The Supreme Court of Zambia did on the 17th February, 2022 render its decision in the case of Fred Mmembe and Post Newspapers Limited v Abel Mbozi and Others Appeal No 7 of 2021. This was a matter where a shareholder and director of a company in liquidation appealed against a decision of the lower courts to deny his application to set aside a consent Judgment between the company in liquidation, at the behest of a liquidator, and the creditors who had petitioned for its liquidation for failing to settle debts as they fell due, had agreed that the company should be placed under liquidation.
Like in any judgment, there are numerous lessons to be drawn from the decision of the Supreme Court, but in this article, we highlight five points that strike on corporate insolvency law in Zambia. A caveat must be placed here, being that the decision deals with corporate insolvency law as it existed before the enactment of the Corporate Insolvency Act, No. 9 of 2017. The lessons however, and the Supreme Court was alive to this fact, remain valid post the said new Act..
No. 1; Directors of the company retain residual power to litigate against wrongs done to the company
It is standard legal principle that once a company is placed under liquidation and a provisional liquidator appointed over its affairs, the power and control of the company is divested from the board and transferred to the liquidator. This means the company under liquidation can and does act at the behest of the liquidator. But the Supreme Court has endorsed the position that notwithstanding this clear position, directors and shareholders of the company have residual power to resist the liquidation and to litigate against wrongs done to the company by the liquidator and for the liquidator to account for his actions.
No. 2; Provisional Liquidator is not necessary in every case, although a liquidator is
When a petition is presented for liquidation, it is usual to make an application for the appointment of a provisional liquidator, pending the determination of the matter. The Supreme Court has clarified the need to carefully consider the need of such a ‘serious task’ which may in fact spells irreversible doom for the company. The provisional liquidator’s role is to preserve the assets of the company, pending the making of the winding up order. Care must be exercised to ensure that the decision to appoint a provisional liquidator is based on this fundamental rule.
Otherwise, only the liquidator would be necessary at the point of making an order for winding up of the company.
No. 3; Yes, Liquidator is boss, but he is also subject to supervision by committee of Inspection
Notwithstanding that the liquidator has overall powers over the affairs of the company subject of liquidation and supplants the board, the liquidator cannot be a law unto themselves. This is because the liquidator is subject to the committee of inspection, which must be put in place to supervise the conduct of the liquidation by the liquidator.
No. 4; Liquidator without personal liability, though fancy, actually doesn’t exist
While it is usual for the liquidators to style themselves as ‘liquidator without personal liability’, this fancy description should not mislead one to believe the liquidator can never be made to account for their actions, and in an appropriate case, be held personally liable for their actions or omissions during the liquidation process. In this case, the Supreme Court specifically directed the addition of the liquidator to the proceedings for the purposes of inquiring into his possible personal liability.
No. 5; The Courts of law are the overall supervisors over a liquidation
The Supreme Court has underscored the heavy and important supervisory role placed on the courts of law in liquidations. It is for the courts to confirm that the grounds presented for a petition for liquidations are indeed genuine and that the players in the liquidation process are correctly playing their roles. The courts cannot underplay the heavy, serious and solemn role of consciously supervising liquidations placed on it by the law, not even when the parties are purportedly agreed, through a consent order.
It’s safe to conclude that the latest Supreme Court decision has numerous useful lessons for corporate insolvency law in Zambia. This should shape how future liquidations, even the current ongoing ones, on how they ought to be conducted.
Client Legal Alert – Equitas Legal Practitioners@2022
*This scholarly article is a general guide and does not contain definitive legal advice. Readers considering taking action on any of the issues discussed should speak to their legal advisors before taking any such action. Equitas disclaims any liability whatsoever arising from acting on this article.
Parties are purportedly agreed, through a consent order.
It’s safe to conclude that the latest Supreme Court decision has numerous useful lessons for corporate insolvency law in Zambia. This should shape how future liquidations, even the current ongoing ones, on how they ought to be conducted.
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