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Corporate rescue vs judicial management


By Fidelis Manyuchi

THE concept of corporate rescue, also known as business rescue was introduced to Zimbabwe in 2018, through the Insolvency Act (Chapter 6:07). One of the key aims of the concept was to do away with judicial management, which had failed to achieve desired results in turning around distressed companies. After its introduction to Zimbabwean law, the concept received mixed reactions.

Most concerning of which was the “business as usual” approach followed by the Master of the High Court, some corporate rescue practitioners themselves and to some extent the High Court itself.

At least this has been put to an end by the Supreme Court in the Metallon case.

The brief facts of the case are that two creditors of Metallon brought applications to place the company and its related companies under corporate rescue.

A couple of preliminary objections were raised on behalf of the companies against whom the application was made.

One of the points was that the applicants had failed to notify each and every affected person of the application by standard notice.

The applicants had published a copy of the application in a local newspaper and argued that this qualified as standard notice.

The High Court agreed with the applicants and found that the applicants had effected proper notice by publication in a local newspaper.

Another point which was raised on behalf of the companies was that the application was defective as it had not been served upon the Master of the High Court and the Registrar of Companies as required by the Act.

Again the High Court condoned the non-compliance.

Aggrieved by the decision of the High Court, Metallon and its related companies appealed to the Supreme Court. Before arriving at its decision, the Supreme Court took a welcome detour and looked at the difference between corporate rescue and judicial management.

It noted that judicial management had “failed to cater for the needs of the modern-day business environment” as “it had several unsatisfactory aspects that defeated the purposes of business rescue.”

The court went on to look at comparative jurisdictions which have a similar concept to corporate rescue.

It then explained the aims of corporate rescue and the different procedures that can be followed to place a company under corporate rescue.

The court also explained the test to be used when determining whether a company is a prime candidate for corporate rescue.

In doing this, the court quoted, with approval, leading cases from South Africa.

Going back to the case that was before it, the court arrived at a position that the case could be disposed of by answering one issue, that is, “whether or not the failure to comply with the mandatory provisions of the Act rendered the application a nullity.”

The court held that the applicants had failed to comply with the peremptory provision of statute and that fact rendered their application a nullity.

The court further held that the High Court had misdirected itself when it failed to uphold the preliminary points and that:

“It is imperative to conduct corporate rescue proceedings with the utmost diligence and care as they have far-reaching consequences, not only on the creditors, shareholders and employees of a corporation but the society at large.

Corporate rescue is predicated on a broader social justice perspective unlike the old law of judicial management that was based on private corporate interest.

Consequently, it is critical that the procedures laid down for corporate rescue be complied with to the letter.”

This judgment brings welcome clarity to corporate rescue in Zimbabwe.

  • Fidelis Manyuchi is Senior Associate at Scanlen & Holderness. He writes here in his personal capacity.

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