daniel chigunwePart One:
In recent weeks and months, Corporate Rescue has emerged as a prominent topic of discussion within Zimbabwe’s business community.
Notably, Beta Holdings, along with a number of associated companies, filed for corporate rescue, citing challenges in meeting a substantial obligation of US$10 million. This development has been reported in various media outlets, including The Herald on 6 January 2025.
A leading entity within the industry, Khayah Cement Limited—formerly known as Lafarge Cement Zimbabwe—has also taken the initiative to voluntarily enter corporate rescue. The company’s Board of Directors made this decision in response to crippling government policies and unforeseen operational difficulties, aiming to rehabilitate the financially distressed organisation. This trend is not isolated; several other companies in Zimbabwe have similarly sought corporate rescue, reflecting a growing recognition of the challenges faced by businesses in current economic conditions.
As the discourse around corporate rescue expands, several pertinent questions arise: What exactly is corporate rescue? How does the process initiate?
What implications does it have for claimants? Who are the key stakeholders involved? What are the primary objectives of corporate rescue, and what steps follow this process?
Addressing these questions thoroughly warrants more than a single article, due to the complexity and significance of the subject.
It is essential to clarify that corporate rescue applies exclusively to companies and falls under the category of corporate insolvency law. Individuals facing financial difficulties are subject to different rescue measures known as composition, as outlined in Part XXII of the Insolvency Act. Conversely, corporate rescue is addressed in Part XXIII.
This section encompasses scenarios that were previously governed by judicial management and schemes of arrangement.
Zimbabwe’s introduction of a corporate rescue culture through Part XXIII of the new Insolvency Act represents a significant departure from the outdated judicial management provisions of the now-repealed Companies Act [Chapter 24:03]. This progressive legislative change facilitates corporate rescue proceedings for financially troubled companies operating in the country, aligning Zimbabwe with global trends in business rehabilitation strategies.
One of the hallmark features of corporate rescue is its proactive approach, contrasting sharply with traditional methods that primarily rely on liquidation or judicial management. The aim of corporate rescue is to salvage companies from insolvency by implementing strategic measures designed to restructure and rehabilitate them.
This approach places a high priority on preserving jobs, sustaining operations, and maximising shareholder value.
Corporate rescue seeks to prevent the liquidation of distressed companies, thereby maintaining their viability for the benefit of various stakeholders, including security holders, creditors, employees, and the broader community. Unlike the limited scope of judicial management, corporate rescue extends its considerations to all stakeholders, acknowledging the wide-reaching implications of a company’s existence.
Globally, there is an increasing trend toward restructuring companies facing financial distress. For example, South Africa’s Companies Act No. 71 of 2008 introduced a business rescue framework that closely parallels Zimbabwe’s corporate rescue procedure.
This development provides financially troubled companies in South Africa with an invaluable opportunity for reorganization and restructuring, subsequently impacting creditors, financial institutions, shareholders, employees, and society at large.
In North American terminology, this concept is often referred to as corporate reengineering. The United Kingdom also provides avenues for companies in financial distress to restructure their operations under the Insolvency Act of 1986, which establishes two rescue procedures: Administration and Company Voluntary Arrangement. The 1986 Act aims to rehabilitate and preserve viable businesses, offering them a greater chance of survival through reorganisation rather than liquidation or administrative receivership. The Zimbabwean corporate rescue model aligns with this philosophy, reflecting a commitment to fostering sustainable business practices.
The contemporary approach to corporate rescue incorporates a broader social justice perspective, recognising that it should not be confined solely to private corporate interests.
These proceedings signify a fundamental shift from judicial management, with streamlined processes essential for establishing a successful and effective business rescue regime — a key component in driving economic growth and stability in Zimbabwe.
Historically, judicial management was deemed inadequate as a mechanism for business rescue for several reasons. The process was seen as an extraordinary remedy, infringing upon creditor rights and applicable only under specific, limited circumstances.
Importantly, the scheme was restricted to companies incorporated under the Companies Act, excluding partnerships, trusts, and private business corporations.
Moreover, the judicial management process was criticised for being overly formal, slow, and costly.
Deficiencies in the appointment and qualifications of judicial managers were prevalent; for instance, an applicant could nominate their preferred judicial manager without adequate oversight. Consequently, judicial management often failed to provide a viable mechanism for the management and reorganization of companies seeking to restore profitability, leading, in some cases, to their failure and liquidation—thereby adversely affecting the economy.
Modern insolvency law must consider the livelihood and well-being of individuals dependent on enterprises that may significantly impact entire communities. The potential repercussions of liquidating a company can ripple through creditors, employees, and local economies, which were pivotal factors influencing the evolution of corporate rescue. In the landmark case Powdrill v Watson (1995), LORD BROWN WILKINSON articulated the need for a “rescue culture” aimed at preserving viable businesses, underscoring the philosophy that continues to guide corporate rescue practices today.
In response to the limitations identified in the previous judicial management framework, the Legislature enacted the current Insolvency Act, which introduces the innovative concept of corporate rescue procedures. Corporate rescue is defined in Section 121(1)(b) of the Insolvency Act as follows:
“(b) ‘corporate rescue’ means proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for —
i)the temporary supervision of the company, and of the management of its affairs, business and property; and
ii)a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
iii)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 or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company … .” The primary purpose of corporate rescue is to prevent the imminent failure of a company and to fulfill the objectives associated with its rehabilitation. The ultimate goal of this process is the successful survival of the financially distressed company.
To be continued.
LEGAL DISCLAIMER: The material contained in this post is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the post. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.
Arthur Marara [LLB(Hons) (UZ), LLM (UZ)] is a Corporate Law Attorney, duly admitted by the High Court Of Zimbabwe to practice law as an Attorney, Notary Public and Conveyancer. Arthur Marara is a highly seasoned Corporate Law Attorney with a proven track record of excellence in the legal field. With a wealth of experience and a passion for corporate law, Arthur possesses the expertise required to navigate complex legal landscapes and deliver exceptional services to clients. Known for his in-depth understanding of corporate legal matters, Arthur offers comprehensive counsel tailored to the unique needs of businesses. His unwavering commitment to providing strategic counsel and delivering favourable outcomes has earned him a stellar reputation in the industry. Share your feedback on [email protected] or +263772467255
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