DISCUSSION PAPER ON ISSUES RELATING TO THE INSOLVENCY ACT, 1936 (Act No. 24 of ...

244 Pages·2015·4.7 MB·English

REPUBLIC OF NAMIBIA
_______________________________________________________

LAW REFORM AND DEVELOPMENT COMMISSION

_____________________________________________________________

DISCUSSION PAPER
ON ISSUES RELATING TO THE
INSOLVENCY ACT, 1936
(Act No. 24 of 1936)

LRDC 32
February 2015
Windhoek, Namibia
ISSN 1026-8405
ISBN 978-99945-0-078-9
REPUBLIC OF NAMIBIA
_____________________________________________________________

LAW REFORM AND DEVELOPMENT COMMISSION

_______________________________________________________________

DISCUSSION PAPER
ON ISSUES RELATING TO THE
INSOLVENCY ACT, 1936
(Act No. 24 of 1936)

LRDC 32
February 2015
Windhoek, Namibia
ISSN 1026-8405
ISBN 978-99945-0-078-9

ii
PUBLICATIONS OF THE LRDC

ANNUAL REPORTS (ISSN 1026-8391)*

First Annual Report – 1992 (ISBN 0-86976-382-2)
Second Annual Report – 1993 (ISBN 0-86976-383-0)
Report on Activities from 1994 to 2002 (ISBN 0-86976-604-X)
Annual Report – 2003 (ISBN 0-86976-643-0)
Annual Report – 2004 (ISBN 0-86976-667-8)
Annual Report – 2005 (ISBN 0-86976-700-3)
Annual Report – 2008 (ISBN 0-86976-790-0)

OTHER PUBLICATIONS (ISSN 1026-8405)*

LRDC 1 Aspects of Family Law: The Abolition of Marital Power and Equalization
of Rights between Spouses (ISBN 0-86976-384-9)
LRDC 2 The Ascertainment of Customary Law and the Methodological Aspects
of Research into Customary Law: Proceedings of Workshop, February/ March 1995
(ISBN 0-86976-385-7)
LRDC 3 T.W. Bennett, Customary Law and the Constitution, October 1996
(ISBN 0-86976-397-0)
LRDC 4 Report on the law pertaining to Rape (ISBN 0-86976-406-3)
LRDC 5 Report on Maintenance (ISBN 0-86976-407-1)
LRDC 6 Report on Small Claims Courts (ISBN 0-86976-412-8)
LRDC 7 Violence against and Abuse of Women and Children Project: Formal
Addresses made at the National Hearing-May 1997
(ISBN 0-86976-412-6)
LRDC 8 Violence against and Abuse of Women and Children Project: Verbatim
Discussions held at the National Hearing-May 1997 (ISBN 0-86976-490-X)
LRDC 9 Domestic Violence Cases reported to the Namibian Police – Case
Characteristics and Police Responses (ISBN 0-86976-516-7)
LRDC 10 Report on Domestic Violence (ISBN 0-86976-555-8)
LRDC 11 Report on Uniform Consequences of Common Law Marriages (Repeal
of Section 17(6) of Native Administration Proclamation, 1928 (Proclamation 15 of
1928) (ISBN 999916-63-57-6)
LRDC 12 Report on Customary Law Marriages (ISBN 0-86976-651-1)
LRDC 13 Report on Divorce (ISBN 0-86976-654-6)
LRDC 14 Report on Public Gatherings (ISBN 0-86976-689-9)
LRDC 15 Report on Marital Property (ISBN 978-0-86976-793-1)
LRDC 16 Report on Publications (ISBN 978-0-8669766666-792-4)
LRDC 17 Report on Adjustment of Fines (ISBN 978-0-86976-791-7)
LRDC 18 Further Report on Rape (ISBN 978-99945-0-052-9)
iii
LRDC 19 Electoral Law Reform Project: Revision and Reform of the
Namibian Electoral Act, 1992 (Act No. 24 of 1992) (ISBN 978-
99945-0-053-6)
LRDC 20 Report on Succession and Estates (ISBN 978-99945-0-060-4)
LRDC 21 Urgent and Targeted Report on Fisheries (ISBN 978-99945-0-
060-4
LRDC 22 Working Paper on Issues Related to the Traditional Authorities
in the Ovawambo Communities (ISBN 978-99945-0-061-1)
LRDC 23 Working Paper on Issues Related to Family Law in Namibia:
Swakopmund Family Law Workshop (ISBN 978-99945-0-062-8)
LRDC 24 Working Paper On Issues Related to the Criminal Procedure
Act, 2004 (Act No. 25 of 2004) and Statutory Time Limits
Workshop (ISBN 978-99945-0-064-2)
LRDC 25 Report on the Repeal of Obsolete Laws Project (ISBN: 978-
99945-0-069-7)
LRDC 26 Government Institutions Pension Fund (GIPF) Legal Framework
Discussion Paper (ISBN: 978-99945-0-071-0)
LRDC 27 Locus Standi - Discussion Paper (ISBN: 978-99945-0-072-7)
LRDC 28 Review of Administrative Justice in Namibia Concept Paper By
Professor Hugh Corder (ISBN 978-99945-0-073-4)
LRDC 29 Consumer Protection Discussion Paper (ISBN 978-99945-0-
074-1)
LRDC 30 The Transformation of the Polytechnic of Namibia into the Namibia
University of Science and Technology – Discussion Paper (ISBN 978-99945-0-075-
8)
LRDC 31 Report on the Revision and Reform of the Namibian Electoral
Framework (ISBN 978-99945-0-077-2)

*Number of publication, ISSN and ISBN numbers not printed on all copies.

Recommended Citation
Namibia Law Reform and Development Commission: LRDC 32; Discussion Paper
on Issues Relating to the Insolvency Act, 1936 (Act No. 24 of 1936), February 2015,
Windhoek.
iv
LAW REFORM AND DEVELOPMENT COMMISSION

The Namibian Law Reform and Development Commission (the LRDC) is a creature
of statute established by Section 2 of the Law Reform and Development
Commission Act, 1991 (Act No. 29 of 1991).

The core mandate of the Commission is to undertake research in connection with all
branches of law and to make recommendations for the reform and development
thereof.

The current Commission members are–

Mr S Shanghala, Chairperson
Adv J Walters, Ombudsman

Under section 3 of the Law Reform and Development Commission Act, 1991,
Commissioners are appointed by the President. Previous Commissioners ceased to
hold their office when their term of office for three (3) years lapsed on November 8,
2013. They were –

Ms Dianne Hubbard;
Mr Nixon Marcus;
Ms Damoline Muroko;
Ms Yvonne Dausab; and
Mr Raywood Rukoro

The Secretary to the Commission is Mr J.T. Namiseb who heads the Directorate of
Law Reform, an organizational component in the Ministry of Justice. The Directorate
of Law Reform serves as Secretariat to the Commission, assisting the Commission
in the exercise of its powers and the performance of its duties and functions under
the Law Reform and Development Commission Act, 1991. The Commission and
Secretariat are housed on the 1st Floor, Mutual Platz Building, Post Street Mall,
Windhoek.

All correspondence to the Commission should be addressed to:
The Secretary
Law Reform & Development Commission
Fax: [phone]
Private Bag 13302
Tel.: [phone]
Windhoek E-mail:
Republic of Namibia [email protected]

v
CONTENTS
Page

Foreword …………..……………………………………………………......vii
Table of Abbreviations.…………….……………………..…………..…....x
Introduction.………………..……………...…………………….…….1
Background to Namibia’s Legal Insolvency Framework….…..8
Stakeholder Input and Recommendations.…………………….31
The Context for Reform.……………………………………………34
Challenges for Reform…..…………………………………………37
Issues for Reform……………………………………………………41
Conclusion.……………………………………..……………………93
Reference List.……………………………………………………….95

ANNEXURES
Annexure A:
The Report on the Observance of Standards and Codes Insolvency Creditor/Debtor
Regime (ICR ROSC)

vi
FOREWORD

Insolvency is not something that many people think about as we go about our lives,
yet it is part and parcel of our lives more than we may know. The same way divorce
as a procedure for exiting a marriage is in place, so is the insolvency legislation for
commercial interaction. Citizens engage in commercial activities in as much as they
engage in social interactions. When things go astray, insolvency through liquidation
should not become a ‗death trap‘ for folks ad infinitum. Equally, for a developing
economy like Namibia, it is clear that entrepreneurs will make money and lose
money, yet how quickly they can be rehabilitated is central to the success of the
economy.

Further, the complexity with which the Namibian economy has evolved demands that
the laws regulating insolvency are modernized and brought up to date to match the
reality of the times. The reality of the intertwined cross border corporate existence
between South Africa and Namibia also lays upon Namibia a contingent risk of cross
border insolvency problems in the absence of a legal framework that ensures that
reciprocal recognition of claims and locus standi for Namibian creditors will be made
when an entity undergoes insolvency proceedings in South Africa.

Through UNCITRAL, the world is discussing whether there is a need for a
convention on cross border insolvency to buttress the proposals espoused under the
Model Law on Cross Border Insolvency, which sadly, has not really received
widespread adoption by countries around the world. There is certainly a need to be
prepared for cross border insolvency interaction. Namibia is one of those countries
that still applies an insolvency legislation that is out-dated and is geared towards
insolvency more than it is towards the rescue of ailing businesses. Gleaning from the
paths traversed by others, it is clear that certain policy determinations will have to be
made, such as whether or not Namibia will maintain a duality of systems, different for
natural persons and for companies/corporations. Will we simply reform the
insolvency laws or will we form new insolvency laws à la Australia?

It is also clear that there needs to be a relook into the decision as to whether the
banking sector should regulate itself exclusively without further interference during
vii
insolvency processes, consumer rights may have to be protected from more
instruments and positions than one. Should insolvency practitioners (without
exclusive reference to legal practitioners specializing in insolvency matters) be
registered and regulated? Should another body be created for these purposes?

From the discussion contained herein, the LRDC is acquitted for having insisted that
the reform need not focus merely on certain sections of the Insolvency Act, 1936
alone, and that there be a wholesale reform of the said legislation and perhaps other
concomitant laws. In this regard, the LRDC is indebted to the World Bank for
dispatching a team of competent lawyers with global experience, including Professor
Andre Boraine, the Dean of the Law Faculty of the University of Pretoria in South
Africa, who conducted the ROSC with the assistance of the LRDC‘s nominated local
lawyer, Mr Adolf Denk.

The LRDC places before the Namibian public, the Discussion Paper as well as its
attachment so that the Namibian public, in the reform process, may be guided by it. It
is envisaged that a workshop will be held in the near foreseeable future whereat the
ROSC will be presented to the participants, and whereat the high level questions will
be posed for input and guidance which will then inform the legal drafting process,
leading into the section 9 of the LRDC Act, 1991 Report to the Minister of Justice.

The LRDC will continue to monitor activities in the area of insolvency across the
globe from the vantage position of Namibia being a Member of UNCITRAL, and in
particular, Group V (Insolvency), tasked with setting the agenda in the field of
insolvency. In doing so, the involvement of private sector members will be welcome
in accordance with the needs of the LRDC. Consultations will be sought so that
Namibia‘s contribution at the global level will be well informed.

As a developing country undergoing reform in its internal insolvency laws, the
question needs to be asked: Why had we never adopted the model law on cross
border insolvency? Was it because it was not obligatory? Were we simply unaware
of it? Is it because the statistics reveal very few insolvencies actually occurring in
Namibia? Should the world adopt a convention on the matter? I leave these
questions for the reader.
viii
Finally, given the technical nature of this subject, all shortcomings contained in this
document are to be ascribed to me, whilst I remain thankful to the hard work and
eagerness with which Victoria Weyulu exhibited then only as a law student, later on
to lead law students into the research that led to the drafting of this Discussion
Document.

With this publication, the LRDC has demonstrated how versatile it can be, and just
how much can be done with so little. This would have never been achieved without
the commitment of the men and women, boys and girls who devote their time to the
LRDC and as Chairperson, I will forever be indebted to them for ensuring that during
my tenure, just as much of published work could have been produced as was
produced by the LRDC since 1991 to November 9, 2010 when I was appointed by
President Pohamba.

Sakeus Edward Twelityaamena Shanghala
Chairperson: Law Reform and Development Commission

ix
TABLE OF ABBREVIATIONS

ARITA Australian Restructuring Insolvency & Turnaround Association

BoN Bank of Namibia

CMA Common Monetary Union

ICR Insolvency Debtor/Creditor Regime

IMF The International Monetary Fund

IPA The Insolvency Practitioners Association of Australia

ISDA The International Swaps and Derivative Association

LRDC The Law Reform and Development Commission

MLR Ministry of Lands and Resettlement

MSMEs Micro, Small and Medium Enterprises

NAMFISA Namibia Financial Institutions Supervisory Authority

OECD Organization for Economic Co-operation and Development

ROSC The World Bank Report on the Observance of Standards and Codes
Insolvency Creditor/Debtor Regime (ICR ROSC)

UNCITRAL The United Nations Commission on International Trade Law

SACU Southern African Customs Union

SADC Southern Africa Development Commission

SALC The South African Law Commission

SARIPA South Africa Restructuring and Insolvency Practitioners Association

SOEs State Owned Enterprises

SMEs Small and Medium Enterprises

x