Insolvency in general
Insolvency is governed under the Corporate Insolvency Act, No. 9 of 2017 (the “Insolvency Act”). The Insolvency Act provides for receivership; business rescue (administration); schemes of arrangement or compromise; and liquidation/winding-up.
Receivership
A receiver may be appointed by the court or under a deed of appointment where a charge over the secured property of a company has become enforceable. To be appointed as receiver, one must have been practising as a chartered accountant or legal practitioner for at least seven (7) years and must be accredited as an insolvency practitioner by the Registrar of Companies. A firm or body corporate cannot be appointed as a receiver.
A court appointed receiver is not an officer of the company but of the court and must act as directed and instructed by the court. A receiver appointed under a deed of appointment is an officer of the company and is not an agent of the persons enforcing the security. A receiver is required to manage the assets under a charge to realise the monies owed to the secured creditor(s) without disposing of the asset by sale unless the management of the asset will further deplete its value or not satisfy the debts owed to the creditor.
Business rescue
Business rescue proceedings can be started by a company board resolution if the board believes that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company. Alternatively, an affected person (including shareholders, creditors or employees of a company) may apply to the court for an order to place the company under supervision and begin business rescue proceedings. Business rescue proceedings cannot be commenced when a company is already in liquidation.
A general moratorium on legal proceedings is placed on companies undergoing business rescue for the duration of the business rescue proceedings. The moratorium prevents any legal proceedings from being taken against the company or in relation to any property belonging to the company or lawfully in its possession during business rescue proceedings. This allows the appointed business rescue administrator to focus on the company's financial recovery and maintain the company as a viable going concern.
To be appointed as a business rescue administrator, one must have been practising as a chartered accountant or legal practitioner for at least seven (7) years and must be accredited as a business rescue administrator by the Registrar of Companies.
Winding-up
Winding-up of a company in Zambia can be either by a court order or by a members' or creditors' voluntary winding-up. Shareholders' liability in the case of companies limited by shares is limited to the unpaid amount, if any, on the shares.
In a winding-up, secured debts are paid in priority to unsecured debts. Other payments that are also paid in priority to unsecured debts include:
(a) costs of the winding-up;
(b) employee salary arrears and other benefits owed to employees; and
(c) taxes and other duties payable to the local authority or Government.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.