New law of insolvency introduces ‘business rescue’

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THE recently gazetted Insolvency Act has introduced pre-emptive measures to save ailing businesses from liquidation through rehabilitation.
The Act, which was gazetted on June 25 as a replacement for the old insolvency law, has introduced “business rescue”, a procedure commonly implemented globally to rehabilitate organisations in distress.
The legislation was long overdue as such support structures have for many years constituted the foundation of insolvency legislation in other countries.
The Act provides for the temporary supervision of distressed companies and for the management of their affairs, businesses and properties; and temporary moratorium on the rights of claimants against them or in respect of properties in their possession.
In terms of the new Act, business rescue may also involve “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”.
If it is not possible for a distressed company to so continue in existence, the corporate rescue process is envisioned to at least result in a better return for creditors or shareholders than would result from its immediate liquidation.
Local insolvency expert, Cecil Madondo, welcomed the new law, saying it clarifies the legal framework for corporate rescue. “This is a very positive development; it clarifies the legal framework for business rescue which is a welcome alternative to judicial management. There will now be no reason for distressed companies to remain under judicial management for too long,” Madondo said.
Locally, the best options of recourse for ailing companies had been judicial management and curatorship. These avenues had, however, not yielded much positive results.
Madondo said business rescue would not eradicate corporate failure, but would help the situation, in part.
“The introduction of the legal framework for corporate rescue will only help struggling companies to have a chance of survival, the system wide problem of corporate failure requires more holistic measures such as a statutory revolving fund to help businesses,” he said.
The reconstruction of the Solvency Act, which has consolidated the insolvency laws in Zimbabwe, is one of the reforms conceptualised by a steering committee set up by former president Robert Mugabe in 2015 to lead an accelerated reform effort through a rapid results approach.
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