The Role of Insolvency Practitioners in Botswana
In this Chambers Expert Focus video, Msiya Kindiano – a partner at Bookbinder Business Law who heads the firm’s dispute resolution practice – talks to insolvency practitioner Catherine Piper of Piper Analytics about the practical implications of winding up a company in liquidation.
Historically, insolvency practitioners have not been involved in the legal process to place a company into liquidation. The process of compulsory liquidation by the courts in Botswana was conducted via petition by attorney firms.
“What insolvency practitioners are trying to do is help attorney firms see when insolvency liquidation is the right solution and when it isn’t – ie, when alternative mechanisms can be used. We work with people to make them aware of what actually happens during liquidation and how costly it can be.”
As an insolvency practitioner, Catherine believes liquidation is very drastic and should only be used as a last resort. Liquidators charge by the hour, rather than per asset – making it an expensive process – and recoveries anywhere in the world are generally poor.
“Liquidation is often done too late, which makes the liquidator’s job very difficult because there is nothing to save. The assets have been dissipated. There is no growing concern element to the business. This is just sweeping up the mess.”
However, if action is taken earlier, there are potentially other options available. Catherine maintains that, rather than a liquidation agency stepping in to shut things down and dispose of all assets relatively quickly, her firm’s primary objective is to maximise the amount to creditors – which sometimes includes trading.
One option that ought to be considered by a company is judicial management, which has not traditionally been successful in Botswana. Catherine believes that a company should only enter into judicial management when it has a plan to trade out of its insolvency or to address any mismanagement issues that might be causing its distress – otherwise, the company will ultimately only be postponing the process and will end up going into liquidation anyway.
“Fatally insolvent companies have been placed into judicial management as a sort of ‘liquidation lite’.”
Although other comparable regimes in other countries limit the length of time companies can spend in judicial management, there are no such limits in Botswana. Companies can be in judicial management for years, during which time the management is not trading out or making an application to wind up the company. The company is practically, legally and functionally insolvent during this period.
Catherine believes that petitioning to place companies into provisional liquidation is a better option, and goes on to outline the process – and why it is more effective than judicial management.
“While there is the sharp intake of breath with the company going into liquidation – perhaps more so than with judicial management – it affords the provisional liquidator the option to explore compromises so the company has the option to compromise its debt and still come out of liquidation.”
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