Vol 14 (2017) - Issue 2

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The Insolvency Act 2016: Towards Embracing Corporate Rescue Culture in Malawi

Introduction
The Insolvency Act 2016 (hereinafter referred to as 'the new Insolvency Act') came into force on 20 May 2016 as part of the wider business law reform in Malawi. The new Insolvency Act is based mostly on the Mauritius Insolvency Act 2009, partly the English Insolvency Act 1986 as amended from time to time and the cross border provisions on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency and as such it has taken after a number of internationally accepted best practices in corporate insolvency.
Prior to the enactment of the new Insolvency Act, corporate insolvency in Malawi was regulated under the auspices of the Companies Act 1984 (hereinafter referred to as 'the CA 1984'). With passage of time it became apparent that corporate insolvency provisions under the CA 1984 were no longer fit for purpose. A pre-reform report on Malawi Insolvency Framework observed that the key weaknesses in the then Malawi’s insolvency system were that the legislative framework for both corporate and personal bankruptcies, was antiquated and no longer tailored to the specificities of Malawian cases; there were few alternatives to winding up companies in Malawi, including out-of-court workouts and corporate rescue mechanisms, which resulted into an entrenched liquidation culture in the country; and that receivership placed too much power in the hands of charge holders who could terminate the business of the company merely by appointing a receiver.
In response to these observations, the new Insolvency Act has specifically provided for a corporate rescue mechanism modelled on the United Kingdom’s administration procedure. Under this new corporate rescue mechanism, which has been termed ‘company reorganisation’ there is specific provision for the appointment of an administrator to replace the board with a specific mandate to attempt to save a financially viable company that is in distress. The administrator will then assume control of the company with the aim of, in the first instance, saving the business of the company by, for instance, selling the business of a company as a going concern. If however the administrator cannot achieve the objective of saving the company or its business, the affairs of the company must be wound up in such a way as to ensure that the best possible result for the creditors will be obtained.
The corporate insolvency law reform in Malawi particularly with regards to corporate rescue could not come at the right time for several reasons. Firstly, globalisation of business and trade has resulted in the globalisation of insolvency law. Many leading world economies have aligned their domestic insolvency law with the global trend by adopting formal rescue procedures. Of late a number of developing countries have joined the bandwagon for fear of being left behind. Malawi being part of the global village needed to follow what its potential trade partners are doing if it is to benefit from the fruits of the global market.