JUDICIAL MANAGEMENT IN ZIMBABWE
Article by Nomathemba Ndlovu
The term Judicial Management is not defined in the Companies Act [Chapter 24:03]. It however means the management of a company by a person appointed by the Master of the High Court in terms of the provisions of the Companies Act, subject to the supervision of the High Court. This process is provided for under Section 299 and 300 of the Companies Act (Chapter 24:03).
WHEN IS IT APPROPRIATE
The purpose of judicial management is to enable companies suffering a temporary setback due to mismanagement or other special circumstances, to become successful concerns. In Silverman v Doornhoek Mines ltd 1935 TPD 353 judicial management was referred to as:
“an extra ordinary procedure the purpose of which is to obviate a company being placed in liquidation where by proper management or by proper conservation of its resources it will be able to meet its obligations, remove any occasion for winding up and become a successful concern.”
The object of Judicial Management is to give viable companies which are in financial trouble a more even chance to rehabilitate themselves and be restored to profitability. Judicial management is meant to avoid the drastic remedy of winding up when a company is in financial difficulty due to mismanagement but there is a reasonable probability that under more careful controlled management it will surmount its difficulties. (See Section 300 of the Companies Act [Chapter 23:04]). Thus judicial management is an alternative to winding up.
A Judicial management Order provides for a moratorium in respect of the company’s debts in the hope that it will lead ultimately to the payment of all its creditors and the resumption by it of normal trading. (See Lief N.O vs Western Credit (Africa) PTY LTD 1966 (3) SA 346 (W).
WHO MAY APPLY FOR A JUDICIAL MANAGEMENT ORDER
An application for Judicial Management can be made by the company itself or shareholders or creditors or certain officials. Once an application has been filed with the Court, it can be opposed by any stakeholder or otherwise. The applicant must establish that the company is unable to pay its debts or meet its obligations. The applicant must state with a fair degree of certainty the extent and scope of the company’s business, its assets and liabilities, and the nature of its difficulties so that the court can determine whether the company has a reasonable prospect of becoming a success. In Millman v Swartland Huismeubeleerders (Edms) Bpk 1972 (1) SA 741 (C) 744
“it was held that one must establish the prospect of the company’s viability and the prospect of ultimate solvency.”
The court has a wide discretion on Judicial Management. The judge or court is not bound to follow any laid down rule in dealing with such an application because the application is dealt with in any manner in which the justice of the matter may appear to the court or judge to be best served. An application can be refused where the court is of the view that the shareholders are trying to benefit by keeping creditors waiting for payment for a long time. (See Clarke v Protein Foods (PVT) LTD 1970 (2) RLR 278).
APPOINTMENT OF JUDICIAL MANAGER
A judicial manager is nominated in any of these ways:
- The applicant can nominate a preferred candidate whose name will be set out in the Provisional Order. (See Section 299 (1) (a) of the Companies Act).
- The Master will exercise his discretion to appoint any registered estate administrator. (See Section 299 (1) (b) of the Companies Act).
The Effects of Judicial Management
- The directors divest all their powers, duties, responsibilities and the management of the company is assumed by a Judicial Manager.
- The assets of the company are placed under the control of the Judicial Manager who is tasked with the responsibility of restructuring the company and resuscitating the business. (Section 300 (1) (C).
- All legal proceedings against the company are stayed or suspended. (Section 301 (1)) (See G N Mlotshwa & Company Legal Practitioners vs David Whitehead Textile Ltd & Ors HH 78/17).
- Creditor’s payments are suspended and the company is protected from legal action by creditors.
- The property of the company will be under the control of the Master of the court. The Judicial Manager becomes a custodian of the property. (Section 302 (1)).
Disclaimer: While care has been taken to ensure that this publication is accurate, Kanokanga & Partners accepts no liability for any prejudice, loss or, damage of whatsoever nature which may arise from reliance on any of the information published herein. The contents of this publication are for general information purposes only. The purpose of this publication does NOT constitute our legal or professional advice. Readers are advised not to act on the basis of the information contained herein alone. Every situation depends on its own facts and circumstances.Next Step