MAURITIUS. Paul Lam Shang Leen

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1 THE WORLD BANK GLOBAL JUDGES FORUM COMMERCIAL ENFORCEMENT AND INSOLVENCY SYSTEMS MAY 2003 PEPPERDINE UNIVERSITY SCHOOL OF LAW MALIBU, CALIFORNIA MAURITIUS Paul Lam Shang Leen TABLE OF CONTENTS PAGE 1.0 INTRODUCTION AND OVERVIEW LEGAL FRAMEWORK FOR CREDITOR RIGHTS LIQUIDATION REHABILITATION/COMPOSITIONS/SCHEMES INSTITUTIONAL FRAMEWORK FOR INSOLVENCY REGULATORY FRAMEWORK FOR INSOLVENCY CROSS-BORDER INSOLVENCY PROPOSED PENDING LEGISLATION 39

2 1.0 INTRODUCTION AND OVERVIEW The laws applicable to the creditors, the security and enforcement of their rights in Mauritius depend on the type of the asset given as security, the legal entities involved, the urgency and peril of the debt. The relevant laws are the Civil Code, the Companies Acts 1984 and 2001, the Bankruptcy Act and the Sale of Immovable Act. Secured Claims and Enforcement Fixed and Floating Charges The most common forms of security taken by approved institutions are fixed and floating charges [Articles and following of the Civil Code]. The main reason for this popular form of security is its simplicity and minor costs for the debtor. The contents of the deed witnessing the floating and fixed charges are almost the same except that in respect of a fixed charge the property given as security is clearly specified and particularised while in respect of a floating charge, no specific property is specified as the security is also on any properties acquired in the future. Fixed charges are usually taken on immoveable properties or specific movables (vehicles, equipments) and such fixed charges attract ad valorem registration duty and are often taken for small amounts coupled with a personal guarantee. The chargor cannot dispose of the assets without the authorisation of the financial institution. Under the floating charge, the chargor may dispose of the assets and as the registration duty for companies is a fixed one, so that most companies grant floating charges. In the deed witnessing the floating and fixed charges as regards companies, it usually incorporates clauses, breaches of which would empower the financial institution to appoint Receivers or Receivers and Managers (section 188 and seq of the Companies Act 1984 still applicable despite the proclamation of the Companies Act 2001) who will then take over the administration of the concern coupled with the possibility for the Receivers or Receivers and Managers, in order to secure the repayment of the loan taken, to sell the assets by auction, without the necessity of referring the claim to the Court. Receivers may also effect private sales after tender. Otherwise the Civil Code provides for the enforcement of fixed charges which is effected by a power of seizure given to an usher of the Supreme Court. Notice is given to the debtor and certain minimum time frames required for the public sale which is either effected by an Usher or a Sworn Auctioneer as regards movable assets and chattels. Immovable properties are sold pursuant to the Sale of Immovable Property Act. Floating charges must first be crystallized before an inventory is effected by an usher. The conditions giving rise to the crystallization of a floating charge into a fixed charge are provided by article et seq of the Civil Code. Upon inscription of the usher s

3 inventory, the floating charge is transformed into a fixed charge and execution is effected as any fixed charge. Mortgages Mortgages are only authorized on immovable properties (Civil Code). Enforcement is effected following a notice commandement followed by a power to seize given to an usher of the Supreme Court. The public sale is made according to the Sale of Immovable Property Act. For the execution of a mortgage, a mise en demeure (notice) and a Commandement must first be served on the debtor. The Commandement required has to be served personally upon the debtor and this is usually a cause for delay as the debtor may have left without giving a fixed place of aboard. Gage sans déplacement This form of pledge is mainly used in respect of equipments [article 2112 of the Civil Code] and vehicles [article 2100 of the Civil Code]. Enforcement is made following a notice and a power to seize remitted to an usher of the Supreme Court. The sale is effected by the usher or a sworn auctioneer. It is to be noted that public sales which are effected by an usher or a sworn auctioneer or broker have specific legislations [Brokers Act, Sale by Public Auction Act, Ushers Act] Pledges Pledges can be taken on different kind of assets for example insurance policies, negotiable instruments, jewelery etc. [Nantissement article 2073 of the Civil Code]. Pledges of shares are permissible not only under the Civil Code but also under the Companies Act [section 86 of the Companies Act 2001-Transfer of Shares and Debentures Act]. Enforcement is effected after notification and the thing pledged can either be appropriated in payment by order of a Judge in Chambers or by public sale by an usher or a sworn auctioneer or a broker. For Banks registered in Mauritius, there is a special provision which allows for blank transfer and therefore no reference to the Court is required [article and seq of the Civil Code] Set off There exists a special priviledge for banks which allows a set off in the accounts of the debtor and guarantor without the necessary intervention of the court [article and sed of the Civil Code] Ship Mortgages

4 This is provided by section 29 and seq of the Merchant Shipping Act and the mortgages of ships are kept in a register under the responsibility of the Director of Shipping. Execution of ship mortgages are by way of a power to seize and the public sale are effected according to articles and seq of the Code de Commerce and the Sale of Immoveable Property Act. Aircraft Mortgages Mortgages of aircrafts are recorded with the Conservator of Aircraft Mortgages (the Registrar General) and filed with the Director of Civil Aviation [Code de Commerce and the Civil Aviation Act] Unsecured Claims and Enforcement Although claims may be unsecured, the creditors have the possibility of applying for conservatory measures before the Judge in Chambers. In many instances, the creditors would apply for injunctive orders prohibiting, restraining the debtors from disposing their immovable properties pending the decision of the court in the main action. Provisional attachment in the hands of the third parties who hold movables mainly fungibles belonging to the debtors as well as provisional seizures are measures used constantly by unsecured creditors as pre-trial measures. Moreover when the creditors establish to the satisfaction of the Judge in Chambers of the dangers of the debtors dissipating his assets, a judicial mortgage may be granted. LIQUIDATION (1) COMPANIES Most liquidations are effected following a court order upon a petition to the Bankruptcy Division of the Supreme Court for inability to pay the debts [section 216 and section 2(11) of the Companies Act 1984]. Some liquidations are also non- judicial either by a creditor voluntary winding up [section 256 and seq of the Companies Act 1984]. Some solvent companies often proceed to the simplified procedure for voluntary winding up as provided by section 296 of the Companies Act Liquidators are usually controlled by a Committee of Inspections and it reports to the Official Receiver and the Bankruptcy Court of the Supreme Court. The Companies Act refers to the Bankruptcy Regulations as regards proofs of debts, voting at creditor meetings, etc. Traders

5 Traders are amenable to bankruptcy proceedings before the Bankruptcy Court. Usually reference is made to a debtor s summons where the Court first orders the trader to pay, secure and compound the debt failing which the trader is deemed to have committed an act of bankruptcy. A Bankruptcy Petition may be presented within 3 months of the act of bankruptcy. Alternatively, if the creditor has an executory judgment, the petition may be presented 7 days after the service of the Bankruptcy notice. The Court appoints the Official Receiver as provisional trustee and a meeting of creditors is fixed to appoint a trustee in bankruptcy. Individuals Non traders are also amenable to the Bankruptcy Court by a procedure known as Cessio Bonorum as provided by the Insolvency Act This procedure is however never used and had not been applied since the past 50 years. Cross Border Insolvency Mauritius has not ratified any international covenant in relation to cross border insolvencies. Insolvencies order outside the jurisdiction of Mauritius must be made executory in Mauritius by way of either an exequatur procedure under the Code of Civil Procedure or if the Judgment or Order is from a Commonwealth country, there is the procedure of registration of the foreign judgment under the Foreign Judgment Reciprocal Enforcement Act. Otherwise, fresh insolvency procedure must be applied for and obtained in Mauritius. The same applies for insolvency orders obtained in Mauritius to be executed outside the Mauritian jurisdiction. Section 220 of the Companies Act 1984 provides that all proceedings against a company under liquidation cannot proceed except with the leave of the Court. Section 227 provides for the vesting of assets with the liquidator. Attachments and execution against property of the Company are stayed (vide section 287). REORGANISATION It is very seldom that insolvent companies are rehabilitated. The liquidator appointed by the financial institution under the deed creating the floating and fixed charges in compliance with the Civil Code invariably winds up the company and sells the assets of the company to repay the debt owned to the financial institution. In exceptional cases, the liquidator would sell the company as a running concern. The procedure adopted does not require the intervention of the court. However, the liquidation may be stalled by the shareholders or directors of the company taking legal action challenging the move of the financial institution as being wrongful and uncalled for. NON-BANKRUPTCY WORKOUTS AND RESTRUCTURINGS

6 The proponents for the restructuring of companies must follow the procedures for the schemes of amalgamation and compromise as aptly laid down under section 244 and following of the Companies Act Schemes of arrangements are provided under the Companies Act 2001 namely Amalgamation (section 244 and following), Short form amalgamation (section 247 and following), Compromises with creditors (section 253 and following) and Arrangements, Amalgamations and Compromises by the Court (section 261 and following). Take over scheme is provided under the Companies Act The Bankruptcy Court has an over all supervision over the schemes proposed and may amend, gives directive or rejects same if they are not favourable to the shareholders. 2.0 LEGAL FRAMEWORK FOR CREDITOR RIGHTS Creation and enforcement of security in Real Property Invariably nowadays, as securities for loans, financial institutions have adopted the procedure laid down under articles 2202 to of the Civil Code in respect of the creation of floating and fixed charges which is less cumbersome and cheaper compared to the creation of mortgages which are drawn up by Public Notaries. It is only approved institutions which are empowered to secure loans by creating a floating or fixed charge. For that matter all banks established under the Banking Act are considered to be approved institutions. Similarly, are approved institutions, the Government of Mauritius, all financing institutions local or foreign approved by the Minister of Finance, Insurance companies, and certain cooperative societies. Until the deed creating the floating or fixed charges has been inscribed with the Conservator of Mortgages, it has no effect. Once inscribed, it is effective for 10 years and the inscription has to be renewed to continue to have effect. The approved institution submits the deed creating the floating or fixed charges drawn up in two originals to the Conservator of Mortgages. Similarly for renewal of the inscription, the approved institution submits a request accompanied by two copies of the original. The inscription is kept in a book under the responsibility of the Conservator of Mortgages and it is opened to public scrutiny. Any floating or fixed charge must include the followings: the name, date of birth, profession and place of residence of the chargor and in the case of a company, partnership etc, the address of its registered office; the property given as security; the amount given as guarantee; the name and address of the approved institution.

7 In respect of a fixed charge, the property given as security is specifically described as well as the amount for which it has been given as security. When it is an immoveable property which is given, the charge follows the property in which ever hands it is found. In case of moveable, the fixed charge has no effect if it is in the hands of a bona fide purchaser Floating charges enable the creditor to have a security not only on the present assets of the debtor but also on all future assets as and when acquired. However, it may be agreed that the floating charges shall be in respect of the present assets only. Until crystallization, the debtor may dispose of the assets as if there were no securities given. Once crystallized, the floating charge has all the effects of a fixed charge. Floating charges are crystallized as of right on the demise of the debtor, on the date of sequestration of the property of the debtor by decision of the court, or upon liquidation or dissolution of the company. They may also be crystallized at the instance of the creditor on the occurrence of an event stipulated in the charge document or in the event of the debtor failing to comply with an obligation specified in the charge document or by law and also in the event of a third party seizing the inscribed property. It is incumbent on the creditor to notify the Conservator of Mortgages of the event causing the crystallization of the floating charge. However, it is open to the debtor to challenge the crystallization of the floating charge. The creditor after the crystallization of the floating charge causes an inventory of the property by an usher of the Supreme Court and a copy transmitted to the Conservator of Mortgages for inscription in the register. Through the receiver manager, the seizure of the inscribed property is effected upon failure by the debtor to pay. It is the duty of every company within 28 days of the creation by the company of any charge or of making any issue of debentures charged on or affecting any property of the company to file with the Registrar of Companies, a statement of the particulars in a form approved by the Registrar. The particulars required to be given in the statement are - (a) if the charge is a charge created by the company, the date of its creation, and if the charge was a charge existing on any property acquired by the company, the date of the acquisition of the property; the amount secured by the charge; a description sufficient to identify the property charged; (d) the name of the person entitled to the charge; and any prohibition or restriction contained in the instrument creating the charge, or in any agency deed, on the power of the company to create any other charge or issue debentures ranking in priority to or equally with the charge or debentures in respect of which the application is made.

8 Security in Personal Property Very often when the assets of the companies are insufficient as security for the loan, financial institution would require a personal guarantee from the directors. In practice, the directors give their immovable property as security for the loan to be advanced and if the directors have no immoveable properties, those of a third party are accepted. Equally, financial institutions accept as security any deposit of money on fixed terms with the financial institution in question belonging to the directors or third parties. Rarely are insurance covers used as security. Unsecured Claims Unsecured claims must first be referred to Court and a judgment obtained before they become executory. The judgment is then executed by either a sale by levy or by a Summons after unsatisfied judgment [rules 22 and 30 of the District and Intermediate Courts Rules, section 21 of the Courts (Civil Procedure) Act, articles 517 and seq of the Code of Civil Procedure] Once a seizure of the movable assets is completed without the debt being satisfied, then immovable properties are seized and sold according to the Sale of Immovable Property Act. When immovable properties are seized and sold at the Master s Bar, the distribution of the sale price is made either by attribution of price or distribution par Ordre. In order to come to that stage of the proceedings after the sale, the seizing creditor must first obtain from the Registrar General a certificate showing the state of the various inscriptions on the property sold. This certificate is obtained by application to the Registrar General by the party having the carriage of the proceedings and it is sent to the Master s Court which is then posted up at the cashier s office. This process takes a long time, the delay being caused at the Registrar General s office thereby resulting in the distribution of the price stalled. The time lapse from seizure, the filing of the Cahier des Charges (document describing the property put up for sale and the conditions) up to sale and distribution of the price may take a long time which is most undesirable. However, pending the delivery of a final judgment, an unsecured creditor can take a whole range of conservatory measures as provided by the Code of Civil Procedure. (1) Attachment (Saisie Arrêt) Attachment involves the seizure of the movable assets in the hands of third parties, the garnishees [articles 557 and seq of the Code of Civil Procedure] Attachment of assets in the hands of a third party can be effected by virtue of a deed under private signature or a title or with leave of the Judge in Chambers. Once the attachment

9 order is granted, the order must be served on the debtor and the third party. Then follows the procedure of the validation of the attachment order and thereafter, the third party is summoned to state what assets of the debtor are in his possession and once served with the attachment order, the third party cannot dispose of the property of the debtor and he is made personally liable. (2) Conservatory Seizure (Saisie Conservatoire) It is effected on movable assets which are in the hands of the debtor. Saisie Brandon It is the seizure of agricultural crops after notification by way of a commandement as provided by article 626 and seq of Code of Civil Procedure. Saisie Gagerie Article 819 of the Code of Civil Procedure provides for the seizure of movable assets belonging to the tenant by the landlord for rent due after a notification by way of a commandement Saisie Foraine Authorization is given to the hotel keeper to seize the belongings of a traveler in the event of the latter s inability to pay for the stay [article 822 and seq of the Code of Civil Procedure]. (6) Saisie Revendication The owner of a movable asset may apply to the Judge in Chambers to obtain an order to seize his movable assets which are in the hand of an unlawful possessor [article 826 and seq of the Code of Civil Procedure]. (7) Judicial Mortgage (Hypotheque Judiciaire) Under article 2173 of the Civil Code and seq a creditor may apply for a provisional seizure of a debtor s immovable property upon his own risk and peril after he has satisfies the Judge in Chambers that there is a serious risk of the debtor disposing of the only asset. Mareva Injunction An equitable remedy to freeze all the assets of the debtor as a pre-trial precautionary measures. All the conditions for such a remedy which is very far reaching as it applies also to properties outside the jurisdiction. The procedures are those akin to the granting of injunction under the English Supreme Court Rules.

10 (9) Sequestre-Administrateur Provisoire Article 135 of the Code of Civil Procedure provides that in respect of partnerships (société civile, commerciale, en participation, en nom collectif, etc) the Judge in Chambers is empowered to appoint a provisional administrator or sequestre when the affairs of the partnership are in peril. (10) Provisional Liquidator or Receiver The Bankruptcy Division of the Supreme Court may, after a presentation of a winding up petition, appoint a provisional liquidator to protect the assets of the company [section 223 of the Companies Act 1984 made applicable by the fifteenth schedule of the Companies Act 2001]. The Court may also appoint a Receiver or a Receiver Manager under section 188 of the Companies Act LIQUIDATION Principal Laws Governing Liquidation When the security given is in the form of a floating or fixed charge, the relevant legislation applicable would be the Civil Code. If given in the form of a mortgage, the seizure procedure is laid down under the Sale of Immovable Property Act.. Winding up may either be by the Court (section 215(a) of the Companies Act 1984 [the 1984 Act]) or voluntary initiated by resolution of the company (section 215(b) of the 1984 Act). Voluntary winding up may be at the instance of members where the company is still solvent (section 253 of the 1984 Act) or at the instance of the creditors and in such instances, they appoint the liquidator [section 256 of the 1984 Act]. Winding up by the Court under the Companies Act A petition for winding up may be presented to court if- (a) the company has by special resolution resolved that it be wound up by the court; the company has not commenced business within a year from its incorporation or suspends its business for one year or more; in the case of a company other than a company the whole of the issued shares in which are held by a holding company, the number of members falls below 2; the company is unable to pay its debt; the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner which is unfair or unjust to other members; an inspector has reported that he is of opinion- (i) that the company is unable to pay its debt and should be wound up; or

11 (ii) that it is in the interests of the public or of the members or creditors that the company should be wound up; (g) the period, if any, fixed for the duration of the company by the memorandum or articles has expired, or the event, if any, on the occurrence of which the memorandum or articles provide that the company is to be dissolved has occurred; (h) the court is of the opinion that it is just and equitable to do so; (i) a banking company has carried on business in Mauritius in contravention of the Banking Act; (j) an insurance company has carried out business in Mauritius in contravention of the Insurance Act; (k) the company or its officers have persistently made default in complying with any provision of this Act; (l) the company fails to comply with the requirements of section 12 (1) i.e no company having a share capital, other than an unlimited company, shall transact any business, exercise any borrowing powers or incur any indebtedness, except for a purpose incidental to its registration or to the obtaining of subscription to, or payment for, its shares, unless- consideration to the value of not less than Rs25,000 (less than 1000 US dollars) or such higher amount as may be prescribed has been paid to it for the issue of its shares; and it has furnished to the Registrar a declaration signed by one of the directors or by the secretary, stating that the requirements of paragraph (a) have been complied with. [Section 216(4) of the 1984 Act] A company may be voluntarily wound up if- when the period, if any, fixed for its duration by the memorandum or articles expires, or the event, if any, occurs on the occurrence of which the memorandum or articles provide that the company is to be dissolved, the company in general meeting passes a resolution that it shall be wound up; or the company passes a special resolution that it shall be wound up. Where a petition has been presented on the ground that a company is unable to pay its debts, the company cannot, without the leave of the Court, resolve that it be wound up voluntarily. Where before the presentation of a petition a special resolution has been passed by the company for voluntary winding up, the winding up of the company is deemed to have commenced at the time of the passing of the resolution and unless the court on proof of fraud or mistake thinks fit to direct otherwise, all proceedings taken in the voluntary winding up are deemed to have been validly taken. Member s Winding up

12 Where it is proposed to wind up a company voluntarily as a member s winding up, the directors must, before the date on which the notices of the meeting at which the winding up resolution is to be proposed are sent out, make a written declaration to the effect that- they have made an inquiry into the affairs of the company; (ii) at a meeting of directors, they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up. Attached to the notice is a declaration of the state of affairs of the company namely the assets of the company, its liabilities and the cost of the winding up. Creditors Winding up The company must cause a meeting of the creditors of the company to be summoned for the day or the day next following the day on which there is to be held a meeting at which a winding up resolution is to be proposed. Besides giving individual notices to the creditors, the company must give notice in the press of the meeting of the creditors. The directors must lay before the meeting of creditors a full statement of the company s affairs showing the assets, the method and manner of their valuation, a list of creditors and the estimated amount of their claims. Simplified procedure for Voluntary Winding Up Where a company has ceased to operate and has discharged all its debts and liabilities, any officer or member of the company may, after giving notice, apply to the Registrar of Companies for a dissolution of the company.[section 296 of the 1984 Act] An application for a declaration of dissolution is made in writing supported by an affidavit sworn by an officer or member of the company stating that the company has ceased to operate and has discharged all its debts and liabilities; notice had been given in the press; a notice of no objection from the Commissioner of Income Tax. After publication in the press and the Gazette, and in the absence of any objection within 30 days of the publication, the Registrar can dissolve the company. Notwithstanding the Companies Act 1984, a limited life company is dissolved when the period fixed for the duration of the company expires; or where the shareholders of the company pass a special resolution requiring the company to be wound up and dissolved; or where the constitution of the company so provides, or upon the happening of any one or more of the following events as are stipulated in the constitution -

13 (i) the bankruptcy, death, insanity, retirement, resignation, withdrawal, expulsion, termination, cessation or dissolution of a shareholder. (ii) the transfer of any share or other interest in the company in contravention of the constitution of the company, (iii) the redemption, repurchase or cancellation of all the shares of a shareholder of the company; or (iv) the occurrence of any other event (whether or not relating to the company or a shareholder) on which it is provided in the constitution that the company is to be dissolved. Courts Which Administer Liquidation The Bankruptcy Division of the Supreme Court has exclusive jurisdiction to entertain any claims or matters arising out of the Bankruptcy Act or the Companies Acts. Commencement of a Liquidation The 1984 Act distinguishes the various effective dates on which the company is deemed to have commenced the winding up process. Voluntary winding up Section 217(1) of the 1984 Act provides that where prior to the presentation of a petition, a special resolution is passed by the company for the voluntary winding up, the date of the winding up is deemed to have taken place at the time of the passing of the special resolution and all proceedings taken in the voluntary winding up is deemed to have been validly taken in the circumstances unless the Court thinks fit to direct otherwise on proof of fraud or mistake. Winding up under section 184 of the 1984 Act It is a remedy available in cases of oppression following an application by a member or the Registrar of Companies for complaints listed under section 184(1) of the 1984 Act and when the Court is satisfied that the complaint is justified, it may direct that the company be wound up. In such cases, the winding up starts on a date specified in the order or if no date is specified, on the date of the order [section 217(2) of the 1984 Act] In every other case The date of the commencement of the winding up will be at the time of the presentation of the petition [section 217(3) of the 1984 Act].

14 Parties to a Liquidation A petition for a winding up may be presented by- the company; a contributory or any person who is the heir of a deceased contributory or the trustee in bankruptcy of the estate of a contributory; a member; a creditor, including a contingent or prospective creditor, of the company; a liquidator; the Registrar; the Controller of Insurance in the circumstances referred in section 36(3) of the Insurance Act; Liquidation Estate Where a provisional liquidator has been appointed or a winding up order has been made, the provisional liquidator or liquidator must forthwith take into custody or under his control all the property to which the company is or appears to be entitled. Upon application by the liquidator, the court may order that all or any part of the property of the company shall vest with the liquidator. Any attachment, sequestration, distress or execution put in force against the assets of the company after the commencement of a creditor s winding up is void and no action or proceeding can be proceeded with or commenced against the company except with leave of the court and subject to terms and conditions. Administrative Powers The court has the power to appoint a receiver, a receiver and manager or a liquidator or to revoke the one appointed by the creditors; fixed their remuneration. Upon application by the receiver and manager or liquidator, the court gives direction, orders the director of the company to surrender the seal of the company or to provide the liquidator with a statement of affairs of the company within a specified period. Once a winding up petition is lodged, it cannot be withdrawn without leave of the court On hearing a winding up petition, the court may dismiss it, adjourn the hearing conditionally or unconditionally, or make an interim order that it thinks fit. However, the court cannot refuse to make a winding up order by reason that the assets of the company have been charged to an amount equal to or in excess of those assets; the company has no assets;

15 in the case of a winding up by a contributory, there will be no assets available for distribution amongst the contributories. The court may, at the hearing of the petition or at any other time, on the application of the petitioner, the company, or any person who has given notice that he intends to appear on the hearing of the petition- direct that notices be given or any other steps to be taken before or after the hearing of the petition; dispense with any notices being given or steps being taken which are required by this Act; give such other directives as to the proceedings; The court may make such order for inspection of the books of the company by creditors and contributories. Any officer or other person known or suspected to have in his possession any property of the company may be summoned to be examined by the liquidator. Creditors and Claims In a creditor s winding up, the creditors may nominate a person to be the liquidator for the purposes of winding up the affairs and distributing the assets of the company, and they fixed the remuneration to be paid to the liquidator. If the creditors and the company nominate different persons to be the liquidator, the person nominated by the creditors shall be appointed. The creditors appoint the committee of inspection consisting of 5 members whether creditors or not. In a winding up, the debts of the company are paid according to the laws of Mauritius with respect to privileges and priorities of claims, subject to the retention of such sums as are required to cover the costs and expenses of the winding up including the costs of the petitioner, the remuneration of the liquidator and the cost of any audit. Where a creditor has issued execution against any property of a company or has attached any debt due to the company and the company is subsequently wound up, he cannot retain the benefit of the execution or attachment against the liquidator unless he has completed the execution or attachment before the date of the commencement of the winding up, but- where a creditor has had notice of a meeting having been called at which a winding up resolution is to be proposed, the date on which the creditor had such notice shall be substituted for the date of the commencement of the winding up; a person who purchases in good faith, under a sale by authority of the court or the Master and Registrar, any property of a company on which an execution has been levied shall in all cases acquire a good title to it against the liquidator; or

16 the rights conferred on the liquidator can be set aside by the court in favour of the creditor to such extent and subject to such terms and conditions fixed by the court. Officers, Directors, Affiliates Receivers and Managers A receiver or a receiver and manager of the property of a company may be appointed by the holder of a fixed or floating charge where the instrument creating the charge provides for the appointment of a receiver or the court may appoint one. A receiver or manager appointed by the court is not be an officer of a company as defined under the Companies Act and he acts according to directions issued by the court. The following persons are disqualified to be appointed as receiver or manager- a corporation; an undischarged bankrupt; a mortgagee of any property of the company, an auditor of the company; an officer of the company or of any corporation which is a mortgagee of the property of the company; a person restrained or disqualified from managing a company under sections 117 and 118. Liquidator Upon the presentation of a petition for winding up, a provisional liquidator is appointed. A person is disqualified to be appointed a liquidator if he is- an officer of the company or any related corporation or person who has been an officer of the company or related corporation during the preceding 3 years; a minor, bankrupt or person under any disability; a person who has made a cessio bonorum under the Insolvency Act; a person who has been the subject of any order under sections 117 and 118. Section 262 of the 1984 Act describes the powers and duties of the liquidator in any liquidation. The powers given to a liquidator in a voluntary winding up are substantially wider than those exercised by a liquidator in a winding up by court. He obtains further powers with the approval of a special resolution of the company in the case of a members winding up and with the approval of the committee of inspection in the case of a creditors winding up. Official Receiver He is an officer of the Bankruptcy Court and in the absence of a provisional liquidator on the presentation of a winding up petition, he is appointed the liquidator.

17 Before a liquidator can act, he must give security to the satisfaction of the Official Receiver. The latter further- takes cognizance of the conduct of the liquidator and if the latter does not faithfully perform his duties or duly observe all the requirements imposed on him or if a complaint is made to the Official Receiver by a creditor or a contributory in that behalf, inquire into the matter and take such action as he thinks fit; may require the liquidator to answer to any inquiry in relation to any winding up in which he is engaged; may apply to the Court to examine him or any other person on oath concerning the winding up; and may direct an examination be made of the books and vouchers of the liquidators. Where the Official Receiver is the liquidator and there is no committee of inspection, he may in his discretion do any act or thing which under the 1984 Act required to be done subject to the direction or permission of the committee [section 270(2) of the 1984 Act]. Duty of directors on insolvency A director of a company who believes that the company is unable to pay its debts as they fall due must forthwith call a meeting of the Board to consider whether the Board should appoint a liquidator or an administrator. Where a meeting is called, the Board must consider whether to appoint a liquidator or an administrator, or to carry on the business of the company. Where a director fails to call a meeting of the Board and at the time of that failure the company was unable to pay its debts as they fell due; and the company is subsequently placed in liquidation, the Court may, on the application of the liquidator or of a creditor of the company, make an order that the director is liable for the whole or any part of any loss suffered by creditors of the company as a result of the company continuing to trade. Where at a meeting called, the Board does not resolve to appoint a liquidator or an administrator and at the time of the meeting there were no reasonable grounds for believing that the company was able to pay its debts as they fell due; and the company is subsequently placed in liquidation, the Court may, on the application of the liquidator or of a creditor of the company, make an order that the directors, other than those directors who attended the meeting and voted in favour of appointing a liquidator or an administrator, are liable for the whole or any part of any loss suffered by creditors of the company as a result of the company continuing to trade. Related Companies Following a winding up proceedings, in certain circumstances, a company may be required to contribute to the debts of a related company [section 231 of the 1984 Act] or to have a

18 pooling of assets [section 232 of the 1984 Act]. Upon an application made by the liquidator or any creditor or contributory of a company for contribution or pooling, it is the discretion of the court to consider whether the making of such an order is just and equitable. Non-Judicial Liquidation Where the deed creating a floating or fixed charge provides for the appointment of a receiver or a receiver manager, the latter, upon appointment by the creditor, gives notice to the management of the company of his appointment and he takes over the management of the company. Notice is to be given promptly and the company has 14 days unless extended by the court to submit a statement of affairs of the company. More often than not the receiver manager will liquidate the company in selling the assets of the company to pay back the debts owed to the financial institution. In rare cases, the liquidation will sell the company as a going concern always with a view to repay the debts. Where the Registrar of Companies by reason of the company s failure to file any annual return, or for any other reason has reasonable cause to believe that a company is not carrying on business or is not in operation, he may send to the company by post a notice to that effect stating that if no answer showing cause to the contrary is not received within a month from the date of issue of the notice, a notice will be published in the Government Gazette with a view to strike out the name of the company. If after a month no answer is received, the Registrar, after the expiry of 3 months from the date of the notice in the Gazette, unless cause is shown, the company is struck out and the company will be dissolved. The Registrar may also after notice from a solvent company dissolve the company when all the conditions have been complied with. Arbitration A company may, by writing under the hand of the director where the company has one director or where the company has 2 or more directors, under the hands of at least directors, agree to refer and may refer, to arbitration, in accordance with the Code of Civil Procedure, any existing or future dispute between itself and any other company or person. Every company which is party to an arbitration may delegate to the arbitrator power to settle any term or to determine any matter capable of being lawfully settled or determined by the company itself or by its directors or other governing body. 4.0 REHABILITATION/COMPOSITIONS/SCHEMES 4.1 Overview of schemes for rehabilitation

19 The Companies Act 2001 has provided for the restructuring and reorganization of companies through amalgamation, compromise with creditors and arrangements, amalgamations and compromises and take over scheme under the Companies Act In the course of its existence, a company may have to go through structural mutation either to expand or survive pecuniary disasters. Indeed, companies require frequently to rearrange their capital structure and when all the shareholders are agreeable to the proposal, generally there is no difficulty in achieving the change although the procedure may be complex and needs in certain cases the sanction of the court like in reduction of capital. In some cases, a minority shareholder may oppose or he is untraceable but provisions are made to render them bound once the scheme had been approved. Arrangement is defined as including a reorganisation of the share capital of a company by the consolidation of shares of different classes, or by the division of shares into shares of different classes, or by both those methods. The law provides for amalgamation whereby two or more companies may merger and continue as one company, which may be one of the amalgamating companies, or may be a new company. Similarly the Act allows a company to compromise with its creditors and a compromise is defined as an agreement between a company and its creditors, including a compromise cancelling all or part of a debt of the company; or varying the rights of its creditors or the terms of a debt; or relating to an alteration of a company's constitution that affects the likelihood of the company being able to pay a debt. 4.2 Courts which administer reorganization It is the Bankruptcy Division of the Supreme Court. Powers of Court in respect of amalgamation proposal Where the Court is satisfied that giving effect to an amalgamation proposal would unfairly prejudice a shareholder or creditor of an amalgamating company or a person to whom an amalgamating company is under an obligation, it may, on the application made by the person at any time before the date on which the amalgamation becomes effective, make any order on such terms and conditions as it thinks fit in relation to the proposal, and may, without limiting the generality of this subsection, make an order - (a) (b) (c) directing that effect shall not be given to the proposal; modifying the proposal in such manner as may be specified in the order; directing the company or its Board to reconsider the proposal or any part of it. Powers of Court in respect of compromise proposal

20 On the application of the proponent of the company, the Court may give directions in petition to a procedural requirement or waive or vary any such requirement, where the Court is satisfied of, the justification so to do; or it orders that during a period specified in the order, beginning not later than the date on which notice was given of the proposed compromise and ending not later than 14 days after the date on which notice was given of the result of the voting on it - (i) proceeding in petition to a debt owing by the company be stayed; or (ii) a creditor refrain from taking any other measure to enforce payment of a debt owing by the company. Effect of compromise in liquidation of company Where a compromise is approved, the Court may, on the application of - (a) (b) (c) the company; a receiver appointed in relation to property of the company; or with the leave of the Court, any creditor or shareholder of the company, make such order as the Court thinks fit with respect to the extent, if any, to which the compromise shall, where the company is put into liquidation, continue in effect and be binding on the liquidator of the company. Where a compromise is approved and the company is subsequently put into liquidation, the Court may, on the application of - (a) (b) (c) the liquidator; a receiver appointed in relation to property of the company; or with the leave of the Court, any creditor or shareholder of the company, make such order as the Court thinks fit with respect to the extent, if any, to which the compromise shall continue in effect and be binding on the liquidator of the company. Court may make additional orders in respect of arrangement or amalgamation or compromise Subject to section 262, the Court may, for the purpose of giving effect to any arrangement or amalgamation or compromise approved under that section, either by the order approving

21 the arrangement or amalgamation or compromise, or by any subsequent order, provide for, and prescribe terms and conditions relating to - (a) the transfer or vesting of real or personal property, assets, rights, powers, interests, liabilities, contracts, and engagements; the issue of shares, securities, or policies of any kind; the continuation of legal proceedings; the liquidation of any company; (e) the provisions to be made for persons who voted against the arrangement or amalgamation or compromise at any meeting called in accordance with any order made under subsection (2) of that section or who appeared before the Court in opposition to the application to approve the arrangement or amalgamation or compromise; or (f) such other matters that are necessary or desirable to give effect to the arrangement or amalgamation or compromise. Approval of arrangements, amalgamations and compromises Notwithstanding the provisions of the Companies Act 1984 or the constitution of a company, the Court may, on the application of a company or, with the leave of the court, any shareholder or creditor of a company, order that an arrangement or amalgamation or compromise shall be binding on the company and on such other persons or classes of persons as the Court may specify and any such order may be made on such terms and conditions as the Court thinks fit. Before making the order, the Court may, on the application of the company or any shareholder or creditor or other person who appears to the Court to be interested, or of its own motion, make any one or more of the following orders - (a) that notice of the application, together with such information relating to it as the Court thinks fit, be given in such form and in such manner and to such persons or classes of persons as the Court may specify; (b) directing the holding of a meeting or meetings of shareholders or any class of shareholders or creditors or any class of creditors of a company to consider and, if thought fit, to approve, in such manner as the Court may specify, the proposed arrangement or amalgamation or compromise and, for that purpose, may determine the shareholders or creditors that constitute a class of shareholders or creditors of a company; (c) requiring that a report on the proposed arrangement or amalgamation or compromise be prepared for the Court by a person specified by the Court and, if the Court

22 thinks fit, be supplied to the shareholders or any class of shareholders or creditors or any class of creditors of a company or to any other person who appears to the Court to be interested; (d) payment of the costs incurred in the preparation of any such report; (e) an order specifying the persons who shall be entitled to appear and be heard on the application to approve the arrangement or amalgamation or compromise. The Court may approve an amalgamation under section 262 even though the amalgamation could be effected under Part XVI; or approves a compromise under section 262 even though the compromise could be approved under Part XVII. Costs of compromise Unless the Court orders otherwise, the costs incurred in organising and conducting a meeting of creditors for the purpose of voting on a proposed compromise - (a) shall be met by the company; (b) where incurred by a receiver or liquidator, are a cost of the receivership or liquidation; or (c) where incurred by any other person, are a debt due to that person by the company and, where the company is put into liquidation, are payable in the order of priority required in the liquidation. 4.3 Commencement of reorganization Where an amalgamation proposal specifies a date on which the amalgamation is intended to become effective, and that date is the same as, or later than the date on which the Registrar receives the documents, the certificate of amalgamation and any certificate of incorporation shall be expressed to have effect on the date specified in the amalgamation proposal. Effect of certificate of amalgamation An amalgamation shall be effective on the date shown in the certificate of amalgamation. 4.4 Participants and their roles Amalgamation