The Supreme Court of Zimbabwe recently had the opportunity to consider how the age-old proverb applies to enterprises in corporate rescue. In so doing it clarified that a revenue authority’s refusal to issue a tax clearance certificate (TCC) to a company under corporate rescue does not amount to an enforcement action within the meaning prescribed in Section 126 (1) of the Insolvency Act to which general moratoriums apply. The judgement further clarifies the limits of a moratorium, and confirms that ZIMRA’s routine administrative conduct is not barred by corporate rescue proceedings, and establishes that the commencement of corporate rescue does not confer fiscal immunity upon a distressed entity.
THE FACTS
Pacific Cigarette Company (Private) Limited (PCC) was placed under corporate rescue in September 2023. At the time, it was in tax arrears of approximately US$19.5 million. A corporate rescue plan was subsequently adopted by creditors in April 2024 with ZIMRA itself approving. When the company then applied for a TCC in January 2025, ZIMRA objected, citing its outstanding pre-corporate rescue arrears and PCC’s further failure to conclude a satisfactory payment arrangement as required by Section 34C of the Revenue Authority Act [Chapter 23:11].
PCC contended that the objection amounted to an enforcement action in breach of the moratorium under Section 126 (1) of the Insolvency Act, which prohibits the commencement or continuation of “legal proceedings, including enforcement action” against a company under corporate rescue. The High Court agreed. It reasoned that the provisions of the Insolvency Act overrode those of the Revenue Authority Act, given that the Insolvency Act is the later enactment, and as such its provisions take precedence. It subsequently granted a declaratory order compelling ZIMRA to issue the TCC during the subsistence of the corporate rescue proceedings.
ZIMRA’S ARGUMENTS
ZIMRA argued that the refusal to issue a TCC was neither a legal proceeding nor an enforcement action within the meaning of Section 126 (1) of the Insolvency Act. Instead, it reasoned that the question the court a quo ought to have answered was not whether there was a clash between the Revenue Authority Act and the Insolvency Act, but rather whether administrative conduct fell within the definition of an “enforcement action” in terms of Section 126 (1). It relied on the South African case of Murray N.O and Anor v Firstrand Bank Ltd t/a Wesbank 2015 (3) SA 438 (SCA) which defined an enforcement action as an action that stem from the court. In other words, formal processes such as the execution of judgement and attachment of property. ZIMRA further contended that Section 34C of the Revenue Authority Act remained operative during rescue, and that the corporate rescue plan could not suspend the peremptory requirements for TCC issuance.
THE JUDGMENT
The Supreme Court upheld the appeal. The court confirmed that the moratorium in Section 126 (1) operates as a temporary suspension of creditors’ rights to institute legal proceedings or to enforce claims through judicial means. It, however, does not extend to administrative acts of a regulatory nature.
Taking guidance from the Murray case supra the Court held that an “enforcement action” is a special species of legal proceedings that relates to formal court driven means of enforcing a court mandated obligation. This would seemingly apply to writs of executions and other processes stemming from a judicial process. A TCC refusal is an administrative decision rooted in statute that does not have its origins in a judicial process. The Court summed it up as follows:
“…the appellant’s routine administrative actions, including the determination of tax liability, issuance of assessments, demanding notices, and even the collection of taxes through non-litigious means, do not meet the threshold of “enforcement action” as articulated in Murray (supra). These acts are regulatory in character; they are necessary precursors to enforcement but are not, in themselves, enforcement actions.”
The Court also corrected the court a quo’s reasoning, noting that the dispute was never about statutory hierarchy. Reaffirming the literal rule of interpretation, the Court emphasized that a statute must be read as is; it is not the function of the judiciary to rewrite clear legislative text where the plain language does not lead to an absurdity.
IMPLICATIONS OF THE JUDGEMENT
This judgment clarifies the scope of the section 126(1) moratorium and the circumstances in which the revenue authority may lawfully decline to issue a TCC notwithstanding corporate rescue proceedings. It also emphasises the importance of proactive tax planning in any viable rescue. Companies under corporate rescue and their practitioners should note that the ZIMRA retains full administrative authority to assess, demand, and withhold certification during rescue. Further, a corporate rescue plan which fails to make credible provision for pre-rescue tax carris significant risks.
