Insolvency law in Mauritius is principally regulated by the Insolvency Act 2009, and it is supplemented by some provisions of the Companies Act 2001, certain regulations made under the 2009 Act and case law.
1. Under Mauritian law, a company may be wound up on the basis of insolvency if it is unable to pay its debts. A company is presumed to be unable to pay its debts where it 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 the company's property has appointed a receiver or a compromise between a company and its creditors has been put to a vote but has not been approved. The Court may also make a winding up order where it is just and equitable to do so. The members of a company may also voluntarily put the company in liquidation by passing a special resolution to that effect.
2. The commencement of liquidation is either the making of the winding-up order by the Court or the passing of the winding-up resolution. In the latter case, commencement may happen earlier if the directors have caused a provisional liquidator to be appointed by reason of the company's insolvency.
3. In situations of insolvency or of doubtful solvency, the directors must exercise their powers in the best interests of the company having regard to the interests of its creditors. The directors also have a statutory duty to convene a board meeting in order to consider whether a liquidator or administrator – failure to convene such a meeting or to vote for such an appointment may result in personal liability of an individual director for loss caused to creditors as a result of the company trading while insolvent, if the company subsequently goes in to liquidation.
4. Liquidation is a collective process in which the liquidator collects and realizes the assets of the company with a view to distribute the proceeds among the creditors and (if there is a surplus) shareholders. Any disposition of the company's property made after the commencement of a complusory winding-up without court permission is void. In both voluntary and compulsory winding-up, proceedings against the company or its property or enforcement action over the company's property are stayed unless the liquidator consents or the court orders otherwise. Secured creditors may take possession of and realize charged property but the proceeds of realization, along with other assets of the company, must be distributed in accordance with a priority ladder set out in the Insolvency Act; preferential claims, such as the expenses of liquidation, certain tax claims, certain employee claims, costs of an administration (if there was one) and costs of compromises with creditors (if there was one), rank ahead of secured creditors.
5. A liquidator may disclaim onerous property, (i.e. unprofitable contracts, property which is not readily saleable or property which gives rise to liability to pay money or perform an onerous act). A liquidator can be made to elect whether to disclaim onerous property within 28 days, failing which the liquidator loses the right to disclaim.
6. In an insolvent liquidation, mutual debts between a company and a creditor are set off against one another, although transactions made within 6 months prior to the commencement of liquidation are excluded for the purpose of insolvency set-off, and this period increases to 2 years in the case of transactions with related parties. The operation of netting provisions under certain qualifying financial contracts is not affected by a liquidation, by virtue of Part V of the Insolvency Act.
7. A liquidator may challenge transactions entered into within a vulnerable period before the commencement of liquidation, namely voidable preferences, voidable charges (but not charges given for new consideration or as substitution for old charges), alienations of company property with intent to defraud a creditor, voidable gifts, transactions at an undervalue and contributions to another person's estate whilst the company was insolvent. The vulnerable period is 2 or 5 years prior to commencement of liquidation and the company must have been unable to pay its debts at the time of the transaction. There is a presumption of insolvency if the transaction was made within 6 months of commencement of liquidation.
8. A liquidator can pursue directors and former directors (including shadow or de facto directors) where such person may have misapplied or retained or become accountable for money or property of the company, or committed a breach of duty towards the company.
9. As an alternative to liquidation, the Insolvency Act introduced administration, the objectives of which are either corporate/ business rescue or the achievement of a better return for creditors than in a liquidation. At the end of administration, the administrator must convene a meeting of creditors to vote on one of the exit mechanisms, namely: (i) entry of the company in liquidation, (ii) termination of the administration without more or (iii) approval of a restructuring plan.
10. The Insolvency Act also regulates receivership, which is not a collective process and is essentially a process enabling secured creditors to enforce their charges.
11. A liquidator, administrator or receiver must be a licensed insolvency practitioner and only Mauritian residents are entitled to such licence. There is no provision for the entry into protocols or other cooperation with foreign insolvency practitioners. The Part of the Insolvency Act dealing with cross-border insolvencies and which is based on the UNCITRAL Model Law has not been proclaimed yet.
12. The Companies Act also provides for restructuring of companies outside of a formal liquidation or administration. This can be either by way of a compromise with creditors approved at a creditors' meeting, or a scheme of arrangement approved by the Court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.