What should a business do when it can no longer keep up with its debts?

Financial difficulty does not always mean that a company has to close its doors.

For some businesses, the right legal strategy may be restructuring, business rescue or an arrangement with creditors. For others, liquidation or winding-up may be the most appropriate option.

The critical issue is timing.

Waiting until creditors begin court proceedings, assets are seized or key contracts are terminated can make recovery much harder. Early legal advice can give directors and stakeholders more options and may help preserve value that would otherwise be lost.

In Zambia, corporate insolvency and restructuring are principally governed by the Corporate Insolvency Act, 2017, which provides for receivership, business rescue, arrangements and compromises with creditors, winding-up, liquidation and cross-border insolvency.

At Mesdames Jane Jere Legal Practitioners, we advise directors, creditors, shareholders and businesses facing financial distress on the legal options available and the steps needed to protect their interests.

What Is Insolvency?

In simple terms, insolvency is a situation where a business is unable to meet its financial obligations or is facing financial conditions that may prevent it from continuing to pay its debts.

Insolvency is not necessarily the same as business failure.

A company may have valuable assets, strong contracts, a viable product or a profitable core operation but still experience serious cash-flow problems.

For example, a company may:

• Have customers who owe it substantial amounts of money.
• Have large debts falling due at the same time.
• Experience a temporary loss of financing.
• Face rising operating costs.
• Have assets that cannot quickly be converted into cash.
• Be affected by a major commercial dispute.
• Have accumulated liabilities that have become difficult to manage.

The legal response depends on the company’s circumstances.

That is why insolvency advice should begin before the company reaches a point of no return.

Insolvency Does Not Always Mean Liquidation

One of the most important things directors and business owners should understand is that financial distress does not automatically mean liquidation.

Zambia’s Corporate Insolvency Act provides several mechanisms that can potentially deal with financial distress, including business rescue and schemes of arrangement or compromise.

The objective may be to:

• Continue the business.
• Protect jobs.
• Restructure debts.
• Negotiate with creditors.
• Preserve valuable contracts.
• Sell selected assets.
• Bring in new financing.
• Reorganise the company’s operations.
• Preserve value for creditors and other stakeholders.

In other circumstances, however, winding-up may be unavoidable.

The question is therefore not simply:

“Is the company insolvent?”

It is:

“What legal option provides the best realistic outcome for the company and its stakeholders?”

Zambia’s Legal Framework for Insolvency and Restructuring

The principal legislation is the Corporate Insolvency Act, 2017 (Act No. 9 of 2017).

The Act commenced on 15 June 2018 and provides a framework for corporate receiverships, business rescue, compromises and arrangements with creditors, winding-up, liquidators, insolvency practitioners and cross-border insolvency.

Read the Corporate Insolvency Act, 2017 on ZambiaLII

The insolvency framework also interacts with other legislation, including the Companies Act, 2017.

The Companies Act was amended by the Companies (Amendment) Act, 2025, which was assented to on 23 December 2025 and commenced on 30 December 2025.

Read the Companies (Amendment) Act, 2025 on ZambiaLII

For businesses, this means insolvency planning should not be considered in isolation. Corporate governance, company records, creditor rights, employment obligations, secured lending and regulatory requirements may all become relevant.

What Is Business Rescue?

Business rescue is one of the most important tools available to a financially distressed company.

The purpose is not simply to delay creditors.

The process is designed to provide an opportunity for the company’s affairs, business, property and financial situation to be examined and, where possible, the company to be rescued.

Under the Corporate Insolvency Act, business rescue proceedings can result in a business rescue plan being proposed and considered by affected persons. The legislation also provides for a business rescue administrator to investigate whether there is a reasonable prospect of rescuing the company.

Why can business rescue matter?

If a viable business is forced directly into liquidation, its assets may be sold separately even though the business as a whole could have been worth more.

Business rescue can potentially preserve:

• Going-concern value
• Employment
• Customer relationships
• Supplier relationships
• Intellectual property
• Commercial contracts
• Licences and operational capacity
• The possibility of future profitability

The right strategy depends on the facts.

The Business Rescue Process

Business rescue is a formal legal process and should not be treated as an informal agreement between directors and creditors.

The Corporate Insolvency Act provides a structured process involving a business rescue administrator, creditors and other affected persons.

The administrator investigates the company’s financial position and considers whether there is a reasonable prospect of rescue.

The Act also provides for:

• Appointment and qualifications of business rescue administrators.
• Participation by creditors.
• Participation by shareholders.
• Meetings of creditors.
• Preparation of a business rescue plan.
• Consideration and approval of the plan.
• Post-commencement finance.
• Protection of property interests.
• A moratorium on certain legal proceedings.

A business rescue process is therefore considerably more than simply asking creditors to wait.

Protection From Legal Proceedings During Business Rescue

One reason business rescue can be important is the protection it may provide while the rescue process takes place.

The Corporate Insolvency Act provides a general moratorium on legal proceedings against a company during business rescue, subject to specified exceptions and circumstances where court permission or the administrator’s written consent may be required.

This can give the company breathing space to develop and implement a rescue strategy.

However, the moratorium is not a licence to ignore creditors or court procedures.

The statutory requirements must still be followed carefully.

A Company Cannot Use Business Rescue Simply to Delay Creditors

This is an area where recent Zambian case law is particularly important.

In Indo Zambia Bank Limited v Entrust Stockfeeds Limited (2023/HPC/0635) [2024] ZMHC 305, the High Court set aside a business rescue resolution because the statutory requirements concerning financial distress and the reasonable prospect of rescue had not been properly established. The court considered the requirements under section 21 of the Corporate Insolvency Act and the consequences under section 22.

The lesson for directors is significant:

Business rescue must be based on genuine financial distress and a legally sustainable prospect of rescue.

It should not be used merely as a tactic to postpone enforcement by creditors.

Schemes of Arrangement and Compromises

Not every financially distressed company needs formal business rescue.

The Corporate Insolvency Act also provides for schemes of arrangement or compromise between a company, its creditors and members.

A restructuring arrangement may, depending on the circumstances, address matters such as:

• Repayment periods.
• Reduced immediate payment obligations.
• Rescheduling of debt.
• Treatment of different creditor classes.
• Corporate restructuring.
• Changes to ownership or capital.
• Reconstruction of the business.

The legal effect of an arrangement can be significant.

Recent Court of Appeal development

In Deton Engineering Pvt v Konkola Copper Mines Plc [2026] ZMCA 35, the Court of Appeal considered the effect of a sanctioned scheme of arrangement under the Corporate Insolvency Act.

The court held that a sanctioned scheme binds creditors as defined by the legislation, while pending or unascertained claims may not fall within the statutory definition of “creditor” for the scheme.

This illustrates why creditors need to understand how a proposed restructuring affects their particular claim rather than assuming that every outstanding dispute or claim will automatically be treated in the same way.

What Is Winding-Up?

Winding-up is the legal process through which a company’s affairs are brought to an end.

The process generally involves identifying and realising company assets, dealing with liabilities and distributing available funds according to the applicable legal priorities.

A liquidator plays a central role in the process.

PACRA explains that a liquidator is responsible for winding up a company’s affairs and converting company property into cash to settle debts and liabilities, among other statutory responsibilities.

View PACRA’s liquidation guidance

Voluntary and Court-Ordered Winding-Up

The insolvency framework recognises different forms of winding-up.

A company may enter voluntary winding-up in circumstances provided by law, while creditors or other eligible parties may seek a court order where the statutory requirements are met.

The Corporate Insolvency Act contains provisions dealing with winding-up, liquidators and the distribution of company assets.

For creditors, a winding-up petition can be an important enforcement mechanism.

For companies, receiving a statutory demand or winding-up petition should never be ignored.

What Happens When a Creditor Seeks Winding-Up?

A creditor may seek the winding-up of a company where the legal requirements are satisfied.

The process can involve a statutory demand and an application to court.

Recent litigation shows that procedural requirements matter.

In Trident Packaging Limited v Gavi Beverages Limited and Others [2026] ZMHC 52, the High Court dismissed an application seeking to set aside a winding-up petition. The case involved a statutory demand under section 57(3) of the Corporate Insolvency Act and issues concerning service and the separate legal personality of the company.

The case is a useful reminder that insolvency litigation can turn on both substantive financial issues and procedural compliance.

Directors’ Duties During Financial Distress

Financial distress creates particular risks for directors.

Directors may be tempted to continue trading in the hope that the company’s position will improve.

Sometimes that is commercially sensible.

Sometimes it can expose the company and its directors to greater risk.

Directors should therefore consider:

• The company’s current financial position.
• Cash flow.
• Outstanding liabilities.
• Creditor pressure.
• The value of company assets.
• Whether the business remains viable.
• Whether rescue is realistically possible.
• Existing security interests.
• Potential personal exposure.
• Transactions undertaken while the company is distressed.

Directors should also avoid transactions that could expose the company or its management to allegations of fraud, misfeasance or improper conduct.

Directors Can Face Personal Consequences

A company is normally a separate legal person from its directors and shareholders.

However, insolvency law can create circumstances where directors or other individuals face personal consequences.

This is particularly important where there has been fraudulent or improper conduct.

In Southern Africa Ferro Alloys Limited v Mass and Energy Balance Limited and Others [2026] ZMHC 76, the High Court considered fraudulent borrowing and applied section 175(1) of the Corporate Insolvency Act in lifting the corporate veil and holding directors personally liable.

A similar issue arose in Luapula Energy Limited v Exxon Petroleum Limited and Others [2024] ZMHC 53, where the court pierced the corporate veil in circumstances involving a controlling director and allegedly fraudulently incurred company debt.

The message for directors is clear:

Financial difficulty does not remove the need for proper corporate governance.

What Should Directors Do When a Company Is in Trouble?

A director who suspects serious financial distress should not simply wait for creditors to take action.

A sensible first response may include:

1. Obtain an accurate financial position.
2. Review cash flow and liabilities.
3. Identify urgent creditor claims.
4. Review secured lending arrangements.
5. Protect company records.
6. Avoid questionable transactions.
7. Review major contracts.
8. Consider restructuring options.
9. Obtain legal and financial advice.
10. Determine whether business rescue is realistic.
11. Communicate appropriately with stakeholders.
12. Take action before the company’s options become limited.

The earlier these issues are addressed, the greater the opportunity to make informed decisions.

The Position of Creditors

Insolvency is not only a problem for the company.

Creditors can face substantial losses when a debtor becomes insolvent.

A creditor may need to determine:

• Whether the debt is secured or unsecured.
• Whether the debt is disputed.
• Whether a statutory demand should be issued.
• Whether winding-up proceedings are appropriate.
• Whether business rescue affects enforcement.
• Whether the creditor should participate in a rescue process.
• Whether an arrangement is commercially acceptable.
• What priority the claim may have.
• Whether there are guarantees or other security.
• Whether assets may have been improperly transferred.

A creditor should therefore consider the recovery strategy rather than simply demanding payment.

For businesses with substantial unpaid invoices or commercial debts, our Debt Recovery services may also be relevant.

Secured and Unsecured Creditors

The distinction between secured and unsecured creditors can become particularly important during insolvency.

A secured creditor may have rights connected to specific collateral.

An unsecured creditor may have no specific security over company assets.

The practical position of each creditor can therefore be different.

Before taking action, creditors should review:

• Loan agreements.
• Guarantees.
• Debentures.
• Mortgages.
• Charges.
• Security agreements.
• Payment records.
• Correspondence.
• Court judgments.
• Settlement agreements.

Legal advice can help establish what enforcement options are actually available.

Employees and Insolvency

Employees can also be affected when a company becomes financially distressed.

A restructuring may involve changes to operations, while liquidation may ultimately result in termination of employment.

Employment-related claims may also become relevant during insolvency proceedings.

Businesses should therefore consider employment law alongside insolvency law rather than treating employee obligations as a separate issue.

Our Employment & Labour Law services can assist employers and employees where financial restructuring creates employment-related legal issues.

Insolvency and Banking Relationships

Banks and other lenders are often among the most important stakeholders in a restructuring.

Loan agreements may contain:

• Events of default.
• Security arrangements.
• Acceleration clauses.
• Financial covenants.
• Reporting obligations.
• Guarantees.
• Enforcement rights.

A financially distressed company should therefore review its financing documents early.

A restructuring may involve negotiations with lenders regarding repayment, security or new financing.

Our Banking & Finance practice advises lenders, borrowers and investors on loan restructuring and workouts, among other banking and finance matters.

When Should a Business Consider Restructuring?

There is no single point at which every business should restructure.

However, warning signs can include:

• Repeated inability to pay suppliers.
• Missed loan repayments.
• Tax arrears.
• Creditor demands.
• Threats of litigation.
• Enforcement against assets.
• Loss of key customers.
• Persistent cash-flow problems.
• Breach of financial covenants.
• Difficulty paying employee obligations.
• Directors using personal funds to keep the company operating.
• Increasing interest and penalties.
• Dependence on short-term borrowing.

One warning sign may not mean the company is insolvent.

Several warning signs together should prompt urgent review.

Restructuring Can Take Different Forms

Corporate restructuring does not necessarily mean one particular legal procedure.

Depending on the business, restructuring may involve:

Debt restructuring

Negotiating new repayment terms with creditors.

Operational restructuring

Reducing costs or changing the way the business operates.

Corporate restructuring

Changing the company’s ownership, capital structure or group arrangements.

Asset restructuring

Selling non-core assets to generate liquidity.

Contract restructuring

Renegotiating major commercial agreements.

Financing restructuring

Obtaining new funding or replacing existing financing.

Formal business rescue

Using the statutory business rescue framework where its requirements are met.

The best approach may combine several strategies.

Insolvency in Regulated Industries

Not every company is treated in exactly the same way.

Certain regulated sectors have additional insolvency or resolution rules.

This is particularly relevant to financial services.

Zambia’s National Payment System Act, 2026, for example, contains specific provisions dealing with restructuring, insolvency, receivership and winding-up of payment service providers. The Act also provides for regulatory intervention and resolution mechanisms involving the Bank of Zambia.

The Act is currently listed by ZambiaLII as uncommenced, meaning it has not yet come into force.

This is an important example of why legal research must distinguish between legislation that has been enacted and legislation that is currently in force.

Recent Legal Developments in Zambia

Zambia’s insolvency law continues to develop through legislation and court decisions.

2026: Schemes of Arrangement

The Court of Appeal’s decision in Deton Engineering Pvt v Konkola Copper Mines Plc provides recent guidance on the effect of a sanctioned scheme and the meaning of creditors for purposes of the scheme.

2026: Winding-Up Petitions

In Trident Packaging Limited v Gavi Beverages Limited and Others, the High Court considered a winding-up petition based on a statutory demand and rejected an attempt to set aside the petition.

2026: Directors and Fraudulent Borrowing

In Southern Africa Ferro Alloys Limited v Mass and Energy Balance Limited and Others, the High Court considered personal liability of directors in the context of fraudulent borrowing and section 175(1) of the Corporate Insolvency Act.

2025: Provisional Liquidation

In Esther Phiri v Gavi Beverages Limited [2025] ZMHC 216, the High Court considered proceedings brought against a company in provisional liquidation without the required leave and set those proceedings aside for irregularity.

These cases demonstrate an important point:

Insolvency law is not only about financial distress. Procedure matters.

A technically strong claim can fail if the correct legal process is not followed.

Follow recent Zambian legal developments through Jere Advocates

Common Insolvency Mistakes

Waiting too long

The most common problem is seeking legal advice after the situation has already become critical.

Ignoring creditor demands

Ignoring statutory demands, court documents or enforcement notices can make the situation worse.

Moving company assets improperly

Transactions involving company assets during financial distress require careful legal consideration.

Treating all creditors the same

Different creditors may have different legal rights and priorities.

Starting business rescue without meeting the statutory test

The Indo Zambia Bank v Entrust Stockfeeds decision illustrates the risks of relying on an invalid business rescue process.

Continuing business without a clear strategy

Directors should understand whether continued trading is commercially and legally justified.

Failing to preserve records

Financial records, contracts, correspondence and corporate documents can become critically important.

When Should You Hire an Insolvency Lawyer?

Legal advice should be considered as soon as serious financial distress becomes apparent.

You should consider obtaining advice if:

• Your company cannot pay debts as they fall due.
• You have received a statutory demand.
• A creditor threatens winding-up proceedings.
• A bank threatens enforcement.
• Your company is considering business rescue.
• Creditors are negotiating a restructuring.
• You are considering liquidation.
• You are a director concerned about personal exposure.
• You are a creditor trying to recover a substantial debt.
• You suspect company assets have been improperly transferred.
• You need to negotiate a scheme or compromise.
• You are involved in insolvency-related litigation.

Early advice can help identify the available options before they disappear.

How Mesdames Jane Jere Legal Practitioners Can Assist

Financial distress requires more than simply knowing the insolvency legislation.

It requires an understanding of the company’s commercial position, creditors, contracts, assets and objectives.

Mesdames Jane Jere Legal Practitioners advises clients on insolvency and restructuring matters, including:

• Insolvency legal advice.
• Business rescue.
• Schemes of arrangement.
• Compromises with creditors.
• Winding-up proceedings.
• Liquidation.
• Directors’ duties and potential exposure.
• Creditor representation.
• Debt restructuring.
• Corporate restructuring.
• Insolvency-related litigation.
• Negotiations with creditors.
• Asset protection and recovery issues.
• Regulatory and compliance matters.

The firm’s wider Corporate & Commercial Law practice can also support businesses dealing with corporate restructuring, governance and commercial transactions.

Where disputes arise, clients may also require Civil Litigation or Alternative Dispute Resolution.

A Practical Insolvency Checklist for Directors

If your company is experiencing financial distress, consider taking these steps:

Step 1: Understand the numbers

Obtain an accurate picture of assets, liabilities, cash flow and debts.

Step 2: Identify urgent risks

List statutory demands, court proceedings, loan defaults and other immediate threats.

Step 3: Protect records

Ensure financial, corporate and contractual records are preserved.

Step 4: Review security

Determine which creditors hold security over company assets.

Step 5: Review contracts

Identify termination rights, defaults and important ongoing contracts.

Step 6: Obtain professional advice

Legal and financial advice should be obtained early.

Step 7: Consider restructuring

Determine whether the business has a realistic future and whether restructuring can preserve value.

Step 8: Consider business rescue

If the statutory requirements are satisfied and rescue is realistic, business rescue may be an option.

Step 9: Consider creditor arrangements

Where appropriate, explore a compromise or scheme of arrangement.

Step 10: Consider liquidation

If rescue is not realistically achievable, an orderly winding-up may provide the appropriate legal route.

Frequently Asked Questions About Insolvency & Restructuring in Zambia

What is insolvency in Zambia?

Insolvency generally concerns a company’s inability to meet its financial obligations. The legal consequences and available procedures depend on the company’s circumstances and the applicable legislation.

What law governs corporate insolvency in Zambia?

The principal legislation is the Corporate Insolvency Act, 2017, supported by other legislation including the Companies Act and sector-specific laws.

Does insolvency automatically mean liquidation?

No. Depending on the circumstances, business rescue, restructuring, compromise or a scheme of arrangement may be possible.

What is business rescue?

Business rescue is a formal process designed to give a financially distressed company an opportunity to be rescued where there is a reasonable prospect of doing so.

Can creditors challenge business rescue?

Yes. The Corporate Insolvency Act provides mechanisms through which affected parties can challenge aspects of insolvency proceedings, and the courts have scrutinised whether the statutory requirements for business rescue have been satisfied.

Can a creditor wind up a company in Zambia?

A creditor may seek winding-up where the statutory requirements are met. The procedure and supporting evidence are important.

What is a scheme of arrangement?

It is a formal arrangement involving a company and its creditors or members, subject to the requirements of the Corporate Insolvency Act.

Can directors become personally liable for company debts?

Ordinarily, a company is a separate legal person. However, personal liability can arise in circumstances recognised by law, including certain fraudulent or improper conduct. Recent Zambian decisions demonstrate that this risk should be taken seriously.

What happens to employees when a company becomes insolvent?

Employees may be affected by restructuring or liquidation. Employment claims and statutory obligations should be considered as part of the insolvency process.

Can a company restructure its debt without going into liquidation?

Yes. Depending on the circumstances, debt restructuring, schemes of arrangement, compromises or business rescue may provide alternatives to liquidation.

What should I do if I receive a statutory demand?

Do not ignore it. Obtain legal advice promptly so that the debt, the demand and the available legal options can be assessed.

Can insolvency proceedings be challenged?

Yes, depending on the type of proceeding and the legal basis for the challenge. Insolvency litigation is highly procedural, making timely legal advice important.

Can a company continue operating during business rescue?

Business rescue is designed around the possibility of continuing or rescuing the business. The company’s operations are subject to the statutory framework and the powers and responsibilities of the business rescue administrator.

How long does insolvency take?

There is no single timeframe. The duration depends on the type of proceeding, the complexity of the company’s affairs, disputes, assets, creditors and court processes.

When should a business contact an insolvency lawyer?

Ideally, before financial distress becomes an emergency. Early advice may provide more restructuring and negotiation options.

Why Choose Mesdames Jane Jere Legal Practitioners?

Insolvency matters often involve competing interests.

A director may want to save the business.

A creditor may want payment.

An investor may want to preserve value.

Employees may want protection of their employment and entitlements.

The legal strategy therefore needs to consider the wider commercial picture.

Mesdames Jane Jere Legal Practitioners takes a practical approach to legal problems, advising clients on their rights, obligations, risks and available options.

The firm’s full range of legal services allows insolvency matters to be considered alongside related areas such as corporate law, banking and finance, debt recovery, employment law, contracts and litigation.

Conclusion: Act Before Financial Distress Becomes a Crisis

Financial distress can develop slowly.

A few missed payments can become creditor demands. Creditor demands can become litigation. Litigation can lead to enforcement, and enforcement can significantly reduce the options available to a struggling business.

But financial difficulty does not always mean the end of a company.

Business rescue, restructuring, schemes of arrangement, compromises and other legal mechanisms may provide ways of preserving value where the business remains viable.

At the same time, where rescue is not realistic, an orderly liquidation may be preferable to allowing the situation to deteriorate further.

For directors, creditors and shareholders, the most important decision may therefore be when to seek advice.

If your business is facing financial distress, creditor pressure, restructuring negotiations or possible insolvency proceedings, Mesdames Jane Jere Legal Practitioners can assist you in assessing your legal options and developing an appropriate strategy.

Contact Mesdames Jane Jere Legal Practitioners

Key Takeaways

• Financial distress does not automatically mean that a company must be liquidated.
• Zambia’s principal corporate insolvency legislation is the Corporate Insolvency Act, 2017.
• Business rescue may provide an opportunity to preserve a viable business.
• Schemes of arrangement and compromises can provide alternatives to immediate liquidation.
• Directors should take financial distress seriously and obtain advice early.
• Improper or fraudulent conduct can expose directors to personal liability.
• Creditors need to understand their rights and the effect of insolvency proceedings on enforcement.
• Recent Zambian cases show that insolvency procedures must be followed carefully.
• Sector-specific businesses may be subject to additional insolvency and resolution rules.
• Early legal advice can help preserve options and protect value.