Makeh Enterprises (Pvt) Ltd v Stuart Pumps Engineering (Pvt) Ltd

Makeh Enterprises (applicant) and Stuart Pumps Engineering (respondent) entered into a lease agreement in 2021 which was still subsisting. The respondent accrued rental arrears of US$184,000 which it failed or neglected to settle. The parties had a long history of litigation concerning the debt. While the applicant was attempting to recover its debt, the respondent company gave notice in terms of Section 122 of the Insolvency Act [Chapter 6:07] that its board had resolved to voluntarily commence corporate rescue proceedings. The applicant objected to the company resolution under Section 123(1)(a)(i)(ii) of the Insolvency Act, alleging that the company was not financially distressed and there were no reasonable prospects for rescuing the company and restoring it to financial health.

• Whether the applicant complied with the peremptory requirements of Section 123(3)(b) of the Insolvency Act [Chapter 6:07] to serve the application on all affected persons by standard notice
• Whether the failure to notify affected persons (shareholders and creditors) renders the application a nullity
• Whether a board resolution for corporate rescue was defective

The application was struck off the roll with costs on an ordinary scale.

Section 123(3)(b) of the Insolvency Act [Chapter 6:07] is a peremptory provision requiring an applicant objecting to a corporate rescue resolution to notify each affected person (shareholders and creditors) by standard notice. The use of the word "must" in the provision makes compliance mandatory. Failure to comply with this peremptory requirement renders the application a nullity and it must be struck off the roll. The rationale is that affected persons have substantial and legitimate interests in the fate of the company and must be afforded an opportunity to respond to the application, as the outcome may prove adverse to them.

The court observed that corporate rescue proceedings have far-reaching consequences on creditors, shareholders and society at large, and therefore it is critical that the procedures laid down in the Act be followed to the letter. The court also commented that a simple visit to the Registrar of Companies' office would have enabled the applicant to obtain information about shareholders and creditors, thereby rejecting the applicant's assertion that it did not know who the affected persons were. The court noted that given the dispositive nature of the first point in limine, no useful purpose would be served by dealing with the remaining points in limine raised by the respondent (including the argument about defects in the board resolution).

This case reinforces the strict procedural requirements for applications objecting to voluntary corporate rescue proceedings under the Insolvency Act [Chapter 6:07]. It emphasizes that compliance with Section 123(3)(b) requiring notice to all affected persons by standard notice is peremptory and non-negotiable. The judgment demonstrates the courts' approach to protecting the rights of shareholders and creditors in corporate rescue proceedings by ensuring they receive proper notice and an opportunity to participate. It confirms that failure to comply with these procedural safeguards will result in the application being struck off as a nullity, regardless of the merits of the underlying objection.