Mauritius

Mauritius has a hybrid legal system that is inspired by both civil and common law traditions.

Prior to 2009, the corporate insolvency framework was governed by various pieces of legislation, such as the Companies Act of 1984, the Bankruptcy Ordinance of 1888, the Insolvency Act of 1982, the Protected Cell Companies Act of 1999 and the Companies Act of 2001. The Acts were mostly focused on liquidation and as a result provided little return to unsecured creditors and non-bank secured creditors.

In 2009, the government reviewed and revolutionised the insolvency framework, through the implementation of the Insolvency Act (the 2009 Act).

After these changes, a new restructuring landscape emerged, presenting attractive rehabilitation procedures, such as workouts, voluntary administration, amalgamations, takeovers and compromises.

This chapter will now provide an overview of the legislative changes on the Mauritian insolvency framework.

Administration

The primary aim of administration is to salvage the company’s business and ensure that the company continues to trade as a going concern. When a company is placed under administration, the administrator assumes control of the company’s business, property and affairs.

Powers of an administrator

The administrator is statutorily required to carry on the business of the company, investigate its affairs and consider possible ways of salvaging it in the interests of creditors, employees and shareholders. If there are no reasonable prospects for the company to continue to trade as a going concern, the administrator may decide to terminate or dispose of all or part of the company’s assets, in the interests of creditors, employees and shareholders.

The appointment of the administrator does not entail the removal of the directors of the company from office, but the directors are unable to exercise or purport to exercise their powers and functions, without the written approval of the administrator. The 2009 Act also entrusted other significant powers to the administrator, who has the ability to, inter alia:

  • begin, continue, discontinue and defend legal proceedings;
  • carry on, to the extent necessary for the administration, the business of the company;
  • perform any function and exercise any power that the company or its officers could have performed or exercise if the company was not in administration;
  • appoint an agent to do anything the administrator is unable to do; and
  • sell property subject to a charge, if this is done in the ordinary course of business, or with leave of the Court.

While the administration is under way, any transaction affecting the company’s property is void unless made with the consent of the administrator or with leave of the court. With regard to creditors, for the duration of the administration period, a moratorium is in effect on all proceedings against the company. However, creditors can still resolve to liquidate the company at a watershed meeting.

Appointment of an administrator

An administrator may be appointed by:

  • the directors of the company, where they believe that the company will be unable to pay its debts as they fall due;
  • secured creditors, holding a valid and enforceable charge over the whole or substantially the whole of the company’s property;
  • the liquidator or provisional liquidator, where it believes that the company is insolvent or is likely to become insolvent; or
  • the court, on application made by creditors, the liquidator or the registrar of companies (ROC).

The administration process

As soon as the administrator is appointed, he or she is required to obtain a director’s statement from the directors of the company, providing all relevant information about the company’s business, property, affairs and financial circumstances.

Within 10 days of his or her appointment, the administrator is required to call the first creditor’s meeting, and within 28 days of appointment, also known as the convening period, he or she must call a watershed meeting with all the creditors of the company, where he or she is statutorily bound to present a report on the company’s business, property, affairs and financial circumstances and present a statement with reasons explaining whether it would be in the creditors’ interests to: (i) end the administration; (ii) appoint a liquidator; or (iii) execute a deed of company arrangement (DOCA)

Proper jurisdiction and initiation of the process

The Bankruptcy Division of the Supreme Court has jurisdiction to hear all matters of bankruptcy, insolvency or winding up of companies. In the landmark case of Ah Chuen & Ors v Ah Chuen & Ors and ABC Motors Co Ltd,[1] Lallah SPJ and Pillay J conclusively decided that ‘all matters relating to the administration and management of companies and all disputes relating thereto should be dealt with, in the first place, in the Bankruptcy Division.’

Under Rule 2 of the Supreme Court Rules 2000, it is stated that ‘Except as otherwise provided for under any enactment, and subject to paragraph (2),[2] civil and commercial proceedings before the Supreme Court sitting in its original jurisdiction (other than the Bankruptcy Court) shall be initiated by way of plaint with summons.’ In the recent case of Assama J.J R v The Registrar of Companies and Anor,[3] the Court held that the normal procedure to initiate proceedings before the Bankruptcy Division is either by way of petition or motion supported by affidavit.

End of administration

The administration process typically ends where the court orders that the administration should end because either the company has resumed its status as a going concern or because of some other justifiable reason, such as where a liquidator is appointed by the company or the court, or where a DOCA is executed by the company and the deed administrator, or where the convening period ends without a watershed meeting being held.

Receivership

Receivership is one of the various ways in which a person can enforce his or her charge. It refers to situations where the charge holder or ‘chargee’, who is entitled to a benefit under an instrument, appoints a receiver to enforce his or her charge against the ‘chargor’ (ie, the company that was granted the charge).

Appointment of receiver

A receiver may be appointed in one of two ways: either under the instrument that confers on the charge holder the power to appoint a receiver or by the court. Once appointed, receivers are meant to fulfil a very clear purpose. In the case of Quality Soaps Ltd & Anor v Development Bank of Mauritius Ltd,[4] the court emphasised that, unlike administrators, ‘It is not the duty of a receiver and manager to carry on business in the best interests of the company and, for example, to preserve its goodwill, but his duty is to realise for the debenture (charge) holders the security which they have got.’

For appointments made under an instrument, the 2009 Act[5] provides that the receiver will be deemed to be the agent of the company (chargor) and will be responsible for its administration, unless the charge instrument expressly provides otherwise. The charge instrument in itself must be in writing and should be signed by or on behalf of the secured creditor.

For appointments made by the court, the 2009 Act[6] stipulates that the court may appoint a receiver or a receiver manager where it is satisfied that:

  • the company has failed to pay a debt due to the chargee or has otherwise failed to meet any obligation to the chargee, or that any principal money borrowed by the company or interest is in arrears for more than 21 days;
  • the company proposes to sell or otherwise dispose of the secured property in breach of the terms of any instrument creating the security or charge; or
  • it is necessary to do so to ensure the preservation of the secured property for the benefit of the chargee.

The court can appoint a receiver even if a debtor is able to pays its debts, for instance where the chargor proposes to sell any secured property in breach of the charge instrument.

Effect on directors

With regard to the effect of a receivership on the directors of the company, the courts have held that the directors are not totally divested of their powers and that they too have a right to act and initiate proceedings on behalf of a company, after first having obtained the court’s approval. For instance, this could occur where the receiver has failed to act, where it is guilty of misconduct or where the directors are challenging its appointment. In the case of Factory Shops Investments Ltd v Oosman Mushtaq MON,[7] P Lam Shang Leen J mentioned in his judgment:

It does not make sense and it is unrealistic that a receiver and/or manager would be challenging his own appointment. Once a company has been placed in receivership, the board of the company, which consists of directors, retains residual powers, one of which is the capacity to challenge the appointment of the receiver and/or manager.

In fact, under the 2009 Act, liquidators, creditors or directors of the company have the locus standi to apply to the court for a declaration on whether the receiver:

  • was validly appointed in respect of any property;
  • validly entered into possession of any property; or
  • validly assumed control of any property belonging to the company.

Moratorium period

Unlike in administration, the company enjoys no moratorium period from the legal actions of the creditors of the company. However, the parties have the right to create binding contractual terms stipulating that, in the event of any receivership, the defaulting party would be deemed to be in breach of the contract entered into by the creditors and the company, and this would enable the other non-defaulting party to terminate the contract.

Preferential claims

Where there are two or more floating charges subsisting over the property of the company, the general rule is that a receiver may be appointed by virtue of each charge. Where the holder of a floating charge has priority over other existing floating charges, by virtue of a valid charge instrument, the receiver appointed under that charge has the power conferred on the receiver by the 2009 Act, to exercise his or her duties and obligations as a priority and to the exclusion of any other receiver.

Otherwise, where two or more floating charges rank equally with one another, and two or more receivers have been appointed by virtue of the charges, the receivers so appointed are deemed to have been appointed as joint receivers and shall act jointly unless the instrument of appointment or each of the respective instructions of appointment provides otherwise.

Powers of receivers

The extent of the receiver’s powers depends on the method of his or her appointment. Where a receiver is appointed by the court and not by a chargee, he or she holds the legal status of an officer of the court and during that time his or her appointment ‘entirely supersedes the powers of the company and the authority of its directors in the conduct of its business in respect of assets’.[8]

Subject to the charge instrument or the order of the court under which the receiver is appointed, the 2009 Act confers additional wide and comprehensive powers to receivers in that they can inter alia:

  • enter into possession and take control of property of the company in accordance with the terms of that order or instrument;
  • inspect, at any reasonable time, books or documents that relate to the property in receivership and that are in the possession or under the control of the company;
  • exercise the receiver’s powers and authorities to the exclusion of the board of directors or chargor;
  • sell the assets of the debtor as provided for under the 2009 Act, unless expressly prohibited in the charge instrument;
  • make calls on the shareholders of the company in respect of uncalled capital that is charged under the instrument by or under which the receiver was appointed;
  • demand and recover, by action or otherwise, income of the property in receivership and issue receipts for income recovered;
  • execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the company;
  • engage or discharge employees on behalf of the company; and
  • make or defend an application for the winding up of the company.

The receivership process

There is no specific time frame for the duration of receiverships in Mauritius; however, the 2009 Act imposes several important statutory duties and timelines to be observed by the relevant parties when a company is placed under receivership.

Obligations of company directors

Under the 2009 Act, every company director must, within seven days of the appointment of the receiver, make available all the books, documents and information relating to the property in receivership in the company’s possession or under the company’s control. Subsequently, within 14 days of the receiver’s appointment or such longer period as the court may allow, the directors of the company must prepare and submit a statement of affairs of the company to the receiver and provide him or her with any assistance he or she may reasonably require in the performance of his or her duties.

Obligations of receivers

Within seven days of being appointed, the receiver must give written notice of his or her appointment to the chargor and the public at large by publication of a notice in a local newspaper. A copy of the notice must be sent to the registrar of companies and to the director of the Insolvency Service.

Within 28 days of receipt of the company’s statement of affairs, or such longer period as the court may allow, the receiver must lodge with the ROC, or to the chargee if appointed under a charge instrument, a copy of the statement of affairs and any statements he or she sees fit to make in relation thereto.

No later than two months after his or her appointment, a receiver must prepare a report on the state of affairs relating to the property in receivership, including relevant information on:

  • the events leading up to the appointment of the receiver, insofar as the receiver is aware of them;
  • particulars of the assets comprising the property in receivership;
  • particulars of the debts and liabilities to be satisfied from the property in receivership;
  • the names and addresses of the creditors with an interest in the property in receivership;
  • particulars of any encumbrance over the property in receivership held by any creditor including the date on which it was created;
  • particulars of any default by the chargor in making relevant information available; and
  • such other information as may be prescribed.

No later than two months after the end of each six-month period after the receiver’s appointment, the latter must prepare and submit a further report stipulating the date on which the receivership will end and summarising the state of affairs of the company as described above.

Despite the lack of definite time frames for the receivership to end, the courts and the ROC still maintain a form of oversight as, where the receiver has been appointed by the court, he or she cannot seek an extension of time to prepare and submit the reports without the approval of the court, and where the receiver has been appointed by a charge instrument, he or she cannot seek an extension of time without the approval of the ROC.

End of receivership

No later than 10 days after a receivership ceases, the receiver must send or deliver to the ROC, and the director of insolvency, a notice in writing that the receivership has ceased. Alternatively, the court may, on the application of the chargor, or a liquidator of the chargor, order that a receiver shall cease to act as such as of a specified date and prohibit the appointment of any other receiver in respect of the property in receivership; or order that a receiver shall, as of a specified date, act only in respect of specific assets forming part of the property in receivership. In the latter case, the order can be made only where the court is satisfied that:

  • the purpose of the receivership has been satisfied so far as possible; or
  • circumstances no longer justify its continuation.

Liquidation

Liquidation is the process whereby the assets of a company are wound up and realised, with the resulting proceeds of sale used to discharge all the company’s debts and liabilities. Any remaining balance is then distributed among the shareholders, according to their rights and interests or according to the company’s constitution. There are three main types of liquidation proceedings in Mauritius, namely:

  • compulsory liquidation, by way of a winding-up order made by the court;
  • members’ voluntary liquidation, where the company is solvent and a liquidator is appointed by way of a shareholder’s resolution at a meeting of the shareholders); and
  • creditors’ voluntary liquidation, where the company is insolvent and a liquidator is appointed by way of a creditors’ resolution at a watershed meeting.

Once appointed, the liquidator has custody and control of the company’s assets. The directors remain in office but cease to have powers, functions or duties other than those required or permitted to be exercised by the 2009 Act. The shareholders are precluded from exercising their powers under the constitution of the company, unless otherwise provided under the 2009 Act.

Moratorium period

Unless the liquidator agrees or the court orders otherwise, once the liquidation period has commenced, a person shall not:

  • commence or continue legal proceedings against the company or in relation to its property;
  • exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company;
  • transfer a share in the company; or
  • alter the rights or liabilities of a shareholder of the company.

Under the 2009 Act, where a petition for winding up of the debtor company has been lodged before the court, any creditors or contributories of the debtor company may apply to the court for an order to stay or restrain further proceedings in the action or proceedings. Where a winding-up order has been made or a provisional liquidator has been appointed, no action or proceedings can take place or be commenced against the debtor company except by leave of the court and on such terms as the court thinks appropriate.

Inability to pay its debts

A company is presumed to be unable to pay its debts as they become due in the ordinary course of business when:

  • it has failed to comply with a statutory demand;
  • execution issued against the company in respect of a judgment has been returned unsatisfied;
  • a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating the charge; or
  • a compromise between a company and its creditors has been put to vote but has not been approved.

In determining whether a company is unable to pay its debts as they become due in the ordinary course of business, the company’s contingent or prospective liabilities may be taken into account by the court.

Petition for winding up

Under the 2009 Act, a petition for the liquidation and winding up of a company can only be brought by the company itself; a shareholder; a creditor (including a contingent or prospective creditor); a liquidator; the director of the Insolvency Service; the Financial Services Commission (FSC), where the company has been licensed by the FSC; a contributory; or any person who is the heir of a deceased contributory or the trustee in bankruptcy of the estate of a contributory.

Contingent creditors have been defined as entities or persons towards whom, under an existing obligation, the company may or will become subject to a present liability, on the happening of some future event or at some future date. Prospective creditors, however, have been defined as those who, at the time of the hearing of the liquidation proceedings, are creditors of debts that will certainly become due in the future.[9]

With regard to contingent or prospective creditors, there is a requirement to furnish security for cost and to seek leave of the court to lodge a petition for winding up. There is no such requirement for any of the other entities entitled to lodge such a petition.

Additionally, the court will only grant the petition where it is satisfied that a prima facie case has been made against the company that it is unable to pay its debts as they become due in the ordinary course of business.

Statutory demand

A statutory demand may be served by a creditor on a debtor company where a debt that is not less than 100,000 rupees, or such other amount as may be prescribed under the 2009 Act, is due and demandable from the debtor company. Evidence that a debtor company is unable to pay its debts would be deemed as inadmissible by the courts where the petition for winding is not made within one month of service of the statutory demand.

As a matter of procedure, the court may set aside a statutory demand, on the application of a debtor company, where such an application is made within 14 days of the date of service of the statutory demand. This 14-day period is a mandatory requirement and any failure to comply with it would be compromise the application.[10] In fact, the 2009 Act does not confer any discretion upon the court to extend the delay.

To set aside the statutory demand, the court must be satisfied that:

  • there is a substantial dispute, regardless of whether the debt is owing or is due;
  • the company appears to have a counterclaim, set-off or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off or cross-demand is less than the prescribed amount; or
  • the demand ought to be set aside on other grounds.

Hence, the issue for the court upon determining whether to set aside a statutory demand is whether there is a ‘substantial dispute regardless of whether the debt is owing’ and the onus would be on the respondent to satisfy the court that a dispute does not exist.

Powers of the liquidator

The 2009 Act has conferred wide and extensive powers on liquidators, enabling them to do any (or all) of the following acts:

  • commence, continue, discontinue and defend legal proceedings;
  • carry on the business of the company to the extent necessary for the liquidation;
  • appoint a lawyer or agent to do anything that they are unable to do;
  • call a meeting of creditors or shareholders;
  • with the leave of the committee of inspection or the court, pay any class of creditors in full;
  • make a compromise or an arrangement with creditors or persons claiming to be creditors or who have or allege the existence of a claim against the company, whether present or future, actual or contingent, or ascertained or not;
  • sell or otherwise dispose of the property of the company with the approval of the committee of inspection;
  • act in the name and on behalf of the company and enter into deeds, contracts and arrangements in the name and on behalf of the company; and
  • borrow money, irrespective of whether they provide security over the company’s assets.

End of liquidation

The liquidation process generally ends where the liquidator applies to the court for an order that he or she be released from his or her position and for the company to be dissolved. This application is normally made when the liquidator has realised all the property of the company or as much as can be realised, in his or her opinion, without needlessly protracting the liquidation; distributed a final dividend, if any, to the creditors; adjusted the rights of the contributories among themselves; and made a final return, if any, to the contributories.

Alternatively, an application for release is also made by the liquidator when he or she has resigned or has been removed from his or her office and, additionally, where an order is made that the company be dissolved, the company shall from the date of the order be dissolved accordingly.

Finally, where the court has made an order that the liquidator be released, or that the liquidator be released and the company be dissolved, a copy of the order shall be lodged with the director of the Insolvency Service by the liquidator and delivered to the official receiver within 14 days.

Conclusion

One of the main weaknesses of the pre-2009 legal framework was the prevalent bias towards liquidation. In many circumstances, companies were placed into liquidation even though alternative resolutions were possible or less costly. Since the implementation of the 2009 Act, companies are more likely to opt for voluntary administration and other available rehabilitation procedures.


Notes

[1] [1993] MR 301; [1993] SCJ 110.

[2] Supreme Court Rules 2000, Rule 2, Para 2: ‘An action may be initiated by way of motion supported by affidavit where (a) the action is one for prerogative order; (b) the circumstances require urgency; or (c) it is so prescribed in these rules.’

[3] [2017] SCJ 272.

[4] [2017] SCJ 86.

[5] Section 185.

[6] Section 186.

[7] [2009] SCJ 200.

[8] Delphis Bank (In Receivership) v The Honourable Prime Minister of Mauritius & Anor [2002] SCJ 193.

[9] DMH Corporate Finance Ltd v Decocity Ltd [2010] SCJ 418.

[10] Pybig Construction Company Ltd v Pre-Mixed Concrete Ltd [2018] SCJ 253.

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