Compulsory liquidation is a court process. It occurs when a company is wound up by an order of the High Court. The winding up commences upon the presentation of a petition to the Master.

The most common ground to wind up a company this way is because the company is unable to pay its debts as and when they are due. However, there are other grounds (which are listed in the Companies Act) but perhaps the next most common ground is that the court is of the opinion that it is just and equitable for the company to be wound up.

Grounds that may be considered just and equitable include:

the disappearance of the foundation or substratum of the company (i.e. the main object of the company as disappeared),

• • impossibility of carrying on the business of the company including, for example deadlock in the management,
  • lack of probity in conducting the company’s affairs which would include lack of confidence in the conduct and management of the company and not just dissatisfaction,
  • dispute of deadlock between the members to the extent that it makes it impossible to carry on the business of the company
  • fraud or deception in the formation of the company.

A petition for winding up may be presented by the company itself (in certain circumstances, the directors of the company), a creditor or a group of creditors. Generally, the legal action is taken by a creditor. A judicial manager may also make an application to have the company wound up if he/she is of the opinion that the company will not be able to meet its obligations.

A petition can be on an urgent basis if urgency can be demonstrated to the court, for example, a risk of immediate dissipation of assets.

If the petition is successful, the court will ordinarily grant a provisional winding-up order and set a return date for the company to be placed in final liquidation. Should it be demonstrated to the court on the return date that the company should not be wound up then the court may discharge the provisional order and the company will be returned to the control of the directors. However, ordinarily, the final order will be granted on the return date. It is possible for the court to proceed to place a company in final liquidation but this is very rare.

Botswana practice is that the petitioner will nominate a provisional liquidator who if thought fit and proper by the court will be named as the provisional liquidator in the provisional winding-up order.

Following the issuance of the provisional winding-up order the provisional liquidator will assume control of the assets and affairs of the company and the powers of the company’s directors cease (save they have certain residual duties). If no provisional liquidator is appointed the Master will assume control of the assets and affairs of the company (it is not legally necessary to appoint a provisional liquidator but it is standard practice).

The provisional liquidator remains in office after the final order is granted right through to the first meeting of creditors at which point the final liquidator is appointed. The provisional liquidator cannot ordinarily dispose of any of the assets of the company (however, in certain circumstances he/she can sell assets if permission of the Master of the High Court is sought and granted). The disposal of assets can only take place following the appointment of the final liquidator and after directions have been sought from the creditors after the second meeting of creditors.

4.1.1. Consequences of Winding Up by the Court
The consequences of a winding-up order are immediate.

The main consequence of a winding-up order is that it operates in favour of all the creditors and of all the shareholders of the company as if the petition had been presented by all creditors and shareholders jointly. The winding up order ‘fixes’ the insolvent’s position as at the date when the petition was issued, and the rights of the general body of creditors, and not individual creditors, must thereafter be taken into consideration. This ensures the distribution of assets to creditors in a proper order of preference as at the date the liquidation commences, being the date of the presentation of the petition. Nothing may be done after the issuance of the winding up order by any of the creditors to alter the rights of it or the other creditors. No transaction can thereafter be entered in to by a single creditor to the prejudice of the general body.

2. The powers of the directors cease and the provisional liquidator (or if one is not appointed the Master of the High Court) takes control of the company and its assets. The provisional liquidator will remain in control until such time as a final liquidator is appointed (at the first meeting of creditors) after the final order has been made.

3. Any disposition of the company property after the presentation of the petition is void, unless the court orders otherwise. Therefore, any attachment or execution put in force against the assets of the company after the presentation of the petition are also void. Should any assets be sold following the presentation of the petition these funds are assets of the company in liquidation and must be handed over to the liquidator for the benefit of the body of creditors. The creditor who sold the assets would have a claim against the estate and would need to follow the ordinary procedure of submitting a claim and being paid a dividend if one was payable. Should the creditor fail to do so the liquidator is entitled to take action to recover these funds in full from the creditor.

4. Any legal action against the company is stayed, except with leave (i.e. permission) of the court. In addition, no new legal proceedings may be bought against the company without leave of the court.

4.1.2. Provisional Liquidator
A provisional liquidator is appointed in a winding up by the court, following the petition to wind up the company, to safeguard and protect the assets of the company until the final liquidator is appointed to dispose of the assets and wind up the estate.

A provisional liquidator remains in office from the issuance of the provisional winding-up order until after that the final winding-up order is granted through to the first meeting of creditors, which is convened by the Master. At the first meeting of creditors, a final liquidator is nominated by the proven creditors and formally appointed by the Master following provision of adequate security. The provisional liquidator and final liquidator do not need to be the same person although in practice they often are.

Ordinarily, the court order will appoint the provisional liquidator and the Master will confirm the appointment following the submission of appropriate security by the provisional liquidator. Although it is common practice in Botswana to appoint a provisional liquidator it is not a necessary legal requirement. If a provisional liquidator is not named in the court order the Master may appoint one or alternatively will assume control of the assets. As stated this is uncommon in Botswana and most petitions name the provisional liquidator. The court will require a letter of willingness to act to be submitted along with the petition from any proposed provisional liquidator in order to make the appointment in the court order.

The appointment of a provisional liquidator is often necessary if there is considered to be a risk of fraud or dissipation of assets or there was a need to have the control of the company immediately placed in the hands of an independent third party. The appointment of a provisional liquidator is also likely if there is an option for the company to trade.

The provisional liquidator is constrained as to what actions he or she may take before the company is finally wound up and before a final liquidator is appointed. It is often the case that the petitioner will seek orders from the court for specific powers for the provisional liquidator in order for the provisional liquidator to better administer the estate, for example, an order may be sought to allow the provisional liquidator to carry on the business of the company if deemed in the best interests of the creditors. Although not common the Master does have the power to limit the powers of the provisional liquidator (above the limitations already imposed by the Companies Act).

A provisional liquidator once he/she has assumed control of a company needs to make an assessment as to how to best perform his/her duties. A provisional liquidator will assume control of the affairs of the company as soon as the provisional liquidation order has been granted by the court. He or she will secure any premises and assets as well as advise the banks, staff, creditors, and other stakeholders that the company has been placed in liquidation.

4.1.3. Creditors
Any person or business owed money by the company that has been wound up is a creditor of the company and has a claim against the company. This claim is legally protected. However, the value of the claim in all likelihood will not be equivalent to the amount eventually realised and in fact, may be worth little or even worthless. This is especially so in cases where the company is materially insolvent or the creditors holding security are significant in relation to other creditors and hold security over the majority, if not all, of the assets.

The effect of liquidation is that, from the date of liquidation i.e. from the date of the petition, nothing can be done to alter the rights of one creditor at the expense of the others and that payment of any creditor after the winding up must be in accordance with recognised priority of claims of all creditors. The law prevents the satisfaction of one creditor to the prejudice of the others and the claim of each creditor must be dealt with as it was at the date of liquidation.

Priority of payment in liquidation is important and is done in strict order based on the ‘tiers’ of creditors. Only if a ‘tier’ is paid in full will there be any attempt to settle the claims of creditors in a lower tier. In simple terms the tiers of creditors are secured, preferred (employees followed by monies due in respect of taxation on income or profit) followed by concurrent creditors (ordinary trade and other creditors). Creditors within their ‘tiers’ are not ranked and rank pari passu with each other.

The costs of administration are settled in priority to the claims of creditors. The costs of administration include the costs of the legal petition, fees of the provisional and final liquidator as well as any costs incurred in securing and realising the assets (including insurance, security, bank charges, etc).

Secured creditors are paid from the proceeds of disposal of those assets over which they have security (which in Botswana is often all, or the majority, of the movable and immovable assets), less the costs associated with the realisation of the secured assets only. Should there be a shortfall in the secured creditors claim then this will rank as concurrent and be paid if and when those creditors are paid.

Secured creditors are entitled to remove the assets over which they have security at any time up to the second meeting of creditors and dispose of them outside of the liquidation process but are required to account to the liquidator on the proceeds. Any excess over and above the secured value derived from the sale must be returned to the estate. Any shortfall cannot be claimed against the estate. However, it is not common in Botswana for secured creditors to follow this path, and generally secured creditors, given the nature of securities granted in Botswana, allow the liquidator to dispose of the assets as part of the winding up of the estate.

Any proceeds that remain from the sale of the secured assets in excess of the secured value are pooled with the proceeds from the sale of unsecured assets and once the costs of administration are paid the remaining creditors, in order of ranking, are settled.

Claims for wages of employees are preferred claims and rank in priority after costs of liquidation and secured claims but they rank before any claims for taxation on income or profit. The Employment Act, as amended, specifically provides for the amounts that employees can claim (so-called ‘terminal benefits’). Employees may have claims that arise contractually and/or by law. Employees will be preferred creditors provided and, to the extent, that their claims fall within the amended Employment Act. To the extent that their claims are not preferred the claims will rank with concurrent creditors. To ascertain whether an employee’s claims are preferred or concurrent each individual employee’s claims and contracts needs to be analysed and classified the claims in accordance with the legislation.

By law, all employees may have the following claims:

• • Notice
  • Accrued leave;
  • Days worked prior to termination;
  • Severance benefit; and
  • Repatriation;

They may have additional claims in terms of their contracts of employment. Employees, if they have a claim against the estate, are required to work to the end of the month that the company has been wound up if so required by the provisional liquidator. If the liquidator elects to continue with the employee contracts then their wages, together with their terminal benefits, which continue to accrue, are paid as a cost of administration.

It is not necessary for employees to prove a claim in the estate, unlike other creditors but the liquidator may require an affidavit from an employee on what wages are actually owing.

If the preferred claims of the employees are settled then the claims in respect of taxation on profit and income will be settled. Only if the secured and preferred creditors are settled in full then distribution is made to the concurrent creditors. If there are insufficient funds to settle in full the creditors are paid on a pro rata basis. Unfortunately, it is rare for concurrent creditors to receive a sizable dividend if any dividend at all.

Shareholders receive nothing unless there is a surplus after all creditors’ claims (including interest) have been paid. (This is very unlikely for an insolvent company wound up by the court but it is possible if a company is wound up on just and equitable grounds).

4.1.4. Trading
While not common it is possible for a company to trade whilst in liquidation. The option to do so should almost certainly be considered by a provisional and/or final liquidator if there is an option to sell parts of the business as a going concern or to complete contracts and be paid in full for those goods and services. A liquidator is entitled with the sanction of the court or resolution of the creditors to carry on trading if in the best interests of the creditors.

Unless with the express sanction of the court, a liquidator is not permitted to purchase goods needed to carry on the business of the company from any party with a connection to the liquidator such that he/she would derive a profit from the purchase.

Understandably parties may be hesitant to trade with a company in liquidation but a liquidator is required to trade only if he/she has sufficient funds immediately available to settle any costs and a creditor would have recourse against a liquidator that acted otherwise. As a result, ironically, a creditor is generally better off trading with a company that entered into liquidation than one prior to liquidation.

Should a liquidator require “essential services” (electricity, water or telecommunications) during the liquidation, including if he/she wishes to continue to trade then he/she may need to settle the historical arrears owed to the supplier prior to liquidation as well as settle any costs incurred in the post-liquidation period. The supplier may refuse to supply if the historical arrears are not settled. The cost of settling these is a cost of administration.

4.1.5. Contracts
Contracts entered into by the company prior to winding up survive the liquidation and are not necessarily automatically terminated as a result of the winding up. The contract itself is not modified or altered by the insolvency except that the insolvent party cannot be compelled to perform in terms of the contract. Thus, the liquidator is not necessarily bound to complete contracts entered into by the company prior to the company being placed in liquidation and will need to assess whether or not to elect to continue with any particular contract. There are specific provisions in the Companies Act that afford the liquidator power, with the leave of the court or authority of the creditors, to deal with contracts concerning immovable property and leases. All other contracts are dealt with under the common law relating to insolvency.

The liquidator should only continue with contracts if it is in the interests of the body of creditors. If he or she elects to abide by the contract he or she must fulfill all obligations of the contract. Where a liquidator elects to continue a contract all obligations prior to liquidation will be payable in full as well as any obligations arising post-liquidation. Any costs associated with the contracts are a cost of the administration.

If the contract is terminated by the supplier or the liquidator elects not to continue with the contract (i.e. repudiates the contract) then the other contracting party will have a claim for breach of contract and would have a claim for damages in lieu of performance against the estate which ranks as a concurrent claim. The liquidator may refuse to perform any onerous or unprofitable contract entered into by the company prior to liquidation. Parties are not entitled to use contractual terms in a contract to try to circumvent the statutory obligations of the insolvency laws and prevent a liquidator from exercising his or her rights to not perform a contract.

The liquidator can enter into new contracts in the post-liquidation period. The costs associated with the contracts rank as an expense of the liquidation.

Employee contracts are not automatically terminated on liquidation. A provisional liquidator can decide to terminate the contracts and if so the employees have a preferred claim against the estate or he/she may elect to continue and they are paid as a cost of administration with all their contractual rights and benefits carried forward.

4.1.6. Claims Process
The Companies Act provides that the assets of the company in liquidation shall be applied in payment of the costs, charges, and expenses incurred in the winding up and of the claims of creditors, as they would under the law relating to insolvency i.e. as determined by the Insolvency Act.

In order for a creditor to participate in a liquidation process he/she must establish his/her right to do so. Any claim submitted will either be “proven” (i.e. admitted against the estate) or rejected. The method for doing so is for a creditor to submit a claim form and for it to be proven in accordance with the requirements of the Companies Act. All liquid claims must be proven at meetings of creditors. Illiquid claims cannot be proved at a meeting of creditors. The claims are proved to the satisfaction of the presiding officer of the meeting of creditors, which will ordinarily be the Master (For a voluntary liquidation it is the liquidator that is mandated to prove claims). The Master may interrogate (under oath) any creditor seeking to prove a claim.

Creditors have two main opportunities to submit a claim against an estate for a company wound up by the court and that is at the first and second meetings of creditors. (In a winding up by the court there are two required meetings of creditors. For more complex estates there may be more meetings).

The first item on the agenda for a meeting of creditors is the proof of claims. As soon as a claim has been approved, the proved creditor acquires the right to vote. Proven creditors, and only proven creditors, are entitled to vote on any matter put before the creditors at any meeting of creditors. Votes are calculated according to the value of the creditor’s debt as at the date of winding up. Every creditor that proves a claim against an estate is entitled to vote at a meeting of creditors except for certain conditional claims or any claim acquired by cession or purchase after the date of liquidation. Matters on which proven creditors are entitled to vote include who to elect as the final liquidator. Secured creditors are only entitled to vote on the unsecured portion of the claim except on the nomination of the final liquidator.

A liquidator is under no obligation to request or follow up a creditor to submit a claim. Although the liquidator should provide a copy of the claim form together with the notice of the meeting of creditors together with any additional information, including reports in advance of any meeting of creditors to all known creditors. The onus is on the creditor to submit a claim against an estate.

A creditor may choose not to submit a claim in an estate. It may be that a creditor does not want to participate in the liquidation process (for example there may be insufficient funds in the estate that even though they have a legal claim there is no prospect of a dividend or a minimal dividend) or the debt is too inconsequential to incur the costs of doing so and attending meetings of creditors.

Creditors also do not necessarily need to submit a claim at the first meeting of creditors although the benefit if they do is their vote will be counted in respect of who is nominated as the liquidator. Creditors normally will submit their claims at either the first or second meeting of creditors. However, creditors are entitled to submit a claim at subsequent meetings and are allowed to convene a meeting (at their expense) for the express purpose of doing so. A claim can be made any time before the final distribution of the estate.

Where a debt has been guaranteed the creditor and the guarantor may not both prove in the liquidation for the same debt. Generally, the expectation is that the primary creditors should submit a claim.

Any amount due to a creditor cannot ordinarily be set off against a claim by a creditor against the estate unless, prior to liquidation, there was a practice of mutual set-off between the company and the creditor. The claim may be rejected if a creditor does so. It is the liquidator’s duty to collect the debts owed to the company so he/she will likely pursue any monies owed by the creditor.

There is a statute of limitations on debts that can be claimed against an estate. While this can be a complex area ordinarily it is 3 years for oral agreements and 6 years for written contracts. In the event that a claim is sought to be enforced after the statutory limitation period, it is determined to be extinguished by operation of law.

4.1.7. Claim Forms
For a winding up by the court, the claims must be submitted in the prescribed form by affidavit. A claim form is sent to the known creditors by the provisional liquidator/liquidator in advance of the meeting of creditors (first and second meeting respectively). However, any creditor who is not sent one can request one from the provisional/final liquidator.

The claim form should detail the identity of the creditor and the value of the claim. The amount that can be claimed is the amount that is due as of the date of liquidation. The claim must be deposed to by the creditor or a person fully cognisant of the claim. The affidavit must give particulars of the debt specifying whether it was in respect of goods supplied, services rendered, money lent, etc. The claims must state:

• • the nature and particulars of the claims
  • whether the claim was obtained by cession of purchase (creditors of claims acquired in this fashion cannot vote) and
  • whether the creditor holds security and if it does the nature, particulars and value of security.

The creditor must include supporting documents in support of the claim, copies of invoices, etc but a judgment is also sufficient proof of a debt. This is for unconditional and liquidated claims. It is important creditors complete a claim form in detail and correctly. A claim form must also be properly commissioned by a Commissioner of Oaths, in accordance with Botswana law. Failure to do this is likely to result in the claim being rejected. (If a claim is rejected on this basis or any other a creditor is entitled to submit a claim again at a subsequent meeting of creditors).

The completed claim forms should be submitted to the Master of the High Court 24 hours before the advertised time of the meeting of creditors. In practice, the liquidator reviews the claims forms and prepares a schedule of those claims that are in order and which claims are accepted or rejected based on a prima facie review of the documentation submitted. The Master is generally guided by this advice. However, the Master is not bound to accept it and must apply his/her own mind to the claims. The Master will prove or reject the claims at the meeting of creditors.

The admission of a claim at a meeting of creditors, while sufficient to allow voting at a meeting of creditors, is provisional. After the meeting, the liquidator is required to review the claim forms and supporting documentation, investigate the claims and make submissions to the Master to have the claim expunged or reduced where applicable. The liquidator must advise any creditors whose claims are recommended for rejection the reasons for the rejection. The liquidator will compare the claims to the company’s records and any other available information. The liquidator may ask for additional information or evidence if he/she thinks a creditor has not sufficiently proved the claim. e.g. the liquidator may ask for copies of proof of delivery for goods supplied. The creditor must submit the information or show cause within 14 days of the request.

Secured creditors must put a value on their security. If they do not do so, they will not be able to rely on their security and will form part of the pool of concurrent creditors. Secured creditors are entitled to claim interest for the year preceding the winding up and for the year current with the winding up.

Unsecured creditors are entitled to claim for interest only to the date of liquidation under certain circumstances:

• • the debt prior to liquidation contractually or statutorily bears interest; or
  • the debt had previously been demanded in writing with notice that interest would be claimed.

In the very rare circumstances where there is a surplus after all proven claims have been settled in full then interest is payable to the extent of the surplus. Interest is calculated at 6% (six percent) unless an alternative amount has been specified in writing.

Foreign currency debts will be converted into Pula at the official rate on the day the company went into liquidation. If this is not done by the creditor it will be done by the Master of the High Court or the liquidator.

4.1.8. Proxies
Creditors are entitled to give authority to another person to attend, speak, and vote as his/her representative as a meeting of creditors by granting a ‘proxy’. A proxy form should be sent to each creditor along with the claim form and the notice of the meeting of creditors. If one is not sent creditors should request one from the liquidator.

Proxies must be lodged 24 hours before a meeting of creditors by any creditor intending to prove a claim at a meeting of creditors as is the requirement for claim forms. If this is not done, then the proxy cannot vote. If a proxy represents a company at a meeting, he/she must produce to the satisfaction of the presiding officer of the meeting (Master) a copy of the resolution from which he/she derives his/her authority if required by the Master or the provisional/final liquidator. Ordinarily, this would be a resolution properly passed by the board of directors or a special or general power of attorney accompanied by a resolution by the board of directors to grant such a power of attorney. Both the authorisation and the proxy form must be accepted to allow the representative to vote.

Attorneys appearing at the meetings of creditors are required to lodge proxies. If and when an attorney lodges a proxy, it is usually accepted that the attorney may brief counsel, who can appear at the meeting. Only attorneys or advocates admitted in Botswana may practice law in Botswana. For a foreign advocate to appear they must have been admitted by the Chief Justice, paid the relevant fee, and be briefed by local attorneys. Foreign attorneys may not appear or practice in Botswana.

4.1.9. Reports
The liquidator is required by law to prepare a report for creditors which he or she is required to submit at a meeting of creditors (if there are contributories a report would also be prepared for contributories). In practice, the liquidator normally sends this report to creditors in advance of any meeting of creditors and then summarises at the meeting of creditors and presents any update as to actions and developments in the period since the date of the report and the date of the meeting.

The first report should be prepared by the provisional liquidator and submitted within three months after his or her appointment but in practice, the time varies and depends on when the Master of the High Court is able to convene the first meeting of creditors.

The first report must cover the following:

• • the amount of share capital issued, subscribed and paid up,
  • the estimated amount of assets and liabilities,
  • the causes of failure of the company,
  • whether further enquiry is desirable as to any matter relating to the promotion, formation or failure of the company or the conduct of its business,
  • whether the company has kept the books and accounts,
  • progress and prospects of the liquidation, and
  • any matter thought relevant to the creditors or on which the liquidator may require direction from the creditors.

Liquidators are required to investigate the affairs of the company. This investigation includes the formation, promotion, and management of the company as well as whether proper books and records have been maintained. The liquidator must report to creditors on the outcome of these investigations and whether these investigations have or will lead to potential recoveries for the benefit of the estate.

This report is often referred to as a “Section 448 Report”. It is practice that this report is distributed in advance of the first meeting of creditors to all known creditors of the estate together with a copy of the notice of the meeting of creditors (which will include the agenda for the meeting), a claim form and a proxy form together with instructions of how, when and where these forms should be submitted.

Liquidators will also often send copies of any resolutions that he/she may be seeking to have approved by the creditors at the meeting. These resolutions should be intended to allow for a smoother administration of the estate by the liquidator so that he/she does not have to seek direction from the creditors on a regular basis. However, creditors have the right to review and amend these resolutions, subject to a majority vote. These resolutions should be in accordance with the requirements of the Companies Act where the liquidator is required to seek authority from the creditors.

The liquidator should also send a report in advance of the second and any subsequent meetings. He or she may also send regular updates to creditors to keep them timeously informed of developments. Creditors should expect status updates for large and complex estates status.

4.1.10. Meetings of Creditors
It is a necessary requirement for there to be meetings of creditors when winding up an insolvent company. A quorum at a meeting of creditors is the attendance by a single creditor. In terms of the insolvency legislation, the meetings must be physical meetings. There is no provision in Botswana insolvency for resolutions to be taken by the creditors outside of a physical meeting. A meeting of creditors for a company wound up by the court is generally chaired by the Master of the High Court.

Meetings of creditors are convened for four main purposes.

1. 1. Proving of claims by creditors in the estate
   2. Nominating the final liquidator (at the first meeting of creditors)
   3. For the liquidator to provide a report to creditors on the work done in winding up, the prospects as well as the investigations conducted
   4. Passing of resolutions by the majority of creditors and/or directions on disposal of assets.

Meetings of creditors may also be used to question directors and other parties if necessary.

There must be two meetings of creditors but the liquidator may deem it necessary to convene more if the estate is large and complex. The cost of convening the first two meetings together with any meeting subsequent to that, convened by the liquidator, are costs of administration of the estate. A liquidator is required to convene further meetings if requested by 25% in value of the creditors.

An individual creditor can request an additional meeting of creditors be convened to prove a claim. The cost of doing so would be for its account.

All known creditors must be provided with appropriate notice of any meeting of creditors. Notice of the meetings will also be published in the Government Gazette. They also should be provided with a claim form to allow for proof of the claim at the meeting. Any reports to be presented at the meeting by the provisional or final liquidator together with any resolutions that the liquidator is hoping to have approved are normally distributed in advance of the meeting for creditors to consider prior to the meeting, including the standard set of resolutions referred to above.

The main purpose of the first meeting of creditors is for the proving of claims and determining the person or persons whose names are to be submitted for appointment as liquidator and these should be two matters on the agenda. However, if a provisional liquidator has been appointed, he or she is also required to submit a report to the creditors in terms of Section 448 of the Companies which will detail inter alia the assets and liabilities of the company, the reasons for failure of the company, prospects in the liquidation and matters that may require further investigation. This is often termed the “Section 448 Report” although this is not a legal term. A resolution is also generally taken for approval of the provisional liquidator’s fees at the first meeting of creditors and the basis of the fees going forward for the final liquidator. Should no basis be determined the rate is set by the regulations.

The main agenda items at the second meeting of creditors are a further opportunity to prove claims against the estate and for the final liquidator to seek directions from creditors on the disposal of assets.

Minutes must be kept of each and every meeting of creditors and they must be signed by the presiding officer (normally the Master of the High Court). The original minutes will be filed in the Master’s Office and are ordinarily distributed to creditors by the liquidator after a meeting but a creditor is entitled to ask to review the minutes on the Master’s file. The Section 448 Report and any other reports prepared by the liquidator and submitted to creditors will be annexed to the minutes.

The directors are required to attend meetings of creditors. For the first and second meetings, their attendance is required without notice. At any meeting of creditors, the directors may be required, under oath, to answer questions from the Master, liquidator, or proven creditor on matters relating to the business or affairs of the company before or after the date of liquidation and as regards any property belonging to the company. The scope of the interrogation can be wide but must be relevant to the proceedings.

4.1.11. Resolutions
The Companies Act provides for a number of matters where the creditors can, by resolution, give powers to the liquidator.

Resolutions are put to creditors at a meeting of creditors. Creditors with a proven claim may vote on any resolution. Votes are counted based on value and resolutions are passed by the creditors holding a majority of claims voting in favour.

Creditors may vote on all questions affecting the administration of the estate but not the distribution. In Botswana, it is practice for the proven creditors at the first meeting of creditors to be asked to consider and pass a standard form of resolutions to enable the liquidator to be duly authorised to carry out his duties. These are a summary of the matters specified in the Companies Act that the liquidator needs approval from the creditors in order to do. These are intended to allow for the smooth administration of the estate with the final liquidator being given sufficient power to fulfill his duties without having to continuously convene meetings of creditors (which have a time and cost implication) to seek a resolution or directions on a particular matter. There may also be specific resolutions put to the creditors depending on the nature of the estate.

Resolutions of creditors must be bona fide (as well as lawful) and in the interests of the estate and for the benefit of the creditors. They can be set aside by court if found otherwise. As such a majority creditor cannot overwhelm the rights of the minority creditors. The power of the majority must be exercised in the honest belief that it is in the interests of the estate and not for some collateral object.

4.1.12. Meeting of Contributories
There is a requirement in the Companies Act for a meeting of both creditors and contributories to be held once the company has been finally wound up.

The Companies Act defines contributory as those who are liable to contribute in the event of a winding up by the court. In a company limited by shares, no contribution is required unless the shares have not been paid for. Most of the time in companies wound up by the court all shares are fully paid up and as a result, there are no meetings of contributories.

4.1.13. Final Liquidator
A final liquidator is nominated at the first meeting of creditors by the creditors that have proven a claim against the company. The Master of the High Court appoints the nominated final liquidator following the provision of adequate security. All proved creditors may vote on the election of the final liquidator. Votes are reckoned according to the value of their proved claim.

The primary duty of a final liquidator appointed to wind up an insolvent estate is to look after the interest of all creditors. The function of the final liquidator is to get in the company’s assets and distribute them to the creditors. He/she also has a duty to investigate the affairs of the company prior to liquidation.

Any investigation should be undertaken in the ordinary course of the winding up. The primary focus of investigations is to investigate what assets can be realised and whether any additional recoveries can be made for the benefit of the estate (and take any actions deemed in the interests of the creditors in this regard) but there are also obligations placed on the liquidator to report on the formation, promotion, and management of the company as well as an obligation to report on any offences that may have been committed by directors or other parties prior to the winding up.

The final liquidator may also participate in any public inquiry if one is ordered by the court. Public inquiries are rare but allowed for the public examination of third parties, including directors. The examinees are questioned under oath. The grounds for a public inquiry being ordered are that the Master has reported to the court that in his or her opinion fraud has been committed in the formation, promotion, or management of the company. A creditor is entitled to ask questions at the inquiry.

A final liquidator’s powers are wide and include powers to sell the company’s assets, to bring and defend legal proceedings, and to pay dividends to the company’s creditors. The final liquidator, like the provisional liquidator, has certain powers afforded to him/her under the Companies Act. Some of these are automatic by virtue of his/her appointment, some are only granted with the sanction of the creditors or the court. The creditors provide this sanction to the final liquidator by way of resolutions passed by proven creditors at a meeting of creditors.

The final liquidator of a company that is being wound up by the court must take into account any directions on the administration of the estate that may be given by resolution of the creditors taken at a meeting of creditors. However, the final liquidator is required to act in the interests of all creditors, and individual creditors are not entitled to give specific instructions, nor can the liquidator act on any instructions so given. Should no directions be given on a matter then the liquidator is entitled to ask for direction from the Master. The liquidator is also entitled to seek directions from the court, in matters of procedure or law (but not in terms of the commercial or practical way to wind up the estate).

4.1.14. Assets of the Company and Third-Party Assets
A liquidator requires leave of the court or authority from the creditors to dispose of the assets of the company. The assets of the company can ordinarily only be disposed of by the final liquidator after receiving directions from the creditors concerning the sale or recovery of any part of the estate and related matters. This allows for the final liquidator to report to the creditors on the options for disposal and potential recoveries. The final liquidator is required to seek these directions at the second meeting.

Any secured creditor also has the right to remove the secured assets from the estate up to the second meeting and as such the final liquidator is not entitled to dispose of the assets prior to that date unless an agreement is reached with the secured creditor and proper authorisation is sought.

A liquidator (provisional or final) may dispose of assets without leave of court or authorisation of the creditors if he or she has made an application to the Master to do so and the Master has granted permission. Permission will only be granted for assets that are secured if the secured creditors agree and if there is good reason for disposal. Reasons may include that the goods are perishable or that the insurance and/or storage costs are prohibitive.

The liquidator is not entitled or empowered to dispose of assets that do not legally belong to the estate even if found on the company’s property. If a creditor or third party is of the view that its assets are in the company’s possession, they should contact the provisional liquidator or final liquidator as soon as possible in writing with full proof of ownership and other supporting documentation. It will be necessary for the creditor or third party to identify any assets claimed. The liquidator will need to satisfy himself or herself that the asset does not belong to the estate and examine the claim carefully before deciding whether to release the goods in question or settle any amounts due (as a cost of administration) or take some other action.

A liquidator is prohibited, either directly or indirectly, from purchasing any of the company’s assets except by leave of the court. Any purchase made by a liquidator may be set aside by the court.

4.1.15. Remuneration of the Liquidator
The fees for a liquidator (and provisional liquidator) are paid from the assets of the estate as a cost of administration prior to the payment of any claims of creditors.

In a liquidation of a company unable to pay its debts, the creditors are free to set the basis of the final liquidator’s remuneration. Proved creditors agree on the remuneration basis proposed by the nominated final liquidator at the first meeting of creditors. This takes place after the identity of the final liquidator has been determined by a vote of proven creditors (which is often, but not always, the same as the provisional liquidator).

If no agreement is reached then the fees are determined by a tariff as set by the Minister. Where the creditors agree to the basis of the remuneration at the first meeting of creditors, the tariff does not apply.

The basis for fees for a final liquidation are:

i) A percentage of the value of assets that are realised on a set scale determined by the type of asset
ii) On the time spent by the liquidator and his/her staff, or
iii) Fixed fee.

The final liquidator is entitled to a reasonable remuneration for his or her services. The best practice is that the basis of the fee should take into account the complexity of the estate, the value, and nature of the assets dealt with by the liquidator, and any exceptional responsibilities assumed by the liquidator.

In Botswana, the most common basis is on time spent. The payment of the provisional liquidator is normally also done on a time basis. If that is the case the liquidator would be required to keep detailed timesheets to support the work done. These should be available to creditors.

The Master is not obliged to tax fees the basis of which have been set by creditors, but the Master may reduce the remuneration if he/she considers it to be grossly inflated.

4.1.16. Liquidation and Distribution Accounts and Plan of Distribution
A liquidator must keep proper books and records (which are available for inspection) of the financial transactions following the assumption of control. He/she must assume control of the company’s bank account at date of liquidation and must open an independent bank account for the money of the estate. The liquidator must advise the Master of the details.

The Liquidator is required to prepare an account of receipts and payments and plan of distributions within six months of his or her appointment and every six months thereafter. This is called the Liquidation & Distribution Account or L&D

This account is distributed to creditors and must be laid for inspection at the office of the Master of the High Court and the office of the liquidator. The liquidator needs to provide notice of the availability of the account and any interested party may object to the account to the Master. The Master needs to consider the objection and uphold or reject it. The Master may instruct the liquidator to make revisions to the account. If there are no objections or the objections have been dealt with then the account is confirmed. Once an account is confirmed the liquidator may proceed to pay a dividend or collect a contribution in accordance with the account (as discussed below).

It is not always practical or cost-effective for each and every estate to produce accounts with this regularity and the Master may waive the requirement.

4.1.17. Dividend
Once all the assets have been realised and if there are sufficient funds available the liquidator may declare a ‘dividend’. The dividend will be a percentage (Thebe in the Pula) of each creditor’s total admitted claim, based on the cash available for distribution to proven creditors and the total of the creditors’ claims.

Dividends are generally only made at the end of a winding up. A winding up takes months if not years. Occasionally, if there are sufficient funds available and, after the two meetings of creditors have been held, the route to concluding the liquidation is not too uncertain an interim payment may be made. In order to pay a dividend (interim or final) a liquidator is required to prepare and make available a liquidation & distribution account, which should detail the receipts and payments made during the liquidation period (any trading activities should be included but should be accounted for separately) and a plan of distribution of the funds realised.

Any liquidation & distribution account details the quantum of the dividend to be distributed to creditors and payment must be made in accordance with the confirmed account. Proof of dividend payments made should be submitted by the liquidator to the Master.

Once payment of the final dividend has been paid and all other matters of the estate have been completed the liquidator may apply for his/her release and once this has been done then the company may be struck off the register.

4.1.18. Priority of Payment
Creditors are paid in priority which is determined by statute. There are three types of creditor – secured, preferred (or preferent) and concurrent.

Secured and preferred creditors are paid before concurrent creditors. Secured creditors are those that have some form of security over a company property. They are entitled to be repaid their debt out of the proceeds of sale of their secured assets in priority to the ordinary unsecured creditors. Any funds realised in excess of a secured claim is incorporated into the funds derived from the sale of the unsecured assets to settle the claims of the unsecured creditors. If the sale of a secured asset is insufficient to settle the claim of a secured creditor then the secured creditor will have a concurrent claim against the estate and will rank alongside all the concurrent creditors.

Preferred creditors are a special category of unsecured creditors and are defined in terms of the Insolvency Act. Preferred creditors are paid in priority to all other unsecured (concurrent) creditors. Preferred creditors include employees and the claims in relation to taxation on income and profit. Preferred creditors are settled from the free residue of the estate after the costs of administration (i.e. costs of the liquidation) and are paid following the disposal of the unsecured assets. The preferred creditors must be paid in full before the concurrent creditors can be paid.

If there are funds in excess of the concurrent claims then the liquidator will settle the interest of creditors’ claims from the date of liquidation to the date of payment. Interest is calculated at 6% (six percent) per annum unless an alternative amount has been specified in writing. If there are funds in excess of this a distribution is made to shareholders. These circumstances are very rare but it can occur when a company has been wound up on just and equitable grounds rather than that of insolvency.

Before declaring a divided the liquidator must give notice of his/her intention to do so.

4.1.19. Contribution
Botswana’s insolvency law requires that should there be insufficient funds in the estate to cover the costs of administration of winding up the estate then any creditor who has proven a claim in the estate is required to make good the shortfall on a pro-rata basis. Details of any contribution will be detailed in the liquidation & distribution account prepared by the liquidator. If this account is confirmed (i.e. it receives no objection to it by the Master, creditors or interested third parties which is upheld) then each creditor is required by law to contribute to the estate.

A creditor cannot bypass the requirement for a contribution if called by simply withdrawing its claim as the creditor will still be liable to contribute to the costs up to the date of withdrawal of the claim. Any creditor that withdraws a claim in this manner who later seeks to prove a claim again will only be entitled to share in any distribution if all of the other creditors are paid in full.

The notion of a contribution should not be confused with a contributory. A contribution is sought from creditors with proven claims in the estate based on a confirmed liquidation & distribution account. A contributory is, for a company limited by shares, any shareholder that has not paid for the shares as at the date of liquidation.

The call for a contribution is a rare occurrence but creditors should be aware of this provision when submitting a claim against an estate and be sure to read the reports of the liquidator carefully which should detail what are the prospects in the liquidation.

4.1.20. Completion
The liquidation is complete when all the assets have been realised, all creditors’ claims have been adjudicated (where there are sufficient funds) and net realisations after expenses of the liquidation have been distributed to the creditors.

When the winding up is complete, the liquidator will apply to be released from the office of liquidator to the Master of the High Court. The liquidator must advertise his/her intention to apply for release.

4.1.21. Master
The institutional framework which implements insolvency law is the High Court as such the winding up or judicial management of companies fall within the jurisdiction of the Master of the High Court. The Master is appointed in terms of the Administration of Estate Acts.

The Master’s role is not to involve her/himself in the day-to-day administration of the estate nor to be involved in the commercial or practical steps involved in winding up the estate when an independent liquidator has been appointed. The Master has oversight of the liquidator’s performance and actions.

In a winding up by the court the Master has, inter alia, the following responsibilities:

• • Receive and publish provisional and winding up orders.
  • Ensure a statement of affairs is submitted by the directors following the winding up order and determine those, in addition, to the directors who are required to submit or contribute to the statement of affairs.
  • Make a report to the court (if thought appropriate) if he or she is of the view fraud has been committed prior to liquidation. This is required if a public inquiry is envisaged.
  • Set the level and form of security to be provided by the provisional and final liquidator in an estate.
  • Convene and preside at the first and second meetings of creditors, and any subsequent meetings if necessary.
  • Summon witnesses to attend meetings (if required) and administer the oath.
  • Preside at meetings of creditors (or appoint a presiding officer) and prove claims of creditors against the estate.
  • Appoint a provisional and final liquidator subject to certain conditions as discussed below.
  • Approve the sale of assets in the absence of a resolution from creditors or an order of the court.
  • Receive and confirm interim and final liquidation & distribution accounts. The Master also has the responsibility to issue instructions for amendments to be made to these accounts independently or following an objection to the account by a creditor which is upheld. The Master may also grant extensions of time to the laying of accounts by the liquidator.
  • Receive proof of payment of dividends and unpaid dividends as well as receiving any surplus in an estate and paying the same into the Guardian’s Fund
  • Advise Registrar of Companies of the completion of the liquidation process and request fully wound-up companies be removed from the register.
  • Give directions to the liquidator in the absence of directions from the creditors on matters on which the liquidator has sought directions at a meeting of creditors.
  • Review the records of the liquidator.
  • Authorise the destruction of records held by the liquidator following the completion of the winding up and removal of the company from the register as well as maintenance of records within the High Court relating to the estate for a period of five years.
  • Allow drawdown from Assetless Fund in appropriate circumstances.
  • Tax the liquidator’s fees in accordance with the statutory tariff if the basis of fees has not been agreed with the creditors at a meeting of creditors.

The Master also has oversight of any liquidator appointed in a voluntary liquidation and the overall oversight of the estate (including the issuance of a file number and confirmation of the liquidation & distribution account) however their duties are less. (It is not the Master that convenes the meetings of creditors or proves the claims in a CVL it is the liquidator). The Master also assesses, based on the information submitted by the directors, whether a company can be wound up on an MVL basis.