Imperial Journal of Interdisciplinary Research (IJIR)

Vol-3, Issue-1, 2017

ISSN: 2454-1362, http://www.onlinejournal.in

The Company in Trouble: Judicial

Management as an Effective Tool to
Ensure Continuity of Operations
Oscar Fungai Ngwende
Company Law Lecturer, Faculty of Commerce, Department of Accountancy, Bindura
University of Science Education, Bindura, Zimbabwe
Abstract: Over the past few years, particularly the However, it does not follow that before a company
time when Zimbabwe turned to the use of multiple can be wound-up, it must be placed under judicial
currencies, several companies have folded largely management. Judicial management is essentially
due to lack of funding. Dollarisation brought intended and designed to enable accompany
liquidity challenges which continue to pose serious suffering from a temporary problem or setback due
threats to companies. However, a number of to mismanagement or some viability problem to
companies seem to be opting for judicial become a successful concern once again. The
management to ensure continuity of operations. company is therefore taken over by the judicial
This paper seeks to interrogate the law as it relates manager whom is supervised by the Master of the
to judicial management in Zimbabwe. High Court of Zimbabwe. His aim is to rejuvenate
the company once more and give it a new lease of
Key words: judicial manager, going concern, life.
winding up, mismanagement In deciding whether to wind up a company
or to place it under judicial management, the court
will be guided by the principle of whether there are
Introduction grounds or certainty of success. The disadvantage
of judicial management is that it affects the credit
Judicial Management, also known as worthiness of the company.[3]
corporate rescue [1] is a temporary court-
supervised rescue plan. Its objective is to give Circumstances in which a provisional
viable companies which are in financial trouble a judicial management order may be
more even chance to rehabilitate themselves and be
restored to profitability. Judicial management
obtained
There are basically two stages in judicial
means that the substitution of the company
management proceedings-the provisional stage and
directors with a judicial manager duly appointed by
the final stage. The court if satisfied will grant a
the court. Judicial management must be
provisional order which may or may not be
distinguished from winding up. These two
confirmed on the return date.
processes are fundamentally different in both
Section 300 of the Zimbabwean
purpose and effect. Although in both instances the
Companies Act Chapter 24:03 (hereinafter referred
company will be experiencing problems, these two
to as “the Act”) provides that a provisional judicial
remedies are different. Winding up is concerned
management order may be granted if it appears to
with the dissolution of the company and the
the court –
extinction of its legal personality. Judicial
1. “that by reason of mismanagement or for
management on the other hand is intended to save
any other cause the company is unable to
the company from collapse. It is therefore an
pay its debts and has not become or is
alternative remedy to winding up. The court has
prevented from becoming a successful
discretion whether or not to put a company under
concern and
judicial management. Judicial management is only
2. That there is reasonable probability that if
granted in circumstances where a winding up order
the company is placed under judicial
may cause unnecessary prejudice to the
management it will be enabled to pay its
shareholders and creditors of the company. It has
debts or meet its obligations and become
been said that judicial management is like a “half-
a successful concern, and
way house between life and death of a company”.
3. That it would be just and equitable to do
[2]
so”

Imperial Journal of Interdisciplinary Research (IJIR) Page 854

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-1, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
Inability to pay debts
This is also a ground for winding up the
company. In terms of section 205 , it provided as
follows:-
“a company shall be deemed to be unable to pay its
debts;-
a. If a creditor by cession or otherwise , to
whom the company is indebted in a sum
exceeding one hundred dollars then due,
has served on the company a demand
requiring it to pay the sum so due by
leaving the demand at its registered office
and if the company has for three weeks
thereafter neglected to pay the sum or
secure or compound for it to the
reasonable satisfaction of the creditor, or;
b. If the execution or other process issued, on
a judgment , a decree or order of any
competent court in favour of the creditor,
against a company is returned by the
Sherriff or messenger with endorsement
that no assets could be found to satisfy the
debt or that the assets found were
insufficient to do so , or
c. If it proved to the satisfaction of the court
that the company is unable to pay its debts
and , in determining whether a company
is unable to pay its debts, the court shall
take into account the contingent and
prospective liabilities of the company”
Basically, the fact that a creditor has
demanded payment without success will be prima
facie evidence that the company is unable to pay its
debts, as amplified in the above cited section. [4]
Mismanagement of the company
 The courts have a history of keeping their
distance where management of the
company is concerned.
 Judges appreciate that they are not
sufficiently equipped to run the affairs of
the company. They are reluctant to usurp
the functions of the directors.
 A judicial manager will therefore only be
appointed if there is something manifestly
illegal, oppressive or fraudulent. The court
will not interfere, for instance where there
is just animosity between the directors.
 The court will also not interfere if the
management complained of can be
remedied using the company machinery.
Inability to meeting its obligations
The inability could be as a result of
mismanagement. This however does not
necessarily mean inability to pay debts. It could
just be failure to timeously perform contractual
obligations.
Imperial Journal of Interdisciplinary Research (IJIR)
Prevented from being a successful
concern
Under this heading, it has to be
satisfactorily shown that there is a possibility that
the company can operate successfully if given an
opportunity to do so. If it is only to buy time, the
court will not grant the application. The purpose of
this remedy not to delay the obvious death of a
terminally ill company. Failure to become a
successful concern can be a result of
mismanagement as well or where the company is
plagued with labour unrest or litigation. [5]
The just and equitable ground
Under this ground, the court attempts to
strike balance between the interests of the members
and those of the creditors. The creditors are
obviously not interested in the sustenance of a
company which has no prospects of survival. The
court would therefore grant the application under
this ground if the eventual result will be beneficial
to both creditors and shareholders.
Application for judicial management
order
The court has discretion whether or not to
grant the order sought (Section 229(1) (a) (b).The
people who are competent to apply for judicial
management can also apply for winding up. Once
an application has been filed with the court, the
matter can be opposed by any stakeholder or
otherwise. If the matter is unopposed the process to
obtain a court order can be relatively faster than if
the matter is opposed. However, it is important to
note that the courts have wide powers on judicial
matters and therefore an application can also be
dismissed. [6]
When an application is made, a copy of that
application shall be filed with the Master of the
High Court who will report to the court on any
circumstances justifying the postponement or
dismissal of the application(section 299(2).The
order granted provisionally will provide in terms
of Section 301(1)(c) inter alia that:-
“……all actions and proceedings and the execution
of all writs, summonses and other processes against
the company be stayed and not proceeded with or
without leave of the court”
The rationale for the provision is to protect the
company from law suits during the time of the
order to give it the best opportunity to become a
successful concern again.
Appointment of the provisional judicial
manager
In terms of Section 302(1) (b) (i), the
Master shall without delay appoint a provisional
judicial manager. The provisional judicial manager
will take custody of the company property upon his
appointment. The custody would have hitherto in
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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-1, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

the hands of the Master. [7] He is appointed in the raise money in any way. The order may be varied
same manner as a liquidator in terms of Section by the court at any time. [9]
272.The duties of the provisional judicial manager The final judicial manager’s duties, which
are itemized in Section 303 and these are to :- cannot be conveniently summarized, are set out in
a. Assume the management of the company detail in Sections 306 and 307 of the Companies
and recover and take possession of all the Act.
assets of the company, and
b. Within seven days after his appointment, Bibliography
lodge with the Registrar of Companies , [1] Kloppers P. Judicial Management - A
under cover of the prescribed form, a copy Corporate Rescue Mechanism in Need of Reform
of his letter of appointment as provisional StellenboschL.Rev.417(1999)
judicial manager, and [2]Nkala and Nyapadi, Company law in Zimbabwe
c. Prepare and lay before the meetings (ZDECO) Publishing House, 1995
convened…..a report containing: [3] Cilliers, Benade, Corporate Law, 3ed
1. An account of the general state of affairs LexisNexis South Africa, 2000
of the company, and [4] Blackman, Jooste, Everingham, Commentary
2. A statement of the reasons why the on the Companies Act Volume 3, 2002
company is unable to pay its debts or is
unable to meet its obligations or has not [5] F H Cassim, Contemporary Company Law, 2ed
become or, is prevented from becoming a Juta and Co Ltd Cape Town, 2012
successful concern, and [6] R H Christie, Business Law in Zimbabwe, 2ed
3. A statement of the assets and liabilities of Juta and Co Ltd, 1998
the company, and [7] Shrand Keeton, Company Law and Taxation in
4. A complete list of creditors of the South Africa, Cape Town Legal and Financial
company , including contingent and Publishing Company, 1974
prospective creditors, and of the amount [8] Tshepo H Mongalo, Modern Company Law for
and nature of the claim of each creditor, a Competitive South African Economy, Juta and Co
and Ltd, 2010
5. The considered opinion of the provisional [9] Vanessa Finch, Corporate Insolvency Law:
judicial manager as to the prospects of the Perspectives and Principles 2ed Cambridge
company becoming a successful concern University Press, 2004
and the removal of the facts and
circumstances which prevent the company
from becoming a successful concern”.
On the return day in terms of section 305,
the court may after considering the evidence and
“if it appears that there is a reasonable probability
that the company concerned, if placed under
judicial management, will be enabled to become
successful concern and that it is just and equitable
to grant such an order, or it may discharge the
provisional judicial management order or make any
other order that it thinks just”. [8]
If the court discharges the provisional
order, then the company has no hope of surviving
and it may as well be just wound up. If it confirms
the provisional judicial order, then the company
will be put under judicial management and the final
judicial manager will be appointed.

Conduct of judicial management

A final judicial management order
transfers the management of the Company from the
Provisional to the final judicial manager (who
maybe the same person).
The final order may also give the final
judicial manager directions, including the power to

Imperial Journal of Interdisciplinary Research (IJIR) Page 856