Key Points
- Business liquidation in Zimbabwe often follows financial distress.
- The business liquidation process follows strict legal guidelines.
- Business liquidation affects employees, directors, and shareholders.
To explore the complexity of corporate liquidation in Zimbabwe, NewZimbabwe spoke with senior partner Vengai Madzima of Madzima Chidyausiku Museta Legal Practitioners (MCM Legal). He defined liquidation as the official process of closing a business, stopping its activities, and allocating its assets to pay off creditors and owners. Although liquidation is sometimes a strategic choice that lets companies restructure or change their emphasis, it is usually a reaction to financial crisis.
Why businesses undergo liquidation in Zimbabwe’s uncertain economy
Liquidation can be both voluntary and forced, Madzima pointed out. Voluntary liquidation is the agreement among shareholders to dissolve the business even if it is still solvent. Conversely, often started by creditors, insolvency or legal action sets off involuntary liquidation. “In Zimbabwe, the same principles apply as in many other jurisdictions, but economic instability usually leads to spikes in liquidations,” he said. Periods of economic crisis sometimes force companies to close because of unsustainable financial strain.
Liquidation in Zimbabwe is governed legally by a methodical process. A liquidator is assigned to supervise the sale of assets, pay off outstanding debts, and divide any remaining money among shareholders when owners choose to freely dissolve a company. Madzima noted that voluntary liquidation—a strategic choice to close one company in favor of a more profitable venture—does not always indicate a company is bankrupt.
According to New Zimbabawe, once liquidation is underway, the appointed liquidator takes charge of the company’s affairs. Their primary responsibility is to sell off company assets to generate funds for creditor payments, with any remaining balance distributed among shareholders. “The liquidator also investigates the company’s financial history to ensure no fraudulent transactions were made before liquidation,” Madzima said.
Creditors play a critical role in the liquidation process. They must submit claims supported by documentation proving that the company owes them money. Since the liquidator was not involved in the business before liquidation, it falls on creditors to provide sufficient evidence of outstanding debts.
How business liquidation affects employees, directors, and shareholders
The consequences of liquidation extend beyond financial losses, affecting employees, directors, and shareholders. Once liquidation begins, employee contracts are terminated, and workers lose their jobs.
For directors, liquidation results in an immediate loss of control over the company. While they no longer manage the business, they may still be held personally liable for any fraudulent or reckless transactions conducted while in office.
Shareholders, on the other hand, often bear the brunt of liquidation. “If any assets remain after creditors are paid, shareholders receive a portion based on their ownership stake,” Madzima explained. However, in many cases, liquidation results in the complete loss of shareholder investments.
