disregarded.238 Kunda argues that one
may not be faulted for describing the state of corporate insolvency provisions under
the Zambian Companies Act in the same words of the Committee’s Report in the
United Kingdom. This is because the insolvency laws in Zambia today depict exactly
what the situation was in the United Kingdom prior to the reforms thereto.239
One of the scenarios observed by the Committee’s Report was a situation where a
wholly owned subsidiary company was mismanaged and abused for the benefit of a
parent company.240 The parent company gave loans to the subsidiary company, which
were the very resources that the parent company would then abuse. When the
subsidiary company went into liquidation, its creditors awoke to a rude shock when
the parent company submitted proof in respect of secured loans and therefore
substantial proportions of the funds from the liquidator went to the parent company to
the detriment or disadvantage of the unsecured creditors.241
The above discussion clearly demonstrates a dire need for Zambia to reform her
corporate insolvency laws in order to truly protect the interests especially of the
235
Law review, 34,23.
236
World Bank. (2008). Principles for effective Insolvency and creditor rights systems. London:
World Bank.
237
ibid
238
Azmi, R. (2008). A comparative study of corporate Rescue in the UK and Malaysia. Aberdeen:
University of Aberdeen.
239
240
Baird, D.G. (1986). The uneasy case for corporate reorganizations. Journal of legal studies, 15(7).
241
ibid
48
unsecured creditors in Zambia. One possible approach would be to subordinate debts
owed by group companies to the claims of non-group creditors.242 This would mean
creating a provision that would defer same group debts to the claims of external
creditors. A second major response to unfair risk shifting by group companies is to
provide for lifting the veil of the group companies in order to deal with commercial
realities and to order a pooling of assets of related companies in liquidation to improve
the dividend prospects for creditors.243
In the jurisdiction of New Zealand, legislation provides for a power by the courts to
order one company in a group to contribute towards the assets of a fellow group
company in the event of the latter is insolvency.244 Such orders are to be granted when
the court considers this just and equitable paying particular attention to the role of the
parent company, especially its part in the subsidiary’s collapse. 245
In the jurisdiction of the United States of America, the court may order consolidation
(known as substantive consolidation) under the auspices of its general equitable powers
and will do so where the companies’ affairs are inextricably linked or the creditors can
be shown to have dealt with the debtor companies as a single unit. In such
consolidations, the group assets are dealt with as a single unit as part of a pooling
arrangement.246
In light of the above mentioned, it is essential that the law reformers in Zambia do take
a leaf from the developments that have taken place elsewhere to ensure that the
corporate insolvency laws are tightened to safeguard the interests particularly of
unsecured creditors hereto. 247 The draft insolvency bill should be reviewed to ensure
that the codification of measures to deal with group companies is incorporated therein.
The draft in its current form simply transplants the provisions of the current Companies
Act in respect of preferential debts. In casu, there is nothing both in the current and
proposed Zambian legislation aimed at protecting unsecured creditors of group
companies.248
242
ibid
243
ibid
244
ibid
245
ibid
246
ibid
247
Town: MIT Press.
248
ibid
49
Inappropriateness of directors’ fraudulent trading provisions: The World Bank’s
guide on corporate insolvency recommends that the corporate insolvency law should
provide for director’s liability for decisions made which are detrimental or
disadvantageous to creditors particularly if those decisions were made when the
company was insolvent. The aim is to promote responsible corporate behaviour while
fostering reasonable risk taking by the directors.249 The World Bank’s guide further
recommends that at a minimum, standards should address conduct based on knowledge
of or reckless disregard for the adverse consequences to creditors250.
The Zambian Companies Act criminalizes the act of contracting a debt on behalf of
the company by any officer, if at the time; the officer had no reasonable or probable
grounds of expectation that the company would be able to pay its debts.251 Pursuant to
Section 357 (1) of the Companies Act, if an officer of a company who is knowingly a
party to the contracting of a debt by the company has, at the time the debt is contracted,
no reasonable or probable ground of expectation (after taking into consideration the
other liabilities, if any, of the company at the time) of the company’s being able to pay
the debt, the officer shall be guilty of an offence, and shall be liable on conviction to a
fine not exceeding two hundred and fifty monetary units or to imprisonment for a
period not exceeding three months, or to both.252
The above section by creating an offence provides only punitive action for an erring
officer and does not provide for compensation of the creditor who falls victim of the
erring officer. In addition, there are criminal sanctions for frauds by officers of
companies, which have gone into liquidation.253 The types of frauds referred to in the
provision are those aimed at disadvantaging the creditors such as stripping the assets
of the company. The aforementioned provisions are clearly inadequate or insufficient
to ensure that the directors and other officers of the company are held liable for
decisions made which are detrimental or disadvantageous to creditors made when a
company is technically insolvent hereto.254
249
Bank
250
ibid
251
The Companies Act No. 17 of 2017, the laws of Zambia
252
ibid
253
ibid
254
ibid
50
The provisions as they are implied in the current Zambian Companies Act cannot
promote responsible corporate behaviour while fostering reasonable risk taking.
At a minimum, Zambia needs standards to deter conduct adverse to the interests
of creditors or reckless disregard for the adverse consequences to the creditors.255
The statutory provisions that Zambia needs are not those that create a burden to
prove fraud before a director or directors may be held liable but those that
provide remedies in the event that a director or directors continue trading past
the point where the director or directors know or should have known that the
company would be unable to avoid insolvent liquidation thereof.256 The United
Kingdom’s legislation refers to “wrongful trading” other than “fraudulent
trading” because the latter tends to create much higher standards of proof.257
Thus, there is need for Zambia as well to shift from the use of the term
“fraudulent trading” which is more restrictive to a much broader civil term of
“wrongful trading”.258
Many jurisdictions that have reformed their corporate insolvency laws seem to
have taken a tendency towards providing for erring directors to compensate
affected creditors. For example, in New Zealand, the new Corporate Insolvency
Act of 2006 empowers the court to inquire into the conduct of the directors, and
order the director (s) to repay or restore the property or money (together with
interest) or contribute such sum to the assets of the company by way of
compensation as the court thinks just.259 The standard approach taken by the
court is to begin by looking to the deterioration in the company’s financial
position between the date inadequate corporate governance became evident
(hereinafter referred to as the “breach” date) and the date of liquidation hereto.260
Once that figure has been ascertained, wrongful trading, and the overall responsibility
including the duration of trading have caused the extent to which loss. The suggestion
being made herein is that the preferred provisions dealing with directors’ liability
should be those that aim to recompense the affected creditors. 261 Restitutionary
255
ibid
256
ibid
257
18
258
ibid
259
The Insolvency Act of 2006, the laws of Zambia
260
ibid
261
51
remedies would be much more meaningful to a creditor than criminal sanction imposed
on an erring director(s). 262
4.1.4 Critical Analysis and Evaluation
The main objective of this chapter was to examine the extent to which the
Zambian Companies Act provides sufficient mechanisms that are capable of
fostering protection of the interests of all the creditors even when a company is
technically insolvent.263 From the foregoing, it is clear that the provisions of the
current Companies Act may not be said to provide sufficient safe guards for the
protection of creditor interests during financial distress of corporate bodies. This
is so because the main players in insolvency practice being liquidators and
receivers are not the subject of robust legal regime that is capable of compelling
them to act with transparency, expertise and fairness hereto.264
In addition, the dual role imposed on a receiver as agent of both the debtor
company and the appointing creditor means that the receiver is likely to have
divided loyalty to the detriment of the creditor. It has also been demonstrated
that provisions relating to floating charges seem to lack capacity to provide
effective means to ensure that a creditor whose corporate debtor has defaulted
may be sufficiently restituted.265
Further, provisions relating to group companies lack an effective framework for

the treatment of such type of companies to ensure the prevention of abuse of the
separate legal personality concept by group companies whose motive may only
amount to escaping their legal obligations to creditors.266 Finally, the chapter has
demonstrated a need for reforming provisions relating to directors’ fraudulent or
wrongful trading to ensure that remedies, which are meaningful to creditors, are
introduced as opposed to the traditional criminal sanctions imposed upon the
erring directors hereto.267
262
ibid
263
264
ibid
265
Bank
266
267
ibid
52
4.1.4 Examination of the provisions relating to floating charges to assess the
potential of the provisions to adequately safeguard creditor interests
Kaulung’ombe argues that in many jurisdictions, there is inadequacy of protection for

Floating charge holders. The Zambian Corporate Insolvency Act makes it obligatory
that every floating charge placed on any of the assets of the company should be
registered with the Registrar of Companies within twenty-one (21) days of creating
such a charge thereto. The provision is understood so widely that every possible
transaction involving the placing of any asset of the company as security is
registerable.268
Pursuant to Section 99 of the Companies Act, the following charges over the property
of the company applies: (a) a charge for the purpose of securing any issue of a series
of debentures; (b) a charge on uncalled share capital of the company; (c) a charge to
which the Trade Charges Act applies; 269 (d) a floating charge on the whole or part of
the undertaking or property of the company; (e) a charge on land, wherever situated,
or any interest therein; (f) a charge on any present or future book debts of a company;
(g) a charge on calls made but not paid; (h) a charge on a ship or aircraft or any share
in a ship or aircraft; (i) a charge on goodwill, on a patent or license under a patent or
on a trademark, or a copyright or a license under copyright; and (j) a charge over shares
in another body corporate.270
The implication of Section 99 of the Act is that the directors of a debtor company have
a legal obligation to register and lodge with the Registrar of Companies every
instrument evidencing the placing of any asset as security for a debt. Arising from the
fact that any legal document lodged with the Registrar of Companies may be inspected
by any member(s) of the public upon payment of a prescribed fee.271
It is visible that the justification for requiring that every charge be registered was to
protect creditors hereof. In other words, the main consideration is the provision of
information to persons who wish to assess the financial position of the company
268
Town: MIT Press.
269
The Companies Act No.10 of 2017, the laws of Zambia
270
ibid
271
ibid
53
thereto.272 The most notable users of such information include the Credit Reference
Bureau, prospective charge holders and financial analysts hereto, who are able to
ascertain from the register whether the assets of the company are encumbered or
burdened. The registration requirement is also a key test for a corporate receiver or
liquidator in considering whether to acknowledge the validity of the floating charge.273
However, the argument arises further in Section 99 itself pursuant to subsection

11which provides that: If particulars and documents relating to a floating charge that
are required by this section to be lodged with the Registrar of Companies are not lodged
within the time frame required; (a) the charge shall be void against the liquidator and
any creditor of the company; and (c) the full debt secured by the charge shall become
payable immediately by the company thereof.274
The above provision means that if a company placed a floating charge on an asset but
did not comply with the registration requirement, and in the event that the company
was placed in liquidation, the liquidator or any other creditor would not be entitled to
acknowledge the validity of the floating charge.275 As such, the affected creditor will
be rendered an unsecured creditor with no priority ranking during payment of the
company’s debts hereto. This seems to be a very unfair placement of the affected
creditor’s interests into jeopardy or danger especially that the obligation to lodge
instruments creating floating charges rests with the debtor company.276
Rajack suggested that it would have been much more equitable to hold the debtor
company or its directors responsible for failure to comply with the registration
requirements.277 Although Kloppers still argues that the interests of the creditor are
protected by rendering immediately payable, the full debt secured by the charge,
consideration of the wider picture still reveals gross unfairness to the creditor.278
272
273
ibid
274
The Companies Act No.10 of 2017, the laws of Zambia
275
Law review, 34,23.
276
ibid
277
278
54
Therefore, it should be noted that creditors particularly those who grant secured debts
are mostly financiers who are in the business of providing finance and earning a return
on the principle.279 Thus, merely providing that the creditor can recover the full debt
immediately upon realizing that the charge has not been registered does not provide
any form of assurance that the creditor will be restituted. It may just be that the
company at that stage does not have sufficient resources to repay the full debt. In such
a situation, the party to be disadvantaged would be the creditor.280
4.1.5 Common features of corporate rescue mechanisms

Belcher examined the features that are common in most jurisdictions whose legal
regimes have embraced corporate rescue mechanisms. He argued that there are certain
features that are common to insolvency legal regimes that have embraced the concept
of corporate rescue or rehabilitation.281 Belcher points out six common components of
a modern corporate rescue regime which relate to: (a) the type of entity or entities to
be subjected to corporate rescue; (b) the mechanism by which eligible entities move
from unprotected to protected status; (c) how heavy the burden of showing the
likelihood of success should be;282 (d) what the nature of the protection should be; (e)
how and by whom the business debtor should be administered during the protection
period; (f) by what process it is to be determined that a rescue has been effected and
that the debtor should emerge from the protective regime. 283
The corporate rescue law must firstly prescribe the types of companies to be protected
that it will apply. The definition should state whether the scope of the corporate law
will extend to companies that are in addition to being incorporated pursuant to the
provisions of the Companies Act have other regulatory statutes such as the Banking
and Financial Services Act, the Insurance Act and the Pension Scheme Regulation Act
or NAPSA Compliance Act No. 40 of 1996 of the Laws of Zambia.284
Mwenda recommended that corporate rescue in Zambia should only apply to

companies registered under the Companies Act. This is because the Bankruptcy Act
already regulates individuals who are bankrupt whilst the Banking and Financial
279
ibid
280
ibid
281
282
ibid
283
ibid
284
ibid
55
Services Act, the Insurance Act and the Pension Scheme Regulation Act regulate
insolvent banks, insurance companies and pension schemes respectively. However, it
is beyond the scope of the study to begin discussing in detail the rescue provisions
included in these pieces of legislation hereto.285
In addition, the corporate rescue law must be simple and flexible enough to apply to a
wide range of companies under the Companies Act. In designing a corporate rescue
regime, it is significant to firstly design the provisions that are appropriate for small
companies and then add on provisions that are necessary for larger companies
hereto.286 Although what is termed as a small company in the United Kingdom may in
certain instances be the size of a large company in Zambia, the important point made
by Kaulung‘ombe is that a corporate rescue regime should be simple enough to be
utilized by both small and large companies hereof.287
Mwenda postulated that careful consideration must be taken in deciding on who should
trigger the moratorium and the entire process of corporate rescue. In addition, the
procedures must adequately protect the rights and interests of the creditors.288 In
support of this, Kaulung’ombe commented that framing legislation, which allows the
suspension of a creditor’s right to seek enforcement of a debt owed by the debtor, is a
sensitive matter as the creditor ordinarily has the right to demand the payment of what
a debtor owes. Protecting a debtor from the enforcement simply means that the rights
of the creditor and the contractual principle of sanctity of the contract are interfered
with.289
Although court involvement in the commencement of the proceedings would seem

necessary to protect the interests of the creditors, the expenses that a person would
have to incur to initiate a moratorium and corporate rescue proceeding where the
commencement is court based should also be considered.290 Therefore, ‘Out of court’
285
286
ibid
287
Town: MIT Press.
288
ibid
289
ibid
290
Cassim, F.(1995). Contemporary Company Law. Cape Town: Juta & C.
56
and ‘Court based’ commencements should be balanced and the number of people that
commence the corporate rescue process needs to be regulated.291
Zambia requires a cost effective rescue regime which is simple to commence but which
will adequately protect the interests of the creditors. McCormack suggested that
Zambia partially adopts the “Voluntary Administration” mode of New Zealand in
respect of corporate rescue.292 This would entail that the directors of the company, a
fully secured creditor or a liquidator should be the persons to commence corporate
rescue. In addition, it would be helpful in a case where no fully secured creditor exists
among the creditors of a company, creditors who are owed at least fifty percent of the
company’s debts should be permitted to commence corporate rescue.293
Further, the court should have overall supervisory powers to oversee the complete
corporate rescue process and to hear applications arising out of the process thereto. In
this way, the commencement procedure will be less expensive, restricted only to the
category of persons mentioned, and will prevent frivolous and vexatious
proceedings.294 It would be better that the interests of the employees and the
shareholders are taken into account. Where the employees and shareholders have
reasonable belief that a company is insolvent or about to become insolvent, they should
have the right to petition the board of directors to consider commencing corporate
rescue. 295
Furthermore, where the board of directors does not respond favourably and continues
to trade despite the petition, shareholders and employees should be entitled to bring an
action against the board of directors for insolvent trading which should be an offence
under the Companies Act.296 The Zambian Companies Act does not currently provide
for this but an inclusion of such a provision would oblige the board of directors to act
291
ibid
292
Law review, 34,23
293
ibid
294
18
295
ibid
296
18
57
appropriately in order to avoid the sanctions for the commission of this offence
hereof.297
Morse adds that the requirement to show the likely success of corporate rescue will
vary depending on which category of persons commence corporate rescue. A common
feature of the three corporate rescue regimes discussed earlier under this chapter is that
a company is entitled to commence corporate rescue only if it is capable of being
rescued thereof. This is the only way that it would make business sense to commence
the corporate rescue procedure.298 Further, the aim in all three regimes is to rescue the
company as a going concern and in the alternative, to ensure that the creditors get a
better return than they would have, had that company been immediately liquidated.299
Furthermore, the board of directors’ decision to enter into a corporate rescue should
clearly show that this consideration was taken into account and that in their reasonable
opinion, the company should be rescued hereof. This requirement will serve to protect
the interests of the creditors, as it will prevent the directors from avoiding the fulfilment
of obligations to creditors on the excuse of entering into corporate rescue where it is
evident that a company cannot be rescued.300
Munalula finally postulated that the insolvency practitioner, when commencing

corporate rescue proceeding must also be required to show that he or she addressed his
or her mind to the existing company’s assets and liabilities and concluded that there is
a likelihood that the company could be rescued or that a better return could be realized
for the creditors. This evidence should then be given to the creditors to justify the
moratorium and the suspension of the creditors’ rights hereto.301
There are three main types of creditors namely the fully secured, secured and unsecured
creditors. It is clear that the moratorium should bind the unsecured creditors and the
secured creditors who do not hold a floating charge over all the assets of the
company.302 The biggest question that remains to be answered is whether the
297
ibid
298
299
ibid
300
ibid
301
Press.
302
58
moratorium should also cover a fully secured creditor. Zambia, like New Zealand and
the United Kingdom, has a credit and security system of the floating charge.303
Considering the arguments that have been expressed in support of the moratorium
binding the fully secured creditor and those against it, the legislators and the policy
makers will have to make a choice between the two available options. 304 The first
option will be to adopt the Voluntary Administration approach where the moratorium
applies to the unsecured creditors and all other secured creditors that are not fully
secured. This will reserve the fully secured creditor’s right to commence receivership
proceedings before corporate rescue commences.305 It will also mean that the fully
secured creditor would not be bound by any moratorium after the business rescue plan
is approved and will be able to enforce the security covered by that charge. The
problem with this is that corporate rescue will wholly rely on the good will of the fully
secured creditor.306
The second option would be to follow the steps taken by the United Kingdom and
abolish receivership except in exceptional cases. This will compel a fully secured
creditor to see the rescue process through as that will be the only way that the fully
secured creditor will be able to realize the value of the floating charge or the money
owed to the fully secured creditor by the company. 307 This approach may not be
received well by fully secured creditors as they may feel that they are being forced into
a business rescue procedure when an easier option would be to initiate receivership.308
Mwenda recommended the adoption of the first option especially if the part regulating
receivership in the Zambian Companies Act is amended. This is because even when
the floating charge holder invokes receivership, the receiver would be statutorily
obliged to consider the prospects of rescuing the corporate body.309 Thus, it may be
necessary to suggest that the moratorium should apply until the rescue practitioner
310
determines whether a full or partial rescue of the company is possible. Where the
303
ibid
304
305
ibid
306
ibid
307
308
ibid
309
310
ibid
59
rescue is possible, the moratorium should apply throughout the implementation of the
rescue plan. Where it is not possible, the moratorium should end, the company should
then be liquidated, and the proceeds paid to the creditors in order of preference.311
4.1.6 Challenges in implementing the Corporate Rescue Legislations in Zambia

The World Bank annotated that there are a number of possible challenges that are likely
to arise should the law be amended to include corporate rescue mechanisms in Zambia.
Thus, it would be prudent to create initiatives aimed at mitigating some of the
challenges, which would include the following:312
Changing the mind-set of the creditors: One of the major challenges that may face
the introduction of this law will be to change the mind-set of the creditors and get them
to appreciate the positive attributes of corporate rescue. A creditor’s main concern is
to get back what the debtor owes. Banks are often the major creditors of a business and
have a lot of power in cases of insolvency.313 A bank, by virtue of being a major
creditor with the overwhelming majority of votes, decides the future of a company by
either choosing corporate rescue or liquidation even when other creditors are willing
to be lenient to the debtor.314
Banks can sometimes be merciless in their attempt to recover loans even in situations
where there is no actual insolvency but only commercial insolvency. Zambia may take
a leaf that seeks the leave of the court to act as the director of the second company.315
The third is where the second company was known by the relevant name for the whole
of the twelve months prior to the liquidation of the first company and the former must
not have been dormant for any portion of these twelve months.316
Judiciary’s ability to handle corporate rescue cases: Zambia lacks a system of

specialization among judges. This state of affairs is likely to pose serious challenges
to the judiciary in handling corporate rescue cases. The fact that corporate rescue
would be a new concept which many judges may not be familiar with, raises concern
311
ibid
312
Bank.
313
314
ibid
315
University Press.
316
60
about the judiciary’s ability to adjudicate over corporate rescue matters.317 Therefore,
it may be necessary to conduct some specialized trainings so that the judiciary
appreciates the ins and outs of corporate rescue and its objectives thereof.318
Legal Practitioners’ ability to handle corporate rescue cases: The ability of the
legal practitioners to adequately handle corporate rescue cases may be another
challenge that may be faced in implementing the corporate rescue laws in Zambia. As
already, mentioned, corporate rescue will be a new concept that many lawyers may not
be familiar.319
This challenge is further compounded by the fact that corporate rescue has not been
taught in the past as part of the company law course in many universities and colleges
in Zambia. Thus, as a short-term measure, it may be necessary to conduct workshops
for licensed legal practitioners to understand the concept of corporate rescue to equip
them to adequately handle their clients’ court cases hereof.320 In addition, as a long-
term measure, universities and colleges should be encouraged to incorporate corporate
insolvency law into their curriculum and encourage specialization in insolvency law
by their graduates hereto. 321
Availability of post commencement finance: Another challenge that may be faced is

the availability of post commencement finance for the companies that may require
finance during the corporate rescue process. The policy makers will have to decide on
whether to make statutory provision for post commencement finance and priority of
post commencement creditors or to leave the provision of the finance to the markets
to decide.322 However, the statutory regulation on the provisions of post
commencement finance is preferable. In addition, there may be a need to regulate the
creditors, especially the banks in order to ensure that they do not charge exorbitant
317
318
ibid
319
ibid
320
ibid
321
18
322
18
61
interest rates on post commencement finance and consequently defeat the whole
purpose of corporate rescue.323
4.2 Qualitative Data

The researcher carried out questionnaires and interviews to fulfil the objectives of the
study, which are:

insolvency laws in Zambia
2. To establish the extent of effectiveness of insolvency laws in Zambia

4.2.1 Respondents background

4.2.2 Education
The target population was those with an education, legal background in particular
because the respondents were expected to be well vested with the law. The
respondents were lawyers and experts in corporate insolvency law. This proved the
respondents to be competent.
4.2.3 Gender
To avoid any form of biasness, the researcher requested for the respondents gender.
Out of 10 respondents, three were female and seven were male. The research
therefore had gender balance.
4.3 Framework and interpretation of the questionnaire

The questionnaire used was self-administered. The purpose is to collect data that
would complement data collected through desk review technique. This strategy was
used to firstly identify the effectiveness and adequacy of corporate insolvency laws
in Zambia, secondly to investigate the best mechanism to prevent business closure
and thirdly, to analyze if the laws in Zambia are at par with international standards.
4.4 Presentation, Analysis and Interpretation of the Questionnaire
Fifteen questionnaires were distributed among members of PACRA. Experts

completed eight and lawyers completed two.
323
ibid
62
4.4.1 Questionnaire rate at PACRA
Table 4.4.1: Effectiveness and adequacy of Corporate Insolvency Laws in

Zambia
VARIABLE YES NO
RESPO- % RESPO- %
NDENTS NDENTS
Are Zambia’s corporate insolvency 6 60 4 40

laws adequate and effective?
Does the law on Corporate 6 60 4 40

Insolvency in Zambia meet with
international standards?
Do companies and business owners 3 30 7 70

have knowledge of the methods of
saving their business?
Are the corporate insolvency laws 10 100 0 0

in Zambia investor friendly?
Table 4.4.1 shows that 100% of the volunteering participants at PACRA attempted
the questions they were asked in the questionnaire. Open-end questions were also
included on the questionnaire to achieve clearer answers for the purpose of this
research.
4.4.2 Open-end questions attempted by the participants
1. Which remedy provided by the Corporate Insolvency Act No. 9 of 2017 is

common amongst companies facing liquidation?
All the participants opted for business rescue mechanisms through appointment of an
administrator to be a better option.
63
2. Do you think the corporate insolvency laws in Zambia meet international
standards?
Six out of ten of the participants claimed that the current corporate insolvency laws
in Zambia meet international requirements as it offers more solutions other than
liquidation.
The other f nhyyour denied that the corporate insolvency laws in Zambia are up to
date because in comparison with other jurisdictions, the solutions offered in Zambia
are not wide compared to other jurisdictions like USA and Kenya.
3. Do companies and business owners have knowledge of the methods of saving

their business? Those that gave “No” as their answer gave the following
reasons:
Yes: two of the participants agreed with the notion.
No: eight participants disagreed with the notion giving a general reason that
since the law was effected, companies are still using receivership as a mode
of solving lliquidation.
4.5 Presentation, analysis and interpretation of interview
The interview approach adopted for this study was an unstructured interview and was
conducted face-to-face with a member of Zambia’s judiciary who is also a certified
business rescuer.
4.5.1 What is Corporate Insolvency?
Insolvency is a state of economic distress, whereas bankruptcy is a court order that

defines how an insolvent debtor will meet his or her obligation and/or have assets
liquidated to pay the creditors so an individual or company can be insolvent without
being bankrupt especially if the insolvency is temporary and correctable but not the
opposite.
4.5.2 Is the Corporate Insolvency Act No. 9 of 2017 adequate and effective law?
Yes, it is adequate and effective because it is investor friendly and serves to protect
businesses. The law through business rescue mechanisms provided for under section
21 to 25324 allows the business to “breath” unlike in receivership where most
company end up shutting down operations. The law is also democratic in that the
324
Corporate Insolvency Act No.9 of 2017
64
shareholders, creditors and employees can all petition that the company be put under
rescue. If the rescue fails, they can say the company is not “salvageable”.
4.5.3 In your own opinion, what is the best mechanism?
Business rescue is the best mechanism provided by the law. It does not follow that a
company can only find itself in financial distress because of poor management. A
company can be affected by global financial crisis like the world depression in the
1930’s or national economic downtown as we are experiencing in Zambia or this
Covid 19 world pandemic. A company may have non-core assets, which if sold can
resuscitate the company. This means the company is assets solvent but liquid
insolvent. In such circumstance jobs will be saved, government revenues remain
stable by way of taxes, creditors are paid in full, the unemployed benefits will not be
a subvention on the national treasury and the investment climate remain non-toxic.
4.5.3 What do you suggest must be added or subtracted from the current law.
The Indian model of company rescue is the best in the world thus far and it would be
good if Zambia adopts it. It consists of the following:
 Cash flow forecasting and monitoring

 Rapid diagnostic for red flags
 Restructuring turnaround services
 Manage stakeholders
 Develop a turnaround plan (resolution plan)
 Execute turnaround plan
 Sell non-core assets past of operations
4.6 Conclusion
In conclusion, this chapter presented, analyzed and interpreted the data collected for
the purposes of the objectives posed in chapter one. The analysis reveals existing
literature as well as an extension to that data from invited expert opinions on the
subject matter, making a contribution in the area of study. Findings were presented
and discussed following merging and overarching themes. Therefore the next chapter
will draw the conclusions and the recommendations based on research findings.
65
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter presents the conclusion, findings and recommendations of the study based
on the objectives as specified under chapter one hereto. The study critically evaluated
the adequacy of corporate insolvency laws in Zambia pursuant to the three specific
objectives, which were:

insolvency laws in Zambia.
2. To establish the extent of effectiveness of insolvency laws in Zambia.
5.1 Conclusion
From the findings of the study, it was discovered that the main book of law or the
existing legal framework in relation to corporate insolvency laws in Zambia was the
Companies Act No. 10 of 2017, which gave rise to the Corporate Insolvency Act No.
9 of 2017 of the Laws of Zambia hereof.325
After a critical examination of the most current existing legal framework in relation to
corporate insolvency laws in Zambia, it was established that the overarching objectives
of corporate insolvency laws are mainly: to allocate the risk among participants in a
market economy in a predictable, equitable, and transparent manner; and to protect and
maximize value for the benefit of all interested parties and the economy in general.
It is hereby clarified that in the absence of effective legal procedures that are applied
in a predictable manner, creditors of a company may be unable to collect on their
claims, which may harmfully affect the future availability of credit hereto. In addition,
325
66
the rights of debtors and their employees may not be adequately protected and different
creditors may not be treated justifiably.326
From the findings of the study, it can be postulated or stated that the Zambia’s capitalist
run economy may not foster economic growth and competition and as such, may result
in increased risk thereto. As a result, this may lead to Zambia’s economic failure and
financial crisis as the world has recently experienced hereof.327
In an attempt to answer the research questions of the study hereto, it was necessary to
review the most current legal provisions governing the corporate insolvency laws in
Zambia to assess their adequacy in the narrow question of the extent to which they
provide an option or options for a financially troubled but viable company to be re-
organized rather than face liquidation hereto.328
In reviewing the Corporate Insolvency Laws of Zambia, it was concluded based on the
findings of the study that the current legal framework falls short of expected
international standards as outlined in the United Nations Commission on International
Trade Laws Legislative Guide to Corporate Insolvency Laws as well as the World
Bank’s principles on effective and adequate insolvency and creditor rights’ systems
hereto.329
In view of the above mentioned, the study does not support the maintenance of the
current corporate insolvency laws in Zambia due to some loopholes that exist therein.
Finally, after establishing the gaps or discrepancies in the current legislative and
existing legal framework in relation to corporate insolvency laws in Zambia and in
comparison with other extraterritorial jurisdictions, the study found that the current
legislative framework pertaining to the insolvency law exhibited a number of lacunas
or loopholes, which require revalidation and amendments hereto.330
5.2 Recommendations
The study has generated information that may be of great benefit to many stakeholders
and scholars in the field of company law including the Registrar of Companies hereto.
Based on the findings of the study, the following recommendations were made:
326
ibid
327
ibid
328
ibid
329
ibid
330
ibid
67
1. The provisions of the corporate insolvency laws in the current Zambian
Companies Act should provide effective corporate rescue mechanisms for
protecting the wider interests of different stakeholders such as shareholders,
employees, customers and suppliers of the company including the country at
large.
2. The seal of the study is that an insolvency law regime should provide for
effective corporate rescue mechanisms of turning around financially troubled
companies and that liquidation of limited companies because of insolvency
should be the very last option available.
3. Most fundamental of all inadequacies in the corporate insolvency law is that
the insolvency law in its current form only provides for corporate receivership,
liquidation and schemes of arrangement hereto. As celebrated earlier, none of
these procedures is capable of effectively creating an opportunity for a
financially troubled company to be rescued from collapse. It appears as though
most of the current requirements under the Companies Act of Zambia were
never prepared to restructure financially troubled companies. Secondly, though
the law may on face value be viewed to be unfair towards benefiting creditors
during corporate insolvency since there is no express provision pursuant to the
Zambian Companies Act that seeks to rescue an insolvent limited company
thereby preserving the interests of all other stakeholders apart from the
creditors hereto. As such, there are many loopholes in the corporate insolvency
law, which negatively affect the effectiveness, efficiency including
transparency of receivers, and liquidators to the extent that creditors, like other
stakeholders, are usually on the losing end in most insolvency processes hereto.
4. There is need to introduce comprehensive reorganization provisions as part of
the country’s corporate insolvency laws.
5. Corporate Insolvency laws in Zambia and the world at large should undergo
much reform with a large number of the reforms focusing on restructuring or
rescuing the financially troubled company or entity rather than it facing
liquidation hereof. With the focus by the Government of Zambia on
encouraging and promoting entrepreneurial activity, the shift from liquidation
to re-organization should tend to spur start-up companies as the fear of
liquidation is lessened hereto.
68
6. It is hereby recommended that different ideas from other extraterritorial
jurisdictions would enable Zambia create a viable code of conduct that does
not only reflect international best practice in the field of insolvency law but
also suited to the country’s unique circumstances hereof.
7. There is need to improve the accountability, expertise and fairness by the
corporate insolvency practitioners in Zambia.
8. Pursuant to this study, a lot needs to be done to reform current corporate
insolvency law in Zambia so that the key players in the corporate insolvency
practice can be more accountable, professional and fair to all stakeholders
hereto.
9. Corporate Insolvency practice should be restricted to duly qualified and
experienced individuals. For instance in the United Kingdom, Corporate
Insolvency is a regulated profession pursuant to the Insolvency Act of 1986
and anyone intending to practice as a corporate insolvency practitioner needs
to pass a set of examinations set by the Joint Insolvency Examinations Board
hereto.
10. There is need to introduce cross border insolvency provisions under the current
Zambian Companies Act. It was observed that the Companies Act in its current
form does not have any provisions to deal with situations where the insolvent
company has assets in more than one jurisdiction or where insolvency
proceedings have been commenced outside the Republic of Zambia. Hence,
liquidators or receivers appointed through jurisdictions outside Zambia cannot
be recognized. Therefore, safeguards provided for pursuant to the Zambian
Companies Act such as the mandatory requirement for obtaining leave of court
prior to commencement of any action or proceeding against a company where
a winding up order has been made would not be available.
11. Subject to the above recommendation, the study further recommends that
Zambia should ratify the a new law on cross border insolvency and domesticate
it by introduction of provisions that would allow direct access to the courts by
foreign representatives and recognition of insolvency proceedings commenced
outside the Republic of Zambia. This is for the purpose of a possibility of
introducing cooperation between the Zambian courts and courts in foreign
jurisdictions in insolvency matters involving foreign companies or any other
company whose presence is in more than one jurisdiction hereto.
69
12. Specialized Insolvency Courts managed by specialized and experienced
judicial officers need to be introduced because corporate insolvency Law is a
very wide and specialized branch of law requiring more understanding of none
legal disciplines such as accounting, business administration and so on.
Therefore, the study annotates that as long as the Zambian judiciary remains a
significant part of corporate insolvency processes, there shall be no legal
reforms that shall give rise to desirable results if such reforms do not contact
the judiciary hereto.
13. Finally, the study recommends that future studies of similar nature should focus
on the research questions not addressed herein.
70
BIBLIOGRAPHY
Azmi, R. (2008). A comparative study of corporate Rescue in the UK and Malaysia. Aberdeen:
University of Aberdeen.
Cassim, F.(1995). Contemporary Company Law. Cape Town: Juta& C.
University Press.
Garner, B.(1999). Black’s Law Dictionary. Dallas: West Group Publishing.
Health, P., and Whale, M. (2011). Insolvency law in New Zealand. Auckland: LexisNexis.
Kaulungómbe, K.G. (2012). Business Rescue for Zambia, suggestions for legislative Reforms.
Cape Town: MIT Press.

Law review, 34,23.
Moss, G. (2009). Comparative Bankruptcy cultures. Brooklyn Journal of international law, vol.
23, 18
Munalula, M. (2004). Legal Process: Zambian cases, legislation and commentaries. Lusaka:
UNZA Press.
xi
World Bank. (2008). Principles for effective Insolvency and creditor rights systems. London:
World Bank.
xii
LEGISLATIONS
Commencement Order, Statutory Instrument No. 47 of 2018 of the Laws of Zambia
The Companies Act No. 10 of 2017, the Laws of Zambia
The Companies (Amendment) Act of No. 24 of 1999 of the Laws of Zambia
The Companies Act of 1994, the Law of Zambia, volume
The Deeds of Arrangements Act, Chapter 84 of the laws of Zambia
The Insolvency Act 2015 of the Laws of Kenya
The Receivership Act of 1993 of New Zealand
The Bankruptcy Reform Act of the U.S.A. of 1978
The Companies Amendment Act of New Zealand of 2006.
Enterprise Act of the UK of 2002.
Insolvency U.K. Act of 1986.
Receivership Act of 1993 of New Zealand
The Banking and Financial Services Act Chapter 386 of the laws of Zambia
The Bankruptcy Act Chapter 82 of the laws of Zambia
xiii
CASES
Goodwell Siamutwa v Southern Province Co-operative Union and another SCZ Appeal No. 114
of 2002
Gomba Holdings U.K Limited and Others v Minories Finance Limited and others (1989) 1 ALL
ER 761.
Magnum (Zambia) Limited v Basit Quadri (Receivers/Managers) & Grindlays Bank International
Zambia Limited (1981) ZR 14
Avalon Motors Limited (in receivership) v Leigh Gadsen Motor City Limited (1998) ZR 41
Credit Africa Bank Limited (In liquidation) v Elias NamoKundionaSCZ Judgement No. 9 of 2003
Development Bank of Zambia v JCN Holdings Limited, Post Newspaper Limited and
MutemboNchito, 2009/HPC/0322
GoodwellSiamutwa v Southern Province Co-operative Union and another SCZ Appeal No. 114 of
2002
Gomba Holdings U.K Limited and Others v Minories Finance Limited and others
(1989) 1 ALL ER 761
Lindgreen v L & P Estates Ltd (1968) Ich 572
Bank International Zambia Limited (1981) ZR 14
Power v Sharp Investments (1994) 1 BCLC 111
Sampsell v Imperial Payler& Color Cay, 313 U.S. 215 (1941). )
Watts v Midland Bank plc (1986) BCLC 15
Zambezi Portland Cement Limited and another v Stanbic Bank Zambia Limited (2010) ZR499
xiv
APPENDIX
CAVENDISH UNIVERSITY – ZAMBIA
Hello, my name is Nozipho Nkomo and I am a 4th year Second semester student at Cavendish
University Zambia pursuing a Bachelor of Laws degree. I am conducting a research on the
effectiveness of corporate insolvency laws in Zambia comparing with other jurisdictions. The
questionnaire comprises of 10 questions, which will take no longer than 10 minutes to complete.
All responses will remain anonymous and no one will be identifiable in the research.
If there are any suggestions, you may have or information to add onto this study, please contact
me on +260954149779 or email noziphonkomo397@gmail.com.
Please tick the box provided to consent to be part of the research
1. Are the corporate insolvency laws effective in Zambia?
Yes
No
2. Which remedy provided by the Corporate Insolvency Act No. 9 of 2017 is common amongst
companies facing liquidation?
Receivership
xv
Business Rescue
3. Do you think the corporate insolvency laws in Zambia meet international standards?
Yes
No
4. Please state your reason.
………………………………………………………………………………………………………
…………………………………………………………………………………........
5. Are the corporate insolvency laws in Zambia investor friendly?
Yes
No
6. Do companies and business owners have knowledge of the methods of saving their
business?
Yes
No
7. Provide a reason for your answer if it is “No”.
………………………………………………………………………………………………………
………………………………………………………………………………………………………
xvi

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CAVENDISH UNIVERSITY ZAMBIA

AN ANALYTICAL OVERVIEW OF THE EFFECTIVENESS AND

A Dissertation submitted to the Faculty of Law of the Cavendish University in partial

ii. Copyrights Declaration

Lastly, I would like to thank my supervisor Mr Kwazinkosi Ndlovu a charismatic

1.3 Aims and Objectives of the Study .................................................................................. 9

1.4 Research Questions ....................................................................................................... 9

1.5 Significance of the Study ................................................................................................ 9

1.6 Scope of the Study ....................................................................................................... 10

1.7 Limitation of Study ....................................................................................................... 10

1.9 Outline of Chapters ...................................................................................................... 10

1.10 Conclusion .................................................................................................................. 11

2.0 Introduction ..................................................................................................................... 12

2.1.1 Insolvency Procedures under the Zambian Companies Act ..................................... 14

2.1.2 Schemes of arrangement .......................................................................................... 14

2.1.3 Shortcomings of schemes of arrangement as a corporate rescue mechanism ........ 15

2.2.4 Corporate Receivership............................................................................................. 17

2.2.5 Shortcomings of receivership as an effective business rescue mechanism ............. 20

2.2.6 Liquidation ................................................................................................................ 22

2.7 Critical Analysis and Evaluation ................................................................................... 23

3.0 Introduction ............................................................................................................... 25

3.1.1 Research Choice ........................................................................................................ 25

3.1.2 Research Strategy ..................................................................................................... 26

3.1.3 Time Horizon ............................................................................................................. 26

3.1.4 Sampling Frame ........................................................................................................ 26

3.1.5 Sampling Size ............................................................................................................ 26

3.1.6 Sampling Technique .................................................................................................. 26

3.3 Data Collection Technique ........................................................................................... 27

3.3.1 Questionnaire ........................................................................................................... 27

3.4 Ethical considerations .................................................................................................. 27

3.5 Limitation of the study ................................................................................................. 28

3.6 Conclusion .................................................................................................................... 28

4.0 Introduction ..................................................................................................................... 29

4.1.3 Evaluation of the mechanisms for protection of creditor interests by a critical

4.1.5 Common features of corporate rescue mechanisms................................................ 55

4.1.6 Challenges in implementing the Corporate Rescue Legislations in Zambia ............. 60

4.2 Qualitative Data ........................................................................................................... 62

1.1 Background of the Study.

Member’s voluntary winding up may be initiated through a special resolution of the

Even with this clarity on basic principles, considerations regarding cross-border

1.2 Statement of the Problem

The existing legal framework in relation to corporate insolvency laws in Zambia is

1.3 Aims and Objectives of the Study

Specific Objectives of the Study

The specific objectives of the study are:

1. To identify and examine the existing legal framework in relation to corporate

1.4 Research Questions

1.5 Significance of the Study

1.6 Scope of the Study

1.7 Limitation of Study

1.9 Outline of Chapters

2.1 Identifying and examining the existing legal framework in relation to

2.1.1 Insolvency Procedures under the Zambian Companies Act

2.1.2 Schemes of arrangement

2.1.3 Shortcomings of schemes of arrangement as a corporate rescue mechanism

Further, allowing a shareholder to exercise an appraisal right technically means that

The practical challenge with the scheme of arrangement especially if it involves

2.2.4 Corporate Receivership

In Zambezi Portland Cement Limited and another v Stanbic Bank Zambia

An inclusion of an express provision in the Companies Act requiring a Receiver to

2.7 Critical Analysis and Evaluation

RESEARCH METHODOLOGY AND DESIGN

3.1 Research Design