New act
Defect or irregularity
Dismissing the petition

New act

Insolvency in Mauritius is now governed by the new Insolvency Act 2009. Previously, insolvency was governed by the Bankruptcy Ordinance 1888, the Companies Acts 1984 and 2001 and the Insolvency Act 1982. The main objectives of the act are to consolidate and modernise the legal framework for insolvency by updating and integrating it into a modern and comprehensive regime covering both individual and corporate insolvency. It also contains provisions for cross-border cooperation, but these are not yet in force.

Under the act, a company is presumed to be unable to pay its debts as they become due in the ordinary course of business where:

  • the company has failed to comply with a statutory demand;
  • execution issued against the company in respect of a judgment debt has been returned unsatisfied;
  • a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating a charge; or
  • a compromise between a company and its creditors has been put to vote, but has not yet been approved.

The act states that a company is unable to pay its debts if it fails to comply with a statutory demand within one month of the last date for compliance with the demand. The act further specifies that the statutory demand must be made in the prescribed form. However, since no such form has been provided in the act, court decisions since its enactment provide some guidance on the matter. In DMH Corporate v Decocity Ltd (2010 SCJ 418) the judge admitted that "there is no such prescribed form. Nonetheless, a statutory demand must at least comply with the provision of Section 180 of the Act". That section states that the demand must:

  • be served on the company;
  • be in respect of a debt due of not less than MRs100,000; and
  • require the company to pay the debt.

Defect or irregularity

A statutory demand may be set aside by the Supreme Court, although not by reason of defect or irregularity, unless the court considers that substantial injustice would be caused if it were not set aside.

The court may grant an application to set aside a statutory demand where it is satisfied that:

  • there is a substantial dispute as to whether the debt is owing or due;
  • the company appears to have a counterclaim, set-off or cross-demand and the amount specified in the demand, less the amount of the counterclaim, set-off or cross-demand is less than the prescribed amount; or
  • the demand ought to be set aside on other grounds.

Consequently, if a company fails to meet the statutory demand on the payment date specified under the statutory demand, the applicant may then file a petition to wind up the company.

However, the court may consider a winding-up application even though no statutory demand has been made if the creditor can demonstrate a continuous default by the company in payment of sums due under a financing arrangement. The court may, in its discretion, allow the creditor's application to wind up the company on grounds that there are dues outstanding for a long period of time.

The court ordinarily appoints a provisional liquidator on presentation of a petition to wind up before a winding-up order. Upon appointment, the provisional liquidator takes into his or her custody or control all property to which the company is or appears to be entitled. The court may hear a winding-up petition within one or three months of the date of presentation the winding-up petition. At such hearings, the court may make an order to wind up the company, dismiss the petition or adjourn the hearing or make such interim or other order that it thinks fit.

Dismissing the petition

A creditor may have a 'charge', widely defined in the act as "a right or interest in relation to property owned by a debtor, by virtue of which the creditor is entitled to claim payment in priority to other creditors". To obtain maximum protection, a creditor should ensure that the charge created on the assets of the Mauritius company is registered and inscribed with the registrar general or the conservator of mortgages in order for such charge to take priority over any subsequent secured or unsecured charges. The first fixed charge to be registered would take priority over subsequent registered charges. Creditors may agree that the appropriate charges would hold the same ranking and therefore have pari passu status.

An additional safeguard is to ensure that the charge instruments provide for the appointment of a receiver or a receiver and manager. The act states that a receiver shall have the powers and authorities expressly conferred by the instrument under which he or she is appointed. Additionally, the act provides that:

"a receiver of property of a company has power to do, in Mauritius and elsewhere, all things necessary convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed."

According to the act, a secured creditor that holds a charge over the whole, or substantially the whole, of the company's property may appoint an administrator where the charge has become and is still enforceable. The appointment of an administrator does not result in removal of the directors from their office. However, the directors may not exercise or perform a function or power as an officer of the company, except with the prior written approval of the administrator or unless such exercise of power is expressly permitted under the act. The most crucial aspect of the administration process is the convening of a 'watershed meeting'. The administrator is required to call a meeting of creditors to determine the next steps to be taken by the company within 28 days of his or her appointment. At the watershed meeting, the creditors or lenders can resolve whether it would be in their interests to:

  • wind up the company;
  • enter into a deed of arrangement; or
  • end the process of administration.

The introduction of the act is a welcome improvement and gives financial institutions lending to Mauritius incorporated entities a wider armoury should enforcement be needed.

For further information on this topic please contact Gilbert Noel at Appleby by telephone (+2 30 203 4300), fax (+2 30 210 8792) or email ([email protected]).