Tax consequences of receivership and liquidation in Zambia

Abstract

This era has witnessed increased activity on the corporate stage by various actors. However, the category that has captivated the attention of many are receivers and liquidators, not so much for their role in corporate recovery than for the consequences of their appointment which has earned them an unenviable reputation. The negative reputation has a lot to do with the unimpressive experience with receiverships and liquidations. However, these are processes essential to the survival of commerce. An evaluation of insolvency practice in Zambia over the last decade reveals particular misconceptions even on the part of practitioners. In response thereto we have examined the extent of a receiver's or liquidator's fiduciary duty owed not only to the creditor but also to the company (in the case of a receiver) and the members and other persons with a beneficial interest in both instances. The insolvency practitioner's duty to minimize the company's taxes has been considered and it has been submitted that the question whether the same should be legal or remain mere commercial morality will depend on the circumstances of each case. It is noted that the members of a company and the company itself have a remedy against an errant receiver or liquidator or one guilty of misconduct. The possibility has been enhanced by the doctrine in Avalon Motors Limited (in receivership) v. Bernard Gadsden and Motor City Limited which in our considered view limits the rule in Magnum (Zambia) Limited v. Basit Quadri & Grindlays Bank International Zambia Limited " within commercially acceptable bounds and provides a basis upon which persons affected may obtain redress using the company's name. One of the major weaknesses in this area of the law is the insufficiency or inadequacy of legislation, central to the weakness is the eligibility clause for both prospective receivers and liquidators under the Companies Act. We have, therefore, recommended legislative amendments and the institution and enhancement of certain safeguard mechanisms aimed at curing the mischief and raising die standards.