Zimbabwe's corporate rescue law faces scrutiny

Corporate rescue - Zimbabwe's version of bankruptcy protection - is increasingly being tested as more companies turn to the law to avoid liquidation and preserve jobs.

The legal mechanism, introduced under the Insolvency Act of 2018, allows companies in financial distress to undergo court-supervised restructuring instead of immediate winding up. Its growing use reflects both the economic strain facing local industry and a deepening reliance on the courts to stabilise major employers.

In recent months, several high-profile firms have filed for corporate rescue, including RioZim Limited, whose matter is currently before the courts, along with Beta Bricks, Truworths, Zimasco, Khaya Cement, Windmill and, most recently, Telecel.

The process can be initiated voluntarily by a company's board or by its creditors. In both cases, the objective remains the same - to give the business breathing space to recover.

"It represents the last line of defence from liquidation, providing critical breathing space for rehabilitation efforts," said Ms Moreblessing Shereni, an independent investment analyst.

A key provision of corporate rescue is the automatic moratorium that immediately halts all creditor claims, lawsuits and asset seizures once proceedings commence.
This legal shield is often decisive for companies on the brink of collapse, preventing what analysts describe as a "run" on assets and enabling the court-appointed corporate rescue practitioner to take charge.

Unlike informal self-rescue efforts, the process introduces independent oversight - the practitioner assumes full management control, evaluates the company's affairs and determines whether there is "a reasonable prospect of rescue."

This transparency is vital to winning creditor confidence and facilitating agreement on a restructuring plan that can return the company to solvency.

Recent successful exits, such as those of the Cold Storage Company (CSC) and David Whitehead Textiles Limited, have demonstrated the law's potential to revive critical national assets.

However, not all cases yield success. Many companies under corporate rescue continue to face difficulties similar to those pursuing self-managed turnarounds - particularly limited access to working capital and Zimbabwe's tough macroeconomic environment.

Even so, experts argue that the moratorium advantage gives corporate rescue a crucial edge.

For example, RioZim's assets were spared from attachment after the company filed for corporate rescue. A writ of execution sought by a local creditor could not be carried out because the filing triggered the automatic moratorium, shielding its assets from seizure.

"This situation clearly illustrates the critical advantage that corporate rescue provides over a self-managed restructuring," Ms Shereni said.

The Confederation of Zimbabwe Industries (CZI) has, however, expressed concern over the low success rate of corporate rescue efforts, citing a shortage of qualified practitioners.

"Only three registered corporate rescue practitioners have successfully concluded major industrial turnarounds since the introduction of the Insolvency Act in 2018, highlighting a serious shortage of restructuring expertise," CZI noted in a recent report.

Corporate lawyer Mr Godknows Hofisi agreed that while the formal process offers structure, some companies may opt for internal restructuring.

He described self-rescue, where existing management attempts a turnaround without an independent practitioner, as a "viable yet complex" option.

"If insolvency stems from management or governance failures, the solution may lie in leadership change and fresh strategic thinking," Hofisi said.
"However, the large number of firms that go straight to liquidation without trying corporate rescue shows that the mechanism is still underutilised."

Despite mixed outcomes, analysts say corporate rescue remains an essential tool for preserving enterprise value and jobs in a fragile economy.

Its effectiveness, they argue, will depend on improved access to restructuring finance, greater practitioner capacity, and sustained judicial efficiency in handling cases.