Raymond Sibanda

International Liaison Partner

Insolvency Practitioner

MBA, BSc (Hons), CPA, REA, RPAcc

Corporate rescue, also known as business rescue or restructuring, is a legal framework designed to assist financially distressed companies in Zimbabwe to restore solvency and continue operations. The process aims to balance the interests of creditors, shareholders, employees, and other stakeholders while preserving the economic value of the company.

LEGAL FRAMEWORK GOVERNING CORPORATE RESCUE

In Zimbabwe, corporate rescue is primarily governed by the Insolvency Act [Chapter 6:07], enacted in 2018. The Act replaces the Companies Act [Chapter 24:03] provisions on judicial management and introduces business rescue mechanisms that align with modern trends in corporate restructuring. The law provides for two primary approaches to corporate rescue:

1. Voluntary Business Rescue: Initiated by the company’s board of directors when financial distress is anticipated but solvency is still attainable.
2. Compulsory Business Rescue: Imposed by the courts, often at the request of creditors or other stakeholders.

OBJECTIVES OF CORPORATE RESCUE

The corporate rescue process is designed to:

• Avoid liquidation: Preserve the business as a going concern and maximize value for all stakeholders.
• Restructure debts: Negotiate with creditors to reorganize the company’s financial obligations.
• Protect jobs: Retain employees and maintain the company’s operations where possible.
• Promote economic stability: Ensure continuity of service and contribution to the economy.

THE CORPORATE RESCUE PROCESS

The corporate rescue process in Zimbabwe involves several critical steps:

• Application for Corporate Rescue

The application can be made by directors, shareholders, or creditors (Any affected person by definition). It is filed with the Master of the High Court and Registrar of Companies, supported by an affidavit detailing the company’s financial distress and potential for recovery.

• Appointment of a Corporate Rescue Practitioner (CRP)

Once the Master of the High Court grants the order, a licensed CRP is appointed to take control of the company. The CRP’s primary responsibility is to develop and implement a rescue plan which is adopted by creditors.

• Moratorium on Legal Proceedings

During corporate rescue, a legal moratorium is placed on claims against the company. This provides breathing space for the CRP to strategize without the threat of litigation or asset seizures.

• Development of a Corporate Rescue Plan:

The CRP formulates a detailed business rescue plan outlining the steps to restore solvency, including debt restructuring, asset sales, or operational changes.

• Approval of the Corporate Rescue Plan:

The plan is presented to stakeholders, including creditors and shareholders, for approval. A majority vote is required to implement the plan.

• Implementation of the Plan:

Once approved, the CRP oversees the execution of the rescue plan. If successful, the company exits the corporate rescue process as a solvent entity.

CHALLENGES IN CORPORATE RESCUE

Corporate rescue in Zimbabwe faces several challenges:

• Economic instability: High inflation, currency fluctuations, and a volatile business environment complicate recovery effort.
• Legal alignment: The Insolvency Act seems to work in isolation from majority of judicial acts of parliament, in particular, the Zimbabwe Revenue Authority and Labour Laws.
• Limited funding: Access to working capital for distressed companies is often constrained.
• Skilled practitioners: A shortage of experienced CRPs affects the quality of rescue efforts.
• Judicial inefficiencies: Delays in court processes hinder timely interventions.
• Economic Instability: Currency fluctuations and frequent shifts in the value of the Zimbabwean dollar make financial planning and forecasting challenging during rescue process
• Lack of Public and Stakeholder Awareness: Limited Understanding of Rescue Processes as many directors, creditors, and employees are unaware of the provisions of the Insolvency Act or how corporate rescue works.
• Mistrust of the Process: Stakeholders may view corporate rescue with suspicion, perceiving it as a stalling tactic rather than a genuine attempt to revive the business.

OVERCOMING THE CHALLENGES

Despite these challenges, there are opportunities to strengthen corporate rescue in Zimbabwe:

 Policy Reforms: Streamlining court processes and introducing incentives for creditors and investors can enhance the rescue process.

• Capacity Building: Training more business rescue practitioners and equipping the judiciary with specialized knowledge is essential.
• Public Awareness: Educating businesses and stakeholders on the benefits and mechanics of corporate rescue can foster acceptance.
• Collaborative Efforts: Stakeholders, including government, private sector, and international organizations, can work together to provide financial and technical support for corporate rescue cases.

BENEFITS OF CORPORATE RESCUE

Despite its challenges, corporate rescue offers significant benefits:

• Prevention of business closures: Protects jobs and retains valuable economic contributors.
• Enhanced stakeholder confidence: Offers hope to creditors and employees of eventual recovery. In a liquidation scenario, creditors often receive only a fraction of what they are owed. Corporate rescue offers an opportunity for creditors to recover more through negotiated repayment plans.
• Efficient resource allocation: Maximizes the use of available resources rather than liquidating assets.
• Encourages Innovation and Restructuring: The restructuring process often identifies inefficiencies and outdated practices, leading to improved operational performance. Businesses undergoing rescue are encouraged to adopt innovative strategies, such as leveraging technology or exploring new markets, to remain competitive.

By Raymond Sibanda

Tel: 00263 – 242 – 300135/8
Cell: +263 776 066 825

Email: raymond.sibanda@crowe.co.zw

27/01/25