The legal challenges of mismanagement and maladministration of a Company in Receivership: The law, practice and procedure

Abstract

This research paper considers the legal regime surrounding the concept of receivership of a company in Zambia with a specific focus on legal actions against inept receivers. The genesis of his investigation is from the realization that many such legal actions against receivers are dismissed or fail in court for wrongly invoking both the substantive and procedural law. Thus, this dissertation has endeavoured to establish and analyzed the most appropriate legal avenue for an action against a receiver acting with ulterior motives.In this research, it was realized that the main explanation for placing of a corporation in receivership is failure to repay its debt as they become due. The creditor will exercise his right to appoint a receiver over the whole or part of the assets of the company which is usually pursuant to I debenture and the receiver will be considered to be the core representative of the company in all ts activities including suits.Further, the main obstacle faced by individuals wishing to bring a legal challenge against a receiver is the perception that once in receivership, the company and its receiver are considered as one and thus a member or director cannot have locus standi. Nonetheless, it was discovered that the company does not lose its separate existence even when in receivership as only it power to deal with its assets are in abeyance. Thus, the correct legal position is that the directors,shareholders, and the company itself have standing to sue in the name of the company whenever there is impropriety on the part of the receiver. The reason why the law on receivership appears to be uncertain or ambiguous in this regard is the lack of sufficient statutory intervention especially in the Companies Act which is the main law on this topic. The Act seems to have no contemplation of a receiver being sued for mismanaging the company and consequently has not adequately provided for rules of procedure to govern such actions. Therefore, the Companies Act should be revisited to exhaustively include all legal matters pertaining to the relationship among the receiver, company, directors, shareholders,creditor and third parties rather than depending on unwritten legal principles