Insolvency Law and Practice in Certain African States and the UK

Impact case study
  • Unit(s) of assessment: Law
  • School: Nottingham Law School

Impact

Research by the Centre for Business and Insolvency Law is helping to increase investor confidence and economic stability through its influence on law-making in Africa and on legal practice in the UK.

Developing countries need a sound legal infrastructure with modern insolvency laws that increase investor confidence in order to attract investment and integrate into the global economy. Professor David Burdette’s research has directly influenced legislation in the Seychelles, legislation currently before parliament in Malawi and insolvency practice in South Africa.

Robust insolvency laws are also important for maintaining a stable domestic economy and Professor Adrian Walters has influenced public debate regarding costs in insolvency in the UK.

Changes in insolvency law in Africa
At the request of the World Bank, Burdette worked as part of a World Bank team on the insolvency systems in Malawi and the Seychelles to remedy shortcomings in the existing statutes dealing with Malawian and Seychelles insolvency law.

The Malawi project formed part of a larger Doing Business project that the World Bank was undertaking in Malawi. The Seychelles project was one of a suite of projects in support of a development policy loan to the Seychelles.

As part of a World Bank team Burdette looked at the limitations of existing Malawi and Seychelles insolvency legislation and how these could be remedied. On the basis of these reports, Burdette was part of a World Bank team appointed to assist with the drafting of new insolvency legislation for Malawi and Seychelles. The Seychelles Insolvency Act, a result of this work, has been passed into law and the Malawian Draft Insolvency Bill is awaiting approval by Parliament.

The new Seychelles insolvency law has contributed to improving the financial architecture of Seychelles, and that improvement is essential in order to secure greater foreign investment. The Insolvency Bill has put the Malawi government in the position to achieve similar improvements.

Reforms in insolvency law and practice in the UK
Professor Walters’ report, carried out with John Armour and Audrey Hsu, influenced the UK government’s evaluation of the Enterprise Act 2002. It also informed the Office of Fair Trading’s market study which led to the Insolvency Service Consultation on Reforms to the Regulation of Insolvency Practitioners in 2011.

Research background

Professor Burdette plays a leading role in influencing insolvency law and practice in sub-Saharan Africa. As a senior restructuring and insolvency specialist for the World Bank, he conducted an external peer review of the World Bank in Zambia and a World Bank sponsored project on introducing a legal framework to license and regulate insolvency practitioners in South Africa. As part of a World Bank team he carried out a review of the insolvency systems in Malawi and the Seychelles, and assisted in the drafting of legislation for both countries.

Burdette's scholarship also informs and influences legal practice in South Africa through his contributions to two major texts on insolvency law: Meskin, Insolvency Law and its operation in winding-up and Henochsberg on the Companies Act 71 of 2008. These are the leading textbooks in their respective fields and are widely used by practitioners in South Africa.

The Insolvency Service commissioned Professor Walters (with Armour and Hsu) to assess the impact of the virtual abolition of administrative receivership and its replacement with the power to appoint an administrator. Their report found evidence to support the idea that secured creditor control in bankruptcy (through administrative receivership) does no worse a job than administration (a collective insolvency proceeding) in generating net returns for unsecured creditors.

This finding was at odds with claims in the existing law and finance literature which suggested that secured creditor control creates perverse incentives to liquidate assets at fire sale prices without paying due regard to the interests of unsecured creditors. In particular, the report identified that banks are better able than unsecured creditors to control insolvency practitioner costs by negotiating competitive rates.

Evidence

  • Insolvency Act (Seychelles).
  • Malawi Insolvency Bill.
  • Nedbank Ltd v Bestvest 153 (Pty) Ltd; Essa and Another v Bestvest 153 (Pty) Ltd and Another (Companies and Intellectual Property Commission and Another Intervening) [2012] (example reported case corroborating the impact of the Henochsberg text as a leading textbook on business rescue in South Africa).
  • Zoneska Investments (Pty) Ltd / Bonatla Properties (Pty) Ltd v Midnight Storm Investments 386 Ltd and Others (First Rand Bank Ltd Intervening) [2012] JOL 29438 (WCC); - (a reported case corroborating the impact of the Henochsberg text).
  • The market for corporate insolvency practitioners, The Office of Fair Trading (June 2010). Findings of Walters (with Armour and Hsu) are cited on paragraph 4.5.
  • Kempson, E., Review of insolvency practitioner fees, Report to the Insolvency Service (July 2013). Page 34: evidence of the role of secured creditors in controlling costs.

Publications

  • Burdette, D., 2010. Report on insolvency law in Malawi. (Report for the World Bank).
  • Burdette, D., 2008. Report on the regulatory environment of insolvency practitioners in South Africa. (Report for a World Bank-sponsored project).
  • Burdette, D., 2011. Chapter 18 "Business Rescue" in Meskin, insolvency law and its operation in winding-up. LexisNexis South Africa, looseleaf, chapter first published 2011, updated twice annually).
  • Burdette, D., 2011. Chapter 6 "Business Rescue" in Henochsberg on the Companies Act 71 of 2008. LexisNexis South Africa, looseleaf, chapter first published 2011.
  • Walters, A., Armour, J., and Hsu, A., 2006. The impact of the Enterprise Act on realisations and costs in corporate rescue proceedings. (An Insolvency Service funded research report).

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