• CHISOM OKAFORCORPORATE rescue strategies have been firmly established in most developed corporate systems across the globe.
These regimes recognise corporate rescue as a necessary alternative to liquidation, and operate on the basis that the value of the company is greater if it or its business is preserved as a going concern, as opposed to the assets being sold off on a piecemeal basis.
Namibia should not be an exception in following the global trend towards acquiring modernised corporate rescue mechanisms.
As I have stated in a previous article on judicial management published in The Namibian, judicial management is the only corporate rescue tool available to failing companies in Namibia and it lacks an efficient regulatory framework that effectively rehabilitates a company that is in financial difficulty.
Thus, legislative corporate reform is necessary to bring Namibia in line with the global trend of restructuring companies that are on the verge of financial ruin.
The South African provisions relating to judicial management in its previous Companies Act, 1973 (Act No. 61 of 1973) are similar to the provisions of the current Namibian Companies Act, 2004 (Act No.28 of 2004) on judicial management. This is because the system of judicial management was imported from South African company law without much change to its substantive content.
However, South Africa introduced a new Companies Act (Act No. 71 of 2008) which became operative in May 2011, with one of the major themes being the creation of a system of business rescue, to replace the former judicial management procedure.
The legislature sought to introduce a company law regime that is modern, progressive and in line with international business standards.
The business rescue procedure is defined in section 128 of the SA Companies Act of 2008 as:
“The temporary supervision of the company and management of its affairs, business and property by a business rescue practitioner, a temporary moratorium (“stay”) on the rights of claimants against the company or in respect of property in its possession and the development and implementation (if approved) of a business rescue plan that would achieve a better return for the company’s creditors than the payment they would have received if the company had simply been liquidated immediately.”
The most distinct feature differentiating business rescue from judicial management is that shareholders, employees, manufacturers, and suppliers are regarded as stakeholders. The parties have a right to make an application for business rescue and to participate in the turnaround strategy of the company.
The process is initiated either by an application to court by affected persons as mentioned above or through a resolution by the board of the company. The company is now placed in the position to decide for itself when to start the business rescue procedure.
This makes sense as it is the company that is in the best position (as opposed to the court under judicial management) to decide when this action should be taken. By allowing the board to initiate business rescue procedure, the legislature has thus reduced the role of the court, which in turn reduced the costs associated with corporate rescue.
Another feature of a business rescue order is the moratorium (postponement) of legal proceedings. Unlike judicial management, the moratorium is an automatic order and it does not rely on the courts’ exercise of discretion. This means that all legal proceedings against the company are postponed, thereby providing the necessary breathing space to the company to organise its affairs and possibly save the entity. The moratorium is vital to the success of a business rescue.
Finally, the business rescue proceeding discards the requirements for a ‘reasonable probability’ that the company will be a successful concern. Under business rescue, the South African Companies Act only requires there to be a reasonable belief that the company will be rescued.
By omitting the ‘probability’ requirement, the act places a less onerous burden on the company or persons who will institute business rescue. Instead, the language used in the act encourages the directors of a company to opt for business rescue upon early signs of financial trouble without the bureaucratic, judicial and financial concerns associated with the judicial management procedure.
This enhances the chances of survival of such companies as they will ultimately be in a better financial position, than those seen in judicial management that are completely unable to pay their debts.
In conclusion, having regard to the notable improvements of business rescue from judicial management, I propose that Namibia adopt a business rescue procedure similar to the South African business rescue model and amend it to fit in with the intricacies of Namibia’s own economy, as Namibia and South Africa are worlds apart in terms economic and infrastructural development.
The procedure should also be detailed enough to provide for a system of rehabilitating financially troubled companies in a cost-effective manner.
The Namibian company law should be capable of meeting the standards and expectations of a modern company rescue mechanism in an ever-evolving business world. I therefore recommend that judicial management in Namibia be repealed to pave the way for business rescue.
