Indo Zambia Bank Limited v Entrust Stockfeeds Limited (2023/HPC/0635) [2024] ZMHC 305 (19 July 2024)

IN THE HIGH COURT FOR ZAMBIA AT THE PRINCIPAL REGISTRY HOLDEN AT LUSAKA (COMMERCIAL DIVISION) 2023/HPC/0635 IN THE MATTER OF: The Corporate Insolvency Act No.9 of 2017 AND IN THE MATTER OF: AND IN THE MATTER OFI AND IN THE MATTER OF: HIGH r_ • ~rder-6' fA1(3) of the High Court Rules Chapter COMt,,if~~( ofi,t~e Laws of Zambia as read with Order 5 Rule r----"-,E llu~~ lof !El@~ ules of the Supreme Court of England, , • 1965(WiiTI:ibook,1999 Edition) 1 3 JUL LUt4 ~ RE~ T AlJ.,plication by Indo Zambia Bank Limited p o BO ,,. _ ~liallenging Purported Business Rescue Proceedings · "'.::. 067 LUSAKA A Special Resolution Purportedly passed on 17th July 2023 by Entrust Stockfeeds Limited to Commence Business Rescue BETWEEN: INDO ZAMBIA BANK LIMITED ENTRUST STOCKFEEDS LIMITED APPLICANT RESPONDENT For the Applicants: M r. Chisonga, Mr. L. Phiri Messr s. A ugust H ill and associates . / F or the Respondent: M r . C. Ngaba M essr s. Lu ngu Simwanza and company JUDGMENT Cases Referred to: 1 . BTI 2014 LLC v Sequana SA and Others (2023) 2 ALL ER 303. 2. Godfrey Miyanda v The High Court (1984) Z. R. 62. 3. Chimanga Changa Ltd v Export Trading Limited {Appeal No. 3 of 2022). 4 . Willow Acres Home Owners Association v Mamiki Capi tal Invest ments {PTY) Ltd (46739/17) (2018). Legislation and Other Materials Referred to: 1. The Corporate Insolvency Act, 2017: ss. 2, 21(1), 22 (1) {a) {i), s. 21{2){b), 22 (5) {a), 22 (6) {a), 24 (2) {a), 28(2), 56. 2. South African Companies Act 61 of 1973: ss 344 {h) & 345. 1.0 BACKGROUND J2 1.1 This matter was commenced by the applicant, Indo Zambia Bank Limited, by originating summons filed on 11th September 2023. In the summons, the applicant questions whether the special resolution passed by the respondent on 17th July 2023 effectively placed the respondent company under business rescue. 1.2 On 9 th November 2023, the respondent, Entrust StockFeed Limited, filed an interlocutory application seeking to suspend a provision of a Facility agreement earlier entered into between the applicant and the respondent. The provision which the respondent seeks to suspend relates to the charging of interest. 1.3 When the matter came up for hearing of the originating summons on 14th November 2023, the parties were not ready to proceed as each required additional time to file documents into court. 1.4 The matter next came up for hearing on 22nd January 2024. On this date, the applicant was still not ready to proceed as it had not yet responded to the respondent's interlocutory application and it had also not filed an affidavit in reply to the originating summons. I accordingly ordered that all documents ought to be filed no later than 3 1s t Januruy 2021, follm,ving which I would determine both applications on the documents a lready before me. 1.5 This determination resolves both the interlocutory application and the originating summon s . 2.0 SEQUENCE OF DETERMINATION 2. 1 In assessing w hich application should be determined first, I am aware that, ordinarily, interlocutory applications must be determined before the main matter is given consideration. This is because an interlocutory application will usually have a bearing on the final decision of the cause. However, in this case, the main action 1s challenging the regularity of business rescue proceedings and the applicant would have me set the same aside. The interlocutory application placed before me, on the other J3 hand, seeks to alter a provision m an agreement between the parties. 2.2 I have noted that the interlocutory application leans on section 28(2) of the Corporate Insolvency Act, 2017 (the "CIA"). A reading of this provision of the law reveals that the authority given to me thereunder can only be exercised during the course of business rescue proceedings. 2.3 If, then, the interlocutory application is successful and it later transpires that the applicant merits an order setting aside the business rescue proceedings, a dilemma will have been created. 2.4 On the other hand, no dilemma is created if I proceed to first determine whether the business rescue proceedings were properly instituted. This is because a finding that the business rescue proceedings were not properly instituted will render hearing the interlocutory application purposeless whilst an opposite finding will permit the hearing of the interlocutory application to determine whether a provision in an agreement b etween the parties should be suspended. 2.5 Thus, it is only logical that I begin by determining whether the main matter has any merit. I will attend to the interlocutory application, and incorporate a ruling on the same into this judgment, only if I am satisfied that the respondent correctly commenced the business rescue proceedings. I now turn my attention to the a pplicant's originating summons. 3.0 THE APPLICANT'S CASE 3.1 By its originating summons the applicant has moved me to consider several questions in the wake of which I have also been asked to give it specified reliefs. The questions put before me are: i. Whether the special resolution of 17th July 2023, passed by the respondent, effectively placed the respondent under business rescue pursuant to section 21(2)(b) of the CIA. J4 ii. Whether this resolution was duly filed with the Registrar of the Patents and Companies Registration Agency (PACRA). iii. On the assumption that the said special resolution was validly concluded, whether the respondent has met the threshold permitting it to properly commence business rescue proceedings in accordance with section 21(1) of the CIA. iv. Whether, on the circumstances of this case, it is just and equitable to set aside the resolutions of the respondent. 3.2 Consequent to answering the above questions, the applicant seeks the following maze of reliefs: 1. If the first question above is answered in the negative, a declaration that the purported business rescue proceedings have not been effectively commenced and that they are void ab initio; 11. An order that the special written resolution and ordinary resolution together with all accompanying documents filed by the respondent at PACRA on 25th July 2023 are void ab initio; and iii. In the alternative, if any part of the second question is determined in the negative or if the third question 1s answered in the affirmative, the applicant seeks: a. an order to set aside the respondent's special resolution dated 17th July 2023 and the special and ordinary written resolutions filed on 25th July 2023 by the respondent; b. an order placing the respondent under liquidation; c. any other relief the court may deem fit; and d. that costs be borne by the respondent. 3.3 The applicant's originating summons is accompanied by an affidavit in support deposed by Vincent Sishekanu, the Credit Monitoring and Recoveries Manager in the applicant company. It JS is his testimony that the parties entered a Term Loan Facility and an Overdraft Facility in the sums of ZMW33,000,000.00 and ZMWS,000,000.00 respectively. This affiant states that the respondent subsequently fell into default by failing to effectively service the facilities. 3.4 Further, that on 17th July 2023, the respondent wrote to the applicant advising it of its decision to undergo business rescue proceedings because it was financially distressed. When the requisite papers evidencing the decision made by respondent were availed to the applicant, the applicant noted that the special written r esolution did not bear a stamp from PACRA. 3.5 The affiant also avers that contrary to the assertions by the respondent, the respondent is not financially distressed and cannot be rescued. The documents filed by the respondent at PACRA, it is alleged, fail to disclose that the respondent is financially distressed. Atop this, that the said documents fail to show that there is a reasonable prospect of rescuing the compan y. It is the affiant's view that the respondent is, in fact, insolvent and not financially distressed. 3.6 According to this affiant, the respondent h as been n on operational from about 14th August 2023. Further, h e avows that the business rescue proceedings were commenced in bad faith and that the respondent cannot, within six months, source capital and service all its creditors at the same time. 4.0 RESPONDENT'S CASE 4.1 The respondent resists the claim through an affidavit in opposition filed on 28th September 2023. The deponent, one Godsave Tendayi Nhekede, the business rescue manager, does not deny that the parties entered a Term Loan and Overdraft Facility. He also acknowledges that the respondent commenced business rescue proceedings by special resolution of the members of the company. He tells that both documents were JG lodged at PACRA. Evidence of this is supplied through exhibits ''GTN1" and "GTN2". Further, that following the said resolutions, he was appointed business rescue administrator. 4.2 Both the respondent and he, he states, have complied with the statutory procedure to commence business rescue proceedings. He insists that the respondent is financially distressed and not insolvent. This deponent recounts that after his appointment as administrator, he caused an investigation on the state of affairs of the company to be conducted based on information given by the company, its management, affected persons and third parties. He identifies key affected persons that supported the business rescue proceedings to include Aliboo Trading Company and Mr. Nabil Patel. 4.3 There are, according to him, reasonable prospects of rescuing the respondent based on several strategies proposed to be implemented. 4.4 In a further affidavit in opposition, deposed by one Eddie Simwambakala Sinyangwe, it is stated, in paragraph 5, that the board of directors undertook an assessment of assets and liabilities of the respondent ;;ind ;;irrived Rt the c:onc:h1sion th;;it it was in financial distress. Financial statements are produced in support of this assertion. He goes on to say that the respondent's board of directors concluded that there were reasonable prospects of rehabilitating the company after receiving an offer from Mkambo Farms to acquire a stake in the respondent. 5.0 DETERMINATION 5.1 I have considered the originating summons, the affidavit evidence presented on behalf of both parties and skeleton arguments put before me. 5.2 To summarize the dispute, the applicant takes issue with the fashion in which the respondent commenced business rescue proceedings. It alleges that procedure set by law was not followed. J7 5.3 Initially, the applicant had posited that the special resolution of 17th July 2023 was irregular because it was not filed at PACRA. After receiving the affidavit in opposition, the applicant, as can be seen from paragraph 6 of the affidavit in reply, no longer alleges a failure by the respondent to file the special resolution at PACRA. 5.4 The applicant's main contention, as I see it, is that the respondent did not follow the law at the time of commencing the business rescue proceedings. The basis for this complaint is that the respondent was insolvent and not in financial distress when the special resolution was passed by the board of directors. 5.5 Both parties have produced documents in support of their conflicting positions on the financial status of the respondent. Of course, whilst the applicant advances an argument that the respondent was insolvent, the respondent maintains that it was solvent and financially distressed. 5.6 Before I begin to consider this evidence, I must first consult the law and determine what it says on the process to be followed when commencing business rescue proceedings. This is cardinal bl:"cause my determination will essentially be fed by t he res1Jlt of an enquiry on the question of compliance with the CIA regarding commencement of business rescue proceedings. 5.7 Business rescue proceedings are provided for under Part 111 of the CIA. These provisions basically provide for procedure that facilitates the rehabilitation of a company that is financially distressed. The history of business rescue legislation in this country is akin to that which prevailed in the United Kingdom, which, admittedly, embarked on legislative changes much earlier than Zambia. 5.8 In BT1 2014 LLC v Sequana SA and Others (1), there is to be found some eye-opening discourse on rescue proceedings and their genesis. In that case, the Supreme Court of England observed as follows: J8 " a rescue regime is a way of saving a company, the employment of its employees and the future development of its products and business. " 5.9 Though our laws incorporated business rescue proceedings only in 2017, it is my understanding that our local law is founded for similar reasons. Section 21(1) of our CIA sets the law on how business rescue proceedings may be commenced. It provides as follows: "21. (1) Subject to subsection (2) (a), the member may by special resolutions, resolve that the company voluntarily begins business rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that - a) The company is financially distressed; and b) There appears to be a reasonable prospect of rescuing the company;" 5.10 According to this law, business rescue proceedings are birthed by the passing of a special resolution by members of a company. It is clear that the resolution must be grounded on a reasonable belief by the board of directors that the company is in financial distress. Knotted to this, there must also be reasonable prospects of rescuing the company. Absent these two critical criteria, any resolution passed would fail to meet the requirements of the law and rendered ineffective. 5.11 The next critical issue I must consider is whether I have authority to interfere at this stage of the business rescue process. This important consideration will determine whether I h ave the requisite jurisdiction to ent ertain the application by the applicant. I cannot overemphasize the key significance that jurisdiction plays in the process of adjudicating a matter. 5.12 On the issue of jurisdiction, the apex court has instructed, through the case of Godfrey Miyanda v the High Court (2), that: "The termjurisdiction should.first be understood. In one sense, it is the authority which a court has to decide matters that are litigated before it; in another sense, it is the authority which a court has to take cognisance of matters presented in a formal way for its decision. The limits of authority of each of the courts in Zambia are stated in the appropriate legislation. Such limits J9 may relate to the kind and nature of the actions and matters of which the particular court has cognisance or to the area over which the jurisdiction extends, or both" 5.13 With this authority in mind, I observe that the CIA gives a party power to challenge business rescue proceedings. Section 22 (1) (a) of the CIA states as follows: "22. (1) Subject to subsection (2), at any time after the adoption of a resolution as specified in section 21 and until the adoption of a business rescue plan in accordance with section 43, an affected person may apply to a Court for an order- (a) setting aside the resolution on the grounds that- (i) there is no reasonable basis for believing that the company is financially distressed; (ii) there is no reasonable prospect for rescuing the company; or (iii) the company has failed to satisfy the procedural requirements set out in section 21;" 5.14 The above law gives me power, at any time after adoption of a resolution to commence business rescue proceedings but b efore adoption of a business rescue plan, to grant an order setting aside thA rAP.nh1t i0n t0 commence the proceedinga. In the mutter before me, the applicant has relied on the above cited Section 22(1)(a) as the basis for the application to set aside business rescue proceedings. 5.15 On the facts before me, I can discern that a resolution to commence business rescue proceedings was passed. As at the date of presentation of this application, no business rescue plan had been duly adopted. Therefore, I have no difficulty in finding, as I now do, that the matter is properly before me and that I possess the requisite jurisdiction to entertain it. 5.16 Turning again to the law cited, I discern that I have power to set aside a resolution to commence business rescue proceedings if any one of three things can be shown. Firstly, where it is demonstrated that there is no reasonable basis to ground a belief JlO that the company is financially distressed; or secondly, where it can be established that there are no reasonable prospects of rescuing the company; or thirdly, where it is shown that the procedure required to be adopted when commencing the proceedings was not followed. 5.17 To this extent, I agree with the ratiocination in the decision of Chimanga Changa Ltd v Export Trading Limited (3), cited by the applicant, that the purpose of proceedings under section 22( 1) of the CIA is to a llow affected persons to question the manner in which a company is placed under business rescue. 5.18 With my jurisdiction and the purpose of section 22(1) of the CIA firmly set, I will begin by determining whether the applicant has made out a case warranting setting aside of the resolution in question pursuant to Section 22(1)(a)(i), (ii) or (iii) of the CIA. 5 .19 Since there is a requirement for a specified procedure to be followed under section 21 of the CIA, the logical place to begin my enquiry must be to determine whether, when passing the resolution, the requirements in section 21 were met. I will then escalate my enquiry and determine whether the resolution should be set aside for offending section 22(l)(a). 5.20 To put things in their proper perspective, when the respondent's members passed the special resolutions of 17t h July 2023, they should h ave done so on recommendation by the respondent's board of directors. The board of directors, in turn, are bound to only make such recommendation if they have a reasonable belief that the company was in financial distress and that there was a reasonable prospect that the company may be rescued from its state of distress. To do otherwise would place them at odds with the procedural requirements prescribed in section 21. This highlights the enormous responsibility and critical role that the board of directors has in the prequel to commencement of business rescue proceedings. It is their collective finger that pulls the trigger and they must do so only if they are presented with Jll adequate information to ground reasonable beliefs required by section 21 of the CIA. 5.21 From my vantage, the standard the board of directors are required to adopt is not one requiring proof beyond reasonable doubt. The law does not require them to have absolute or unassailable evidence that that a company is under financial distress and that it can be rescued. It is enough if there is a reasonable belief that firstly the company is under financial distress and secondly that it is capable of being rescued . 5.22 That said, I take the view that for the procedure laid out in section 21 of the CIA to be said to have been followed, the respondent's board of directors must have at least done the following: a) The board must have passed a resolution upon being satisfied that they had reasonable belief that the company was in financial distress and that there were reasonable prospects of rescuing the company; b) The members of the company must have passed a special resolution, on the recommendation of the board, to place the company under supervision; and c) The resolution by the members must have been filed with the registrar. 5.23 On the facts before me, it is not disputed that the board met and passed a resolution on 17th July 2023. As I have already observed, the first procedural requirement I must enquire into is whether, when passing this resolution, the board had a reasonable belief that the company was financially distressed and that it could be rescued. 5.24 I have examined the affidavit in opposition for any evidence that may support considerations of this nature by the respondent's board of directors. I have found none. The special resolution has been exhibited by the respondent as "GTN2". It makes no mention of the company being under financial distress. What is J12 more, this affidavit does not produce any minutes from the m eeting of the board of directors. 5.25 I have not lost sight of the further affidavit in opposition, deposed by a director and major shareholder of the respondent, filed on 28th September 2023. I find this affidavit to be useful in my enquiry. In paragraph 5, the deponent confirms that some deliberations took place prior to passing of the resolutions in issue. The deponent says this: " ... prior to passing a resolution to recommend to the members that the respondent be placed under business rescue, we the directors of the company undertook an assessment as the assets and liabilities that showed a negative mismatch in favour of the respondent's liabilities." 5.26 He goes on to say as follows in paragraph 6: "that based on the above mismatch, it was determined that the respondent was .financially distressed" 5.27 It seems apparent, from the above, that the basis for the board to conclude that the respondent was in financial distress was because of a mismatch between its assets and liabilities. That is, liabilities exceeded assets. To support this conclusion, the affiant introduces exhibit "ESS2" which he describes as a copy of the respondent's financial statements. 5 .28 I have considered the statutory definition of the term "financially distressed" in section 2 of the CIA. It means that a company is likely to become insolvent within the following six months. Clearly, the law envisages that a company is not yet insolvent on the date that the resolution to commence business rescue proceedings is passed by its members. 5.29 As I have already stated, I recognize that business rescue proceedings are meant to prevent a company from becoming insolvent. In this regard, it is clear that parliament, in promulgating the CIA, made provision for the critical period between financial distress and insolvency. Business rescue proceedings are designed to be activated before a company drifts J13 into insolvency. At the point of insolvency, it is only liquidation proceedings that are appropriate. 5.30 On the facts before me, and following the respondent's own admission, the directors of the respondent believed that the respondent was financially distressed because its liabilities exceeded its assets. When the term "financially distressed" is taken loosely, it m ay be used to describe a company under financial strain. Taken this way, their belief could be plausible becau se the respondent was clearly struggling financially. However, it is not the loose meaning but the statutory meaning set out in section 2 of the CIA that I am concer ned with. 5 .31 To bring their findin g within with the law, the respondent's board, therefore, must have h ad a reasonable belief th at the respondent would be insolvent within six months from the meeting if no intervention were taken. 5.32 Exhibit "ESS2" in the fur ther affidavit in opposition portrays a financial picture where liabilities of the company exceed its assets. There is no dispute on this fact. In my estimation, exhibit "ESS2" does not in any way assist in showing that the respondent was financially distressed. This exhibit, as I see it, cannot be the basis to form a genuine reasonable belief that the respondent was financially distressed within the meaning of the Act. On the contrary, it can be relied upon to illustrate that the resp ondent was insolvent a t a ll times germane to their consideration. 5.33 The Act defines insolvent to mean : "having liabilities that exceed the value of assets, having stopped paying debts in the ordinary course of business or being unable to pay them as they fall due;" 5.34 It is clear to me that the resp ondent's b oard was labouring under a m isapprehension when then opined that the responden t was financially distressed. They simply did not a p pr eciate the statutory meaning of financial distress. They also did not J14 appreciate the implications of leaning on a mismatch between assets and liabilities. Whatever the case, I am of the firm view that as at the time they passed the resolution to place the respondent under business rescue, the respondent was plainly already insolvent. I am also convinced that had the board taken the term "financially distressed" in its correct and legal context, a d ifferent resolution would have been m ade. 5.35 Given the above facts, the board of directors did not have a basis to anchor a reasonable belief that the respondent would be insolvent within six months from the date of their meeting. On this point, I accept the applicant's submissions and find that the respondent did not meet the procedural criteria set out under Section 21(1)(a)(i) of the CIA when purpor tedly com mencing business rescue proceedings. 5.36 To be clear, I am of the firm view that the board was under a legal obligation to ensure that there was a genuine reasonable belief that the respondent was financially distressed on evidence or information available on the date that the resolution was passed. It follows that information arising after the date of the meeting will not do. The legal requirement focuses on the state of the company on the date that the board meets to pass the resolution to commence business rescu e proceedings. 5.37 Even assuming that the respondent correctly formed a reasonable belief that the company was under financial distress, there is another legal requirement that must be met; the respondent must also have had a reasonable belief that the respondent could be rescued. 5.38 I have looked at my record for any evidence that this issue was deliberated upon and a finding to this effect arrived at by the board. The further affidavit in opposition contains information that grounded the belief by the respondent's board that the respondent could be rescued. The affiant says the following from paragraph 7 to 10: J15 "7. That upon determining that the respondent was financially distressed, the respondent undertook a process of identifying a strategic partner to assist in capitalizing the business for purposes of making it profitable. 8. That the respondent identified its client Mkambo Farms limited as a strategic partner to acquire a stake in the respondent and Mk.ambo farms made an offer ... That Entrust St.ock Feeds proceeded to accept the offer and 9. Mk.ambo Farms Limited committed to inject an initial capital sum of US$1,000,000 in the respondent ... That upon receipt of the above, the respondent's board of 10. directors determined that they were reasonable prospects of rehabilitating and rescuing the respondent. " 5.39 This evidence is relied upon by a director of the respondent to show that the board found that there was a reasonable prospect of rescuing the respondent at the time of signing the resolutions that effectively placed the respondent under business rescue. 5.40 I have some difficulties with this testimony. The affiant testifies that it was this offer that gave the board the reasonable belief that the respondent could be rescued. There is a glaring timeline discrepancy. The board meeting took place on 17th July 2023, as evidenced by exhibit marked "GTN l" in the affidavit in opposition. 5.41 The offer letter, exhibit marked "ESS3" to the affidavit in reply was not in existence at the time of the board meeting as it was only written on 8 th August 2023. I have difficulty in accepting that this letter, written in the future, was the basis for the directors' belief that the company could be rescued. 5.42 I revisited and scrutinized the affidavit of the business rescue manager in the hope that it would highlight the basis for placing the company under business rescue. His affidavit, filed on the same day as the director's further affidavit, is equally unhelpful on this point. 5.43 The affidavit shows that after his appointment, the business rescue manager undertook an investigation of the affairs of the r espondent company. The conclusions he presents are based on that assessment. He has not presented any evidence that J16 establishes what may have influenced the decision of the board of directors or members prior to his appointment. To be fair to him, this is not information he would have had as first-hand information. 5.44 In summary, I have not been given any evidence to support a conclusion that the board of directors had reasonable grounds to believe that the company was in financial distress and that it could be rescued. I find, therefore, that there is no reasonable basis for believing that the respondent is financially distressed. The special resolution in question, therefore, is liable to be set aside pursuant to section 22 (1) (a) (i), (ii) and (iii) of the CIA. Consequently, I set it aside. 5.45 With the exception of the relief requinng me to p lace the respondent under liquidation, this judgment effectively resolves the questions brought for my consideration by the applicant. For the avoidance of any doubt, I will, nonetheless, pronoul).ce myself on the specific questions raised by the applicant. 5.46 On the fir st and second questions, I find that the special resolution of 17th July 2023 passed by the respondent was duly filed with the Registrar of PACRA. I find, however, that this resolution did n ot validly place the respondent under business rescue because it was not undergirded by the considerations set out under section 21(1) of the CIA. Therefore, I opine and hold that the bu siness rescue proceedings are invalid. 5.47 On the third question, I find that the power given to me under section 22(5)(a) of the CIA is expressed in the alternative. I may either set aside the resolution on any ground set out in section 2 2( 1) of the CIA, or I may set aside the resolution if I believe that it was just and equitable to do so. I do not read the law as giving me the power to invoke both remedies at the same time. 5.48 Since I have found that the resolution should be set aside on grounds under s e ction 22(1)(a) of the CIA, I make no positive finding in favour of the applicant to the question whether the J17 same resolution should be set aside on grounds that it is just and equitable to do so. 5.49 Turning to the relief sought by the applicant for an order placing the respondent under liquidation, I am urged to wind up the respondent if I decide to set aside the challenged resolutions placing the respondent under business rescue. In support of this relief, the a pplicant relies on the South African High Court case of Willow Acres Home Owners Association v Mamiki Capital Investments (PTY) Ltd (4). 5.50 I have read the Willow Acres case, which involved winding-up proceedings through which the applicant, Willow Acres Home Owner s Association sought an order for the final winding-up of the respondent company, Mamiki Capital Investments (Pty) Ltd (Mamiki). The proceedings were instituted by application made by the applicant as a creditor of Mamiki in terms of s 344(h) read withs 345 of the Companies Act 61 of 1973. The applicant argued that it would be just and equitable to wind-up Mamiki. 5.51 A reading of the South African Companies Act reveals that section sections 344 to 348 of that Act speaks to winding-up of companies by the Court. Section 344 (h) of the said Act prescribes the circumstances in which a company may be wound up by the Court and it provides that: " A company may be wound up by the court if it appears to the court that it is just and equitable that the company should be wound up. 5.52 Section 345 proceeds to prescribe when a company is deemed unable to pay its debts. Given that the Willow Acres case dealt with proceedings instituted as winding-up proceedings and not business rescue proceedings, I consider that the authority is not relevant to the circumstances of this case or my determination. This is because in this case, I am not dealing with proceedings that were initiated as winding-up proceedings, but as business rescue proceedings. I therefore disregard the Willow Acres case. J18 5 .53 Pivoting back to considering whether to place the company under liquidation as a further appropriate order, I have examined the provisions of the CIA that address the metamorphosis of business rescue proceedings into liquidation. In this regard, I accept that according to section 22(6)(a) of the CIA, in addition to setting aside the resolution to commence business rescue proceedings, I am clothed with the power to order that the respondent be placed under liquidation. The words u sed by this law are as follows: "The Court may, where it makes an order under paragraph (a) or (b) of subsection (5) make any further appropriate order, including: (a) an order placing the company under liquidation" (court emphasis) 5.54 I hasten to point out that this provision of the law is not couched in mandatory terms. I am given discretion to make any further appropriate order that may include placing the company under liquidation . In this case, the applicant has attempted to persuade me to concluded that an order placing th e respondent under liquidation would be an appropriate order additional order. 5.55 I have also ruminated on s ection 24 (2) (a) of the CIA. It reads as follows: "24. (2) Business rescue proceedings shall terminate when (a) the Court- (i) sets aside the resolution or order that began the proceedings; or (ii) converts the proceedings to liquidation" (Court Emphasis) 5.56 It is clear from section 24 (2) (a) that the law sets out two instances when business rescue proceedings automatically terminate. The first is when the court sets aside the resolution or order that activated the business rescue proceedings. The second is when the business rescue proceedings are converted into liquidation proceedings. J19 5 .57 From the use of the word "or" in section 24 (2) (a), it is evident that the two modes of termination are alternate modes of termination. That is, termination of business rescue proceedings occurs when either the resolution or order that began the proceedings is set aside by the court or when the court converts the business rescue proceedings to the liquidation proceedings. It follows that the two modes of termination are distinct. 5.58 In this case, I have already declared the proceedings invalid and I have set aside the resolution that instituted the business rescue proceedings. Thus, the business rescue proceedings stand terminated. 5.59 In my opinion, once the business rescue proceedings have been terminated they cannot be terminated again by converting them into liquidation proceedings. As I see it, it would be confounding to convert invalid business rescue proceedings into liquidation proceedings. Put simply, the business rescue proceedings have been slain on the ground of invalidity and are, thus, incapable of conversion because there is nothing for me to convert. It is against this background that I am not persuaded that this is a suitable case in which to make an order placing the company under liquidation as a further appropriate order. 5.60 Even if I were persuaded that it is tenable to convert invalid business rescue procedures into liquidation proceedings, I draw attention to the definition of the word "liquidation", ascribed in section 2 of the CIA. Liquidation alludes to: "the process of converting the property of a company into cash in order to s ettle the company's debt and other liabilities. " (Court emphasis) 5.61 In Zambia, the process of winding-up a company commences with a petition to wind-up a company in line with section 56 of the CIA. There are other procedural requirements that must J20 occur before a company may be liquidated and these are adequately provided for in the CIA. 5.62 However, from my scrutiny of the law, it appears that the law does not lay out the procedure to be adopted in the event that the Court deems it fit to place the company under liquidation after setting the business rescue proceedings. I hasten to add that the applicant has not assisted me with any law that I may draw from which speaks to the process to be adopted for migrating failed business rescue proceeding into liquidation proceedings. 5.63 To underscore my discomfort, if for example, I am to make an order placing the respondent under liquidation absent rules that direct the process for hearing a person who intends to either support or oppose the liquidation process, I foresee the germination of an array of challenges to such an order. It is with this misapprehension in mind that I am fortified in electing to decline to make an order placing the respondent under liquidation. 5.64 I must now speak to the summons for leave to suspend a provision of an agreement filed by the respondent on 9 th November 2023 . At the onset of this judgment, I intimated that it would be dealt with only if I concluded that the business rescue proceedings were regularly commenced. 5.65 Having found that the said proceedings were not properly commenced, the interlocutory application has been overtaken by events and cannot lawfully be entertained. This is because s e ct ion 28(2) of t he CIA clearly states that applications under this law may only be made during business rescue proceedings. 5.66 The successful challenge to the propriety of the business rescue proceedings commenced by the respondent stands in the way of a successful hearing and determination of the said interlocutory application. For this reason, the said application is untenable and must fail. 5.67 Consequently, I surmise and order as follows: J21 r. I set aside the special resolution dated 17th July 2023 pursuant to section 22(5)(a)(i) ·of the Corporate Insolvency Act, on the grounds that when the resolution was passed: a) There was and is no reasonable basis to believe that the respondent is financially distressed within the meaning of the CIA; and b) There was and is no reasonable prospect for rescuing the respondent. ii. That following setting aside of the special resolution to commence business rescue proceedings the said business rescue proceedings stand terminated pursuant to section 24(2) (a)(i) of the CIA. m. The preliminary application filed by the respondent on 9 th November 2023 for leave to suspend a provision in an agreement be and is hereby dismissed. 1v. Costs are awarded to the applicant to be taxed in default of agreement. Ddivc1cu al Lu8ak.a L11i8 19L11 uay uf July, 2024. JUDIC RY OF ZAMBIA HIGH COURT Commercial Division Yl:1 - q ,, " LU<'.~ m A~ --------.1 JUDGE P. O. BOX 50067, LUSAKA