What Insolvency Proceedings May Nova Tech Zambia Face From Creditors?

Question from kays, What Insolvency Proceedings May Nova Tech Zambia Face From Creditors?

Answer from AI:

Insolvency Proceedings and Debt Ranking in Zambia: An Overview

Nova Tech Zambia Limited is facing insolvency proceedings due to defaulting on loans from three creditors: Investment Bank, Indo-Zambia Bank, and ABSA Bank. Each creditor holds different types of security, which affects their priority in debt repayment.

Nature of Insolvency Proceedings

1. Types of Proceedings:
   • Winding Up (Liquidation): Creditors may apply for the company to be wound up, leading to asset liquidation to settle debts.
   • Restructuring Options: The company might propose a scheme of arrangement to restructure debts, allowing continued operation under a repayment plan.

Debt Ranking and Outcomes

1. Order of Priority:

   • Insolvency Costs: Expenses related to the insolvency process are paid first.
   • Preferential Debts: Includes employee wages, taxes, and social security contributions.
   • Secured Creditors:
     • ABSA Bank: Holds a fixed charge over the Kabulonga property, granting higher priority. Proceeds from the sale of this asset will primarily go to ABSA.
     • Investment Bank and Indo-Zambia Bank: Hold floating charges, ranking below fixed charges but above unsecured creditors.
   • Unsecured Creditors: Typically receive any remaining funds, often resulting in minimal recovery.

2. Asset Distribution:

   • The company’s total assets (ZMW23.5 million) and liabilities (ZMW13.5 million) suggest that secured creditors may be fully repaid, with unsecured creditors receiving less or nothing.

Legal Framework

The Companies Act, 2017, and insolvency laws in Zambia outline the debt repayment hierarchy. Secured creditors with fixed charges have higher priority, followed by those with floating charges.

Conclusion

Creditors are likely to initiate winding-up proceedings. ABSA, with a fixed charge, will have priority over the Kabulonga property. Floating charge holders follow, and unsecured creditors may receive little. Consulting a legal professional is advisable for specific guidance, as each case’s nuances can affect outcomes.