Corporate Insolvency

Compulsory liquidation
Voluntary liquidation
Liquidators
Corporate Insolvency

 It occurs when a company is unable to meet its financial commitments with

liabilities exceeding assets to the extent that it becomes impossible for the
company to fully discharge all the liabilities as they fall due.
 Section 205 of the Companies Act states that a company is deemed unable to
pay its debts if:
 A creditor to whom the company is indebted to has served the company a demand
requiring it to pay and the company fails to pay after three weeks of that demand.
 If the execution or other process issued on a judgement, decree or order in favour
of a credit against the company is returned by the Messenger of Court or Sheriff.
 If it is proved beyond reasonable doubt to the court that the company is unable to
pay its debts.
Circumstances under which the winding up of a
company can be done

 The circumstances are prescribed in section 206 paragraph a-g of the companies act.
 Petitions
 A petition is a formal request or application made to the court. According to section 207 of the companies act people who may
petition to the court include:
 The company itself. For example in the case of Limpopo Mineral Resources (River Range ltd) which was in the Zimbabwe
Independent of 23/07/12. A diamond company in Zimbabwe asked the high court to appoint a liquidator in order to
oversee the firms’ dissolution. The company said in its application to the court that it was unable to continue functions
financially and the shareholder opted for to apply for liquidation.
 The creditors. For example in case of Bindura Nickel cooperation BNC v its employees which were in the Herald of 17
August 2012. The employees were the creditors since the company owed them wages.
 The contributories. A contributory is any person who is liable to contribute to the assets of a company when it is being
wound up.
 However, it does not necessarily follow under compulsory winding up that an application to the court for winding up will
be granted. According to section 208 of the act, the court is given a wide discretion to grant or refuse to grand an order
for winding up after considering circumstances of the matter.
 For example in the case of Storage Securities ltd v Gregory (1980) where Gregory served a notice demanding payment of
a three thousand pounds debt within 21 days. It was held that a wounding up petition would not be granted to a petitioner
to whom a debt was bona fide under dispute.
Compulsory Liquidation

 It is winding up ordered by the court

 The reasons for compulsory winding up are:
 if it fails to pay its debts, creditors may in terms of section 207 (1) apply for the
liquidation of the company as a last resort, however the court may in terms of
section 208 (1) dismiss it or give any other order it deems just.
 Failure to obtain a trading certificate within the stipulated time frame may also
result to a company being placed under compulsory liquidation.
 If the company ceases to have any members.
 If seventy-five per centum of the paid-up share capital of the company has been
lost or has become useless for the business of the company.
Also the court may appoint a judicial manager.
 In terms of s.300 of the Act the court may grant a judicial management order when
by reason of mismanagement or for any other cause a company is unable to meet
its obligations but it has not become or is prevented from becoming a successful
concern and there is reasonable probability that if it is placed under judicial
management it will recover.
 The rationale is to provide the company with efficient management to necessitate
sound economic recovery.
 For example in case of Jaggers v Delta Beverages , where Jaggers owed US$443
795. Jaggers which was reeling under $US13million debt was facing possible
liquidation after the high court placed it under judicial management.
 This application was made in terms of section 299(1) as read with section 207
subsection 1 of the act. It provides for creditors to make an application for a
struggling company to be placed under judicial management.
 The court appointed Mr Regis Saruchera of Grant Thornton Chattered Accountants
provisional judicial manager.
Effects of winding up (section 212)

 As soon as the order is made all actions for the recovery of debt against a
company are stopped.
 Actions in tort for example, a claim for damages in the tort of negligence
continue.
 The company will cease to carry on its business expect where it is necessary
for the beneficial winding up of a company, for example, to complete work in
progress.
 The powers of the directors cease but they still continue in office.
 Employees are automatically made redundant.
Voluntary liquidation

 It is an action that may be taken by shareholders of a company in order to

honour the outstanding debts of the company.
 the directors and shareholders agree to the process and initiate the procedure
willingly, with no outside pressure or order from a court or other entity.
 It is initiated when the members of the company, that is the affirmative vote
of the majority of board of directors and two thirds of its shareholders,
propose winding-up the affairs of the company and dissolving it.
 Voluntary winding up commences at the time of the passing of the resolution
and this is in terms of section 244A of the companies Act.
Voluntary liquidation

 Notice of resolution for voluntary winding up (section 243)

 Give notice of resolution by advertisement in the gazette
 Give written notice of resolution to the masters to the register and to every office
charged with the registration of title to any immovable property or interest in
minerals in Zimbabwe which appears to be as asset of the company
 If a company defaults in making a notice of resolution by advert it is an offence and
other officer (liquidator liable to a fine)
 Commencement of voluntary liquidation(section 244),it is deemed to start at the
time of the passing of resolution
Commencement of winding up

 The commencement of winding up is governed by section 210 subsection 1

and 2.
 Subsection 2 provides that in any other case, the winding up of a company by
the court shall be deemed to commence at the time of the presentation of
the petition for the winding up.
 There must be a bond of security by the petitioning attorneys stating that
they bind themselves to pay all costs of proceedings until the appointment of
a liquidator.
 The petition should name the person to be appointed provisional liquidator
and state the powers to be given by him as those contained in the companies
act
Liquidators

 It is a person appointed to wind up the affairs of an economic entity by way of ascertaining its liabilities and
apportioning assets to those liabilities.
 The appointment of a liquidator is given in section 248(1) where it say ‘the company in general meeting shall
subject to section 274 appoint one or more liquidators for the purpose of winding up the affairs and
distributing the assets’.
 The Act does not state the qualifications of a Liquidator but in practice Chartered Accountants are normally
appointed.
 According to section 272 liquidators must not be:
 An insolvent person
 A minor or any person under legal disability.
 A body corporate.
 A person who resides outside Zimbabwe
 Any person who has been disqualified as a director.
 Any person convicted in Zimbabwe or outside Zimbabwe.
 Any person removed from the office of trust because of misconduct.
Roles of liquidators

 Sell any of the company’s assets

 To draw, issue, accept, endorse bills of exchange and cheques in the name of
and on behalf of the company
 Raise any money for the purpose of the liquidation by using the assets of the
company as security.
 Appoint an agent to do any business which the liquidator cannot do himself
 To do all acts and execute all documents in the name of and on behalf the
company
 To do all such things that may be necessary for winding up the company’s
affairs and distributing its assets.
Powers of liquidators
The liquidators’ powers are set out in the companies act section 221

THE QUALIFIED POWERS IN A COMPULSORY LIQUIDATION

 The liquidator in a compulsory winding up can only exercise the following powers with the
consent of the court of the liquidation committee
 To bring or defend legal proceedings in the name of and on behalf of the company
 To carry on the business of the company so for it as it may be necessary for its beneficial winding up.
 
THE QUALIFIED POWERS IN A VOLUNTARY LIQUIDATION
 To pay any class of creditors in full. Ensuring that remaining assets are sufficient to enable him
to pay all the liabilities of the company.
 To make compromises or arrangements with any creditors
 To agree compromises with contributories in respect of their liabilities for the amount unpaid
on their shares or in respect of the company’s liabilities to them.
Appointment of the liquidator

 According to section 218(1), the court master must appoint a liquidator to undertake
the proceedings in winding up the company.
 For the purposes of appointing a liquidator, the court master has to summon separate
meetings with creditors and contributories to the company (section 219 (a) and (b)).
 If a person is appointed as a liquidator he has to lodge a notice of his appointment
with the court master(section 258).
 According to section 224 (1) and (2), the liquidator shall, immediately after his
appointment, open a bank account in the name of the company which is being wound
up from a bank within Zimbabwe.
 After opening the account the liquidator has to give the master written particulars of
the bank.