The current Legal Regime of Insolvency and Recovery of Commercial Entrepreneurs (LRIRCE) entered into force in October 2013, through Decree-Law No. 1/2013, of 4 July. With its approval, numerous expectations were created regarding the possibility of safeguarding the interests of the commercial entrepreneur as a production unit and, consequently, the preservation of other credit interests adjacent to it.

Thus, after almost four (4) years having elapsed since its entry into force and given the current situation of the country (exchange rate devaluation, inflation rate increase, discrepancy in the ratio of the public debt to Gross Domestic Product (GDP), reduction of production capacity in certain export sectors, among others), a scenario of greater adherence to the implementation of LRIRCE by companies in a poor financial situation would be expected. Therefore, there would be gains in our socio-economic context, with the possibility of an increasing number of cases of recovery of commercial entrepreneurs considered "recoverable" and withdrawal from the market of commercial entrepreneurs whose activity or administration are considered to be inadequate, i.e. "non-recoverable".

Unfortunately, the reality has defrauded a majority of the expectations, since, at present, there have been many commercial entrepreneurs who, being in a difficult economic situation, choose to withdraw from the market irregularly, without leaning on the safety of the means legally established for this purpose, with special focus on the means provided by LRIRCE.

It is certain that this situation has largely made it impossible for the commercial entrepreneur to maintain his/her potential by continuing his/her economic and social function, materialized in the generation and preservation of jobs, income, tax payments, wealth production and propulsion of socio-economic development, which, inevitably, refers to a brief analysis and consideration of the set of factors behind the low rate of insolvency and recovery processes (judicial and extrajudicial) currently conducted in the country.

Firstly and overall, it can be said that one of the reasons for the weak adherence to the LRIRCE is that it is poorly disseminated within the country's business community. This is due to a lack of knowledge of the existence, benefits and protection arising from the application of the regime, meaning entrepreneurs resort to the irregular and illegal closure of their commercial activities, without deigning to be guided by the mechanisms legally established for this purpose. This can be either through the means of LRIRCE, or through closure (temporary or permanent of the commercial establishment) or the suspension of activities provided for in the Commercial Code and the Commercial Activities Licensing Regulation.

In addition to this, there is the disbelief of those who have legitimacy to require insolvency proceedings and recovery (in the light of Articles 47 and 93 of LRIRCE) on the efficiency of the judicial system, with regard to the conducting of the process and the safeguarding of other credit interests connected to it.

Another factor, no less relevant and which is a real challenge to the effective implementation of the LRIRCE, has been the lack of training measures carried out for the implementers of the regime (judges, public prosecutors, court officials, insolvency administrators, among others).

However, it cannot be denied that efforts have been made to carry out some training around the LRIRCE, even though the regularity and comprehensiveness, regarding the quality of the subjects and jurisdiction to which they are attached, reveal that much is still to be done with a view to enabling and making them capable of contributing to a greater speed, dynamics and effectiveness of the process.

As this is a relatively new and unknown reality in our legal system, and since we are still in a "disaffection" phase with regard to the bankruptcy regime that has remained entrenched for almost half a century, it would be necessary that the training actions be carried out more regularly and covered enforcers from all provinces of the country, not only some, as has previously happened.

In addition, it was also on the basis of this spirit that the Mozambican Association of Insolvency Administrators (AMAIN) was created in July 2016. AMAIN expressly stated that one of its objectives was to promote the training of insolvency administrators and other staff specialized in insolvency and recovery of companies, as provided for in Article 3 (d) of the Statutes of the Association.

Certainly, the commitment to the professionalization of the function of insolvency administrator, besides contributing to the operationalization of the legislation, will offer greater dynamics for the speed of this type of process through the technical and deontological training of those professionals and will raise the previous rates of time and recoverability from five (5) years and fifteen (15) cents for each dollar of declared assets to at least ten (10) months and eighty (80) cents per dollar for each declared dollar, as aimed.

Taking into account the legislative effort made to reform the former bankruptcy system and approval of the new insolvency regime since its eentry into force, Mozambique has had a positive rating in the "Doing Business" ranking and is now in position sixty-five (65) with respect to the classification relating to the insolvency resolution, notwithstanding the fact that for that assessment it was considered only the legislative reform carried out and not necessarily the results of the implementation of the regime.

In sum, the factors referred to above, namely the lack of disclosure of the regime, the disbelief in the judicial system, the lack of training of the stakeholders and the low rate of recoverability of credits in a short time have undoubtedly been real challenges to the implementation of LRIRCE in our legal system. It has created a chain reaction to the stability and socio-economic development of the Mozambique, and the negative effects can only be solved through joint action and association of efforts between the State and the other stakeholders, aimed mainly at preventing the loss of credits and the downtime of production units, whose operationalization contributes to the generation of income.

 

SAL & Caldeira Advogados LDA is a member of the DLA Piper Africa Group, an alliance of leading independent law firms working together in association with DLA Piper across Africa.

Originally published in the SAL & Caldeira Advogados Lda Newsletter no. 32 (dated 18 October 2017)