Insolvency Law at Lesotho
Lesotho's insolvency and corporate restructuring framework is primarily governed by the Companies Act No. 18 of 2011, which provides mechanisms for both liquidation and judicial management of companies. The Act was significantly updated in 2022 to modernize insolvency practices and introduce an official regulatory body for the sector. (Long Awaited Insolvency Law Passed)
⚖️ Key Legal Mechanisms
1. Liquidation (Winding-Up)
Liquidation is the formal process for dissolving a company in financial distress. Under Section 125 of the Companies Act, a company may be placed into liquidation by court order if:
It is unable to pay its debts; or
75% of its issued share capital has been lost or become useless for the business. (Companies Act, 2011 - LesLII)
Liquidation can be initiated by the company, a creditor, a shareholder, or the Registrar of Companies. Once ordered, the Master of the High Court oversees the process for individuals, while the Registrar of Companies handles corporate insolvencies. (Long Awaited Insolvency Law Passed)
2. Judicial Management (Restructuring)
Judicial management is a court-supervised process aimed at rescuing a company in financial distress. According to Section 156 of the Act, the court may place a company under judicial management if: (Liquidations | Webber Newdigate Attorneys)
There is mismanagement or other issues threatening the company's viability;
The company's assets are being misapplied or misused. (Companies Act, 2011 - LesLII)
Unlike formal restructuring procedures, judicial management does not have a prescribed timeline and is funded by the company's income. The judicial manager has control over the company's assets, while directors remain in office but cease to have their usual powers. (Webber Newdigate Attorneys | Insolvency Law)
🧑⚖️ Roles and Oversight
Master of the High Court: Manages the liquidation of individuals and oversees the appointment of liquidators.
Registrar of Companies: Oversees corporate insolvencies and the registration of insolvency practitioners. (Long Awaited Insolvency Law Passed)
Insolvency Regulator: Established under the 2022 amendments, this body regulates insolvency practice in Lesotho, including licensing and disciplining insolvency practitioners. (Long Awaited Insolvency Law Passed)
📋 Creditor Priorities
In liquidation, creditors' claims are settled in a specific order:
Secured Creditors: Those with collateral backing their debts.
Preferential Creditors: Includes employees' claims, which now rank preferential up to a maximum of three months' salary, an increase from the previous fixed amount. (Long Awaited Insolvency Law Passed)
Unsecured Creditors: General creditors without collateral.
⚠️ Legal Developments
The 2022 amendments to the Companies Act introduced significant reforms:
Insolvency Regulator: Established to oversee insolvency practices and regulate practitioners. (Long Awaited Insolvency Law Passed)
Employee Claims: Enhanced protection for employees by increasing the preferential claim amount. (Long Awaited Insolvency Law Passed)
Judicial Management: Clarified procedures and roles of judicial managers. (Webber Newdigate Attorneys | Insolvency Law)
These reforms aim to modernize Lesotho's insolvency framework and align it with international standards. (Long Awaited Insolvency Law Passed)
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