Corporate rescue – A ‘lifeline’ for distressed Zimbabwean companies

BRET RASHAMIRA*

Of late, there has been a new wave in the Zimbabwean corporate governance arena with an exponential rise in figures of companies lining up for corporate rescue. Restructuring of corporates termed as business rescue in modern day business linguae, is a process aimed at rehabilitation of a financially distressed company.

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Most recently, the business world was awash with news of cement manufacturing giant, Khayah Cement in Zimbabwe, top brick manufacturer Beta Holdings and the South African sweetener Tongaat Hulett opting for corporate rescue. 

Corporate rescue came in as an efficient relief or lifeline to corporates by replacing the tremendous epoch of judicial management. 

Business rescue aims to restructure the affairs of a company in such a way that either maximizes the likelihood of the company continuing in existence on a solvent basis or results in better return for the creditors of the company that would not have ordinarily resulted had the entity been liquidated.

The primary test for whether an entity should consider restructuring is its financial position. In Zimbabwe, a financially distressed company which cannot set off debts within six months of falling due is a proper candidate for corporate rescue.

A few years ago, courts concluded the prescription of business rescue is not for terminally or chronically ill corporations but rather ailing corporations. A lifeline is thrown to those corporations with the hope of life, and not dead bodies sinking in the sea. Thus, the aim of the lifeline is to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interests of all relevant stakeholders.

It is salient to note that the economy at large is a key stakeholder in the exercise of business rescue. Chief among all, the epoch of corporate rescue maintains the Gross Domestic Product (GDP). Further, it preserves the Balance of Payments through international trade on exports from goods and services produced in the jurisdiction. The average citizen also benefits from the exercise of corporate rescue through employment preservation.

In Zimbabwe, there is a robust legal framework to facilitate the rescue of the corporates through the Insolvency Act that came into force in 2018. In terms of the Insolvency Act, the corporate rescue scheme can be initiated by two main methods.

Primarily it can be through voluntary means through Section 122 of the Insolvency Act, or through a court order under Section 124 of the same Act. A company through the High Court, can apply for consent to file a board resolution to place itself under temporary supervision, or affected persons such as creditors can apply to the High Court for the placement of an ailing entity under corporate rescue. Further, the High Court, during liquidation proceedings, may order a company to undergo a corporate restructuring scheme.

*Bret Rashamira is a commercial lawyer based in Harare. He writes here in his personal capacity for informative purposes only.