Revamped insolvency law on cards
By Hilary Mare
THE Law Reform and Development Commission is currently finalizing the Insolvency Bill which is intended to revise the law of insolvency in the country, bringing it in line with constitutional dispensation and international developments in the law of insolvency.
This was confirmed by Peter Shivute, Chief Justice of Namibia at the 10th Insolvency Law Africa Roundtable, who affirmed that a better regulatory framework is only the first step towards an effective insolvency process and much also depends on the implementation and modernization of the institutional arrangements in the country so as to create a conducive environment for both local and foreign traders to invest in the country’s economy.
The Insolvency Act 1936 among others regulates the sequestration of estates of natural persons and partnerships, and to some extent, also the winding-up and liquidation of companies and close corporations. The Act also sets out the rights and obligations of creditors.
Although the 1936 Act is the principal legislation regulating insolvency and administration of insolvency matters, some provisions contained in the Companies Act, 28 of 2004 and he Close Corporation Act, 26 of 1988 and other laws regulating the financial and insurance sectors have application to insolvency matters. In addition to these pieces of legislation, principles of Roman-Dutch law also regulate matters involving insolvency.
“As the principal legislation regulating insolvency and administration of insolvency matters, the 1936 Insolvency Act itself is out-dated and does not provide a sound insolvency regime to regulate modern and complex insolvency matters, particularly in the area of cross-border insolvency disputes,” Shivute said in a speech read on his behalf by Justice Sylvester Mainga, Justice of the Supreme Court of Namibia.
In terms of the general commercial legal environment, the World Bank Group Flagship report of 2019 revealed that in the area of resolving insolvency Sub-Saharan Africa’s average recovery rate is 20.
5 cents on the dollar, roughly one-fifth of the amount lent by creditors, and time to resolve a case is 2.9 years.
Although the region has improved in recent years, Sub-Saharan Africa is still behind Latin America and the Caribbean as well as the South Asia region. Latin America and the Caribbean has a recovery rate of 31.2, ten cents more than sub-Saharan Africa, and South Asia has a rate of almost 18 cents more, at 38.1.
“The effectiveness of the insolvency process also depends on other institutions such as the courts which, in order to be effective, need to be reformed and equipped with well trained and knowledgeable judicial officers.
“It is for this reason that we cannot overlook the role of the judiciary in implementing reforms initiated within our jurisdictions. We must constantly ensure that our judicial systems keep pace with business and technological developments,” added Shivute.
Yvonne Dausab, Chairperson of the Law Reform and Development Commission beamoaned the limitations of the current insolvency law and said that while judicial management exists as an alternative to liquidation or winding-up of a company, this particular issue requires legal reform to address the shortcomings of the process and make it more accessible to SME companies.
“The stringent requirements of proving commercial insolvency along with the heavy reliance on the court’s intervention which translates to high costs currently serve as barrier for the company’s already unstable financial state.
Addressing the shortcoming of the judicial management process would enhance SME development and continue its contribution to the Namibian economy,” she highlighted.