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Resolving Insolvency in

Zambia

Below is a description of the time, cost and outcome of the most common insolvency proceeding in each economy under the case study assumptions, as well as the strengths and weaknesses in existing insolvency regulations in four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation.

This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 190 economies. The most recent round of data collection was completed in June 2016.

Compare Zambia to 189 other economies.

  • Indicator Explanation Answer
    Recovery rate (cents on the dollar) 49.4
    Proceeding Banks are much more prone to engage a mortgage action (foreclosure) than to appoint or ask for the court appointment of a receiver. This is because foreclosures are very straight forward. By contrast, if you appoint a receiver, it is much more likely that the proceedings will be contested (e.g. whether the receiver is fulfilling its tasks, appointment of the receiver itself). The secured creditor has 2 options: go to the commercial court or to the general court. The commercial court is much faster because they follow fast-track procedures. foreclosure
    Outcome The hotel will stop operating and Mirage assets will be sold piecemeal in a public auction conducted by the BizBank appointed lawyer upon the completion of the foreclosure proceeding. piecemeal sale
    Time (in years) The foreclosure procedure until BizBank is repaid some or all of the money owed to it takes approximate 1 year in total. After Mirage's default, it will take 3 months until the status conference where the judge verifies that all the required documents are in the file. Then, it will take 3-6 months to schedule a hearing. After the hearing, the judgement will be orally pronounced and will be issued in a written form in 3 months. The judgment usually incorporates a grace period (30-90 days) for the debtor to pay. After 8 to 11 months, you can enforce the judgment and as the real estate sector is in a booming period, so it is easy and fast to sell and find a buyer. The sale will be advertised in the newspaper by the bailiff and bids will be submitted and negotiated with the bank, which can be done in 1 month. In the case of an appeal, the process could take up to one more year but appeals are quite unusual. 1.0
    Cost (% of estate) The costs associated with the case would amount to approximately 9% of the value of the debtor's estate. Main component of the cost is the attorney fees (up to 5%), auctioneer fee (up to 5%) and court or government fees (1%). If BizBank appoints a lawyer to conduct the auction, no auctioneer fee will be added, but attorney fee will increase. 9.0
    Answer Score
    Strength of insolvency framework index (0-16) 6.0
    Commencement of proceedings index (0-3) 2.0
    What procedures are available to a DEBTOR when commencing insolvency proceedings? (b) Debtor may file for liquidation only 0.5
    Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (b) Yes, but a creditor may file for liquidation only 0.5
    What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (a) Debtor is generally unable to pay its debts as they mature 1.0
    Management of debtor's assets index (0-6) 2.0
    Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the debtor? No 0.0
    Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0
    Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0
    Does the insolvency framework allow avoidance of undervalued transactions? No 0.0
    Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of insolvency proceedings? No 0.0
    Does the insolvency framework assign priority to post-commencement credit? (c) No priority is assigned to post-commencement creditors 0.0
    Reorganization proceedings index (0-3) 0.0
    Which creditors vote on the proposed reorganization plan? N/A 0.0
    Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation? No 0.0
    Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in the same class treated equally? No 0.0
    Creditor participation index (0-4) 2.0
    Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency representative? No 0.0
    Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? Yes 1.0
    Does the insolvency framework provide that a creditor has the right to request information from the insolvency representative? No 0.0
    Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting creditors' claims? Yes 1.0