AN ANALYSIS OF CORPORATE RESCUE PROCEEDINGS UNDER THE INSOLVENCY ACT [CHAPTER 6:07]

Abstract

The Insolvency Act [Chapter 6:07], overhauls an archaic and oppressive legal regime on judicial
management in Zimbabwe. It seeks to achieve this aim through a moratorium procedure which is
conventionally known as corporate rescue. Corporate rescue is a mechanism devised to
resuscitate financially distressed companies and other business entities, under the supervision of
a corporate rescue practitioner. Practically, corporate rescue entails the restructuring of the firm,
its assets and liabilities, in a manner that guarantees the company’s continued solvent existence.
Insolvency does not only affect the shareholders of a company but it also affects other
stakeholders i.e. creditors, directors, employees, the community and overall revenue generation
in Zimbabwe. As such, it makes sense to give a kiss of life and breathing space to financially
distressed companies and other business entities, so that they become solvent again, for the wellbeing
of all stakeholders, rather than subject the company to euthanasia under judicial
management or liquidation. Other jurisdictions have adopted expansive corporate rescue or
business rescue procedures to save commerce under their insolvency or bankruptcy law with the
exception of South Africa which has adopted business rescue under its Companies Act. Our
Companies and Other Business Entities Act [Chapter 24:03], does not provide for corporate
rescue procedures. In the main, corporate rescue enjoins the judiciary, creditors, directors,
shareholders and employees to come together in an inquiry to determine if a financially distressed
company can be revived before liquidation proceedings can be initiated or after liquidation
proceedings have commenced, before the company can be wound up. However, just like any
new life support mechanism, it’s compatibility to the Zimbabwean business culture is still to be
tested. The corporate rescue practitioner and other stakeholders must produce a cogent
resuscitation strategy that will survive the current turbulent and sluggish economic environment.
As such, corporate rescue is not a mechanism for the business to evade liability but an opportunity
for companies and other business entities that can be saved to be placed under a support system
that can make the business solvent again. The article will examine the law on corporate rescue
in Zimbabwe through a comparative legal research with South African business rescue
procedures due to the shared similarities in our rescue provisions. South Africa and Zimbabwe
also share structural commonalities of Roman Dutch law. The concept of business rescue is now
well embedded in South Africa, which may inform the application of corporate rescue in Zimbabwe
where the concept is still new in order to help enhance insight and understanding. This paper will
assist in the interpretation of selected corporate rescue provisions in the Insolvency Act and shed
light on the purpose and value of corporate rescue. This paper will also highlight conceptual, legal,
practical problems and questions that arise in this area of the law. This is done in order to incite
legal reform, to rectify and promote a lucid practicable corporate rescue system in Zimbabwe.