In this article, I look at corporate rescue by debtors or entities that are not companies. Many people are familiar with corporate rescue proceedings with respect to distressed companies.
I have previously written articles on corporate rescue. In terms of section 121(1)(b) of the Insolvency Act (Chapter 6:07) ("the Insolvency Act") corporate rescue means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for:
the temporary supervision of the company, and of the management of its affairs, business and property.
a temporary moratorium on the rights of claimants against the company or in respect of property in its possession, and
the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company's creditors or shareholders than would result from the immediate liquidation of the company.
Corporate rescue for other entities that are not companies
Section 148 of the Insolvency Act applies. According to section 148, Part XXIII under which sections 121 to 148 fall, apply corporate rescue of debtors or entities that are not companies.
This means that other entities or debtors that are not companies can be placed under corporate rescue. There are however, conditions to be met. The debtor or entity ought to carry on business and employ at least ten people.
Part XXIII of the Insolvency Act covers some of the key areas summarised below.
Section 122 which concerns company resolution to commence corporate rescue proceedings. This is the section used for voluntary corporate rescue proceedings.
Section 123 which provides for objections to company resolution for corporate rescue.
Section 124 which is about a court order to commence corporate rescue proceedings. This section is used in the case of involuntary corporate rescue.
Section 125 which covers the duration of corporate rescue proceedings.
Section 126 on the moratorium on legal proceedings against a company under corporate rescue.
Section 127 which deals with the protection of property interests.
Section 128 which addresses post-commencement finance.
Section 129 on the effect of corporate rescue on employee and contracts.
Section 130 which covers shareholder and directors of a company under corporate rescue.
Section 131 which deals with qualifications of practitioners who can be appointed corporate rescue practitioners.
Section 132 which deals with the removal and replacement of a corporate rescue practitioner.
Section 133 which spells out the general powers and duties of corporate rescue practitioners.
Section 134 on the investigation of affairs of a company.
Section 136 on the remuneration of a corporate rescue practitioner.
Section 137 on the rights of employees during corporate rescue.
Section 138 which deals with the participation by creditors.
Section 139 on the participation by holders of a company's securities.
Section 140 which addresses the first meeting of creditors.
Section 141 which is about the functions, duties and membership of committees of affected persons.
Section 142 on the proposal of a corporate rescue plan.
Section 143 which concerns the meeting to determine the future of the company.
Section 144 on the consideration of a corporate rescue plan.
Section 145 which is about failure to adopt a corporate rescue plan.
Section 146 on the discharge of debts and claims.
Section 147 on the compromise between the company and creditors.
Application of section 148 of the Insolvency Act
Section 148 applies to corporate rescue of other business entities or debtors, obviously with certain changes to some of the sections summarised above. According to section 148(2) certain sections which apply to the corporate rescue of companies do not apply to the corporate rescue other entities while certain sections are modified.
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Conclusion
Other entities, which carry on business and employ at least ten (10) employees, can be placed under corporate rescue in terms of section 148 of the Insolvency Act.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected] or [email protected]. Visit www//:hofisilaw.com for more articles.
