Corporate rescue mechanisms: the law and practice in Tanzania

Corporate rescue is defined as the process of strategies for rescuing companies in distress. This is a procedure geared principally towards relieving an overburdened company from financial distress. When a company is unable to pay its debts to its creditors, problems usually arise some creditors may demand security for past debts or start actions on their claims, in an effort to protect themselves. Such actions may adversely affect the company, the shareholders, the employees and fellow creditors, by depriving them of their fair share of the debtor’s assets. For this reason, companies in financial difficulties must not be allowed to go to the wall unnecessarily, but rather, there should be decisive efforts to try to rescue them. Courts in Tanzania are given preferential rights to handle corporate rescue mechanisms found under Part VII of the Companies Act, No. 12 of 2002, namely, CVA and administration orders. In general, corporate rescue mechanisms found under Part VII are a step towards a resourceful rescue of distressed companies in Tanzania. As a result, corporate rescue mechanisms in Tanzania have become a fundamental and contemporary tool of an insolvency process. The study makes recommendations towards addressing the overall improvement of the rescue procedures laws, stakeholders’ education and creation of a rescue fund to meet considerable expenses associated with rescuing companies in distress.