Authored By: Keneiloe Kompi
National University of Lesotho
Abstract
The Insolvency Act of 2022 introduced corporate rescue into Lesotho’s insolvency framework, indicating a paradigm shift from liquidation-friendly process toward the preservation of viable businesses. This article critically examines the link between corporate rescue and economic sustainability, assessing whether the Act can realistically safeguard employment, preserve enterprises, and promote creditor confidence in a fragile economy. This analysis explores the structure of the corporate rescue regime, its goals and the financial and institutional challenges that may curb its efficacy. Selecting specific element to draw on South African mixed experience in corporate rescue, this article highlights both opportunities and challenges with Lesotho’s model. It argues that while the Act marks a significant policy advance, its success will depend on strengthening institutional capacity, ensuring access to rescue financing and placing corporate rescue within broader economic development strategies.
Introduction
In the old dispensation, under Lesotho’s Companies’ Act 18 of 2011, financially distressed businesses were faced with limited mechanisms in order to be rescued. Its primary emphasis was liquidation, particularly in favour of creditor recovery rather than the revival of viable enterprises.1 Other than that, the Act also made provision for judicial management, which provided some relief, but its effectiveness was hindered by procedural hurdles and the requirement for court-appointed reports from non-commercial experts such as the court registrar.2 This massacre led to the enactment of the new Insolvency Act of 2022, to modernize the country’s corporate recovery framework and offer a lifeline to ailing companies. The new Insolvency Act of 2022 ushered in a proactive, business-led approach to insolvency, allowing for the resuscitation of ailing companies.3 The main aim it its provisions on corporate rescue is to breathe life into ailing companies by prioritizing their resuscitation rather than liquidation as applicable under the old system.4
Corporate entities play a vital role in national economic development.5 For Lesotho, a small and developing economy that heavily relies on small and medium-sized enterprises (SMEs),6 the advancement of corporate rescue carries significant implications for economic sustainability. In Lesotho, as elsewhere, companies not only drive employment and deliver essential goods and services, but also boost fiscal growth.7If corporate rescue fails, there is a risk of job losses, broken supply chains, shrinking investor confidence and contributing to the reclining of economic growth.8 As such, corporate rescue can be a powerful tool to promote entrepreneurship, innovation, job creation, access to finance and economic growth.9 However, the success of this regime depends largely on the design of the legislation, the institutional and economic environment in which it operates.10 In jurisdictions such as South Africa, experience has shown that while business rescue can be a progressive reform, its success if often undermined by practical challenges including resistance from creditors, inadequate access to post-commencement financing and limited practitioner expertise.11 These lessons give insight for Lesotho where institutional capacity is even more restricted.
This article critically evaluates the potential of Lesotho’s corporate rescue regime under the Insolvency Act of 2022 to serve as a tool for economic sustainability. It explores the legislative framework of corporate rescue, the policy goals underpinning its introduction, and the structural challenges that may hinder its effectiveness in practice. The article ultimately argues that while the 2022 Act marks a significant policy development, its promise of economic sustainability will only be realized if corporate rescue is embedded within Lesotho’s broader economic development strategies, supported by institutional reform and access to rescue financing.
The Connection between corporate rescue and economic sustainability
Corporate rescue refers to a collective of legal mechanisms designed to facilitate either the preservation of a financially distressed company or the rescue of its underlying business, rather than liquidating it.12 The concept is rooted in the idea that insolvency law should not only maximize returns for creditors but also preserve businesses as going concerns, protect employment, and sustain economic activity.13 This shows a policy shift away from creditor driven liquidation towards a balanced regime that seeks to reconcile the interests of creditors, debtors, employees and society in general.14
Under Lesotho’s 2022 Insolvency Act, corporate rescue is defined as “proceedings provided for to facilitate the revival of a company that is financially distressed”.15 The Act provides for a temporary moratorium on creditor claims, the appointment of a rescue practitioner, and the adoption of a business rescue plan that outlines mechanisms to restore solvency or achieve a better outcome for creditors than liquidation.16 These provisions signal a recognition that insolvency reform is not only about legal efficiency but also about ensuring that viable businesses continue to contribute to economic sustainability.
The connection between business rescue and economic growth, can be understood on various levels. At a microeconomic level, corporate rescue prevents job losses, maintain supply chains, and prevent the destruction of productive capacity.17 For a small economy like Lesotho, where SMEs play a vital role in employment and trade, evading unnecessary liquidation directly supports household income and consumer spending which are determinants of good economic performance. At a macroeconomic level, effective rescue provisions can enhance investor confidence, safeguard tax revenues, and reinforce the resilience of the national economy.18
International best practice, as reflected in instruments such as the UNCITRAL Legislative Guide on Insolvency Law and the World Bank Principles for Effective Insolvency Regimes, underpin the developmental dimension of corporate rescue. Both instruments highlight that insolvency systems must be designed not only to resolve disputes among creditors but also to support entrepreneurship, economic stability, and financial system health.19 These principles are especially important for developing countries such as Lesotho, where insolvency reform is increasingly viewed as part of broader strategies for sustainable growth.
Comparative experience also reinforces the sustainability dimension of corporate rescue. In South Africa, the introduction of business rescue under the Companies Act 2008 has been justifiably effective not only on legal grounds but also on its potential to safeguard jobs and protect economic value.20 Even though challenges have restricted its overall success, the South African model illustrates how corporate rescue can be positioned as a tool of socio-economic policy. For Lesotho, this experience offers valuable insights in linking the legal framework to broader development objectives.
Corporate rescue under the Lesotho’s Insolvency Act of 2022
The corporate rescue procedure under the Act is framed as a formal process that may be initiated either through a board resolution when financial distress is reasonably anticipated, or through a court application by interested stakeholders such as creditors, shareholders, or employees.21 Upon commencement, the Act imposes an automatic moratorium on creditor claims, creating a breathing space within which the company can attempt to restructure its affairs.22 Central to the process is the appointment of a rescue practitioner, entrusted with overseeing the restructuring effort and tasked with developing a rescue plan to be voted upon by creditors.23 The plan, which must outline the proposed treatment of claims and measures for restoring viability, requires approval by a statutory majority, thereby balancing the need for creditor participation with the overarching objective of business preservation.24
Although the statute provides for post-commencement financing with preferential treatment to encourage lenders,25 questions remain as to whether Lesotho’s financial sector possesses the capacity to support such financing in practice. This illustrates the extent to which the Act is not merely a legal instrument but one that presupposes an enabling economic and institutional environment. Thus, while the legislation marks a significant step toward embedding a rescue culture, its ultimate effectiveness will depend on factors beyond statutory design, including the responsiveness of financial institutions, the availability of skilled practitioners, and the preparedness of the judiciary to interpret and apply the law in a manner that promotes its goals.
Practical challenges to implementation
Notwithstanding its progressive features, the execution of f corporate rescue in Lesotho faces several practical challenges hinders its immediate efficacy as it is not capacitated to carry out business rescue. The first and most prevalent obstacle lies in the limited capacity of institutions responsible for administering insolvency. The Registrar General’s Office, the courts, and other supervisory authorities are often constrained by resource shortages, which may delay proceedings and compromise predictability. International guidance has constantly emphasised that the success of rescue regimes depends on timely and predictable outcomes; without such assurance, creditor confidence diminishes, and the process may be reduced to a stalling tactic.26
Another inevitable challenge is Judicial expertise. Rescue proceedings involve complex assessments of feasibility, creditor hierarchies, and restructuring strategies, all of which demand specialised knowledge. In South Africa, for example, the mixed experience of business rescue has partly been attributed to uneven judicial interpretation, a problem that Lesotho may experience to an even greater degree given the absence of specialist insolvency benches.27 In the same vein, the regulation and supply of rescue practitioners remains uncertain. Unless the law is supplemented by clear standards of admission, oversight, and professional accountability, the process risks being undermined by inexperienced or unregulated practitioners, echoing the difficulties initially experienced in South Africa.28
Further, financing remains perhaps the most critical impediment. While the Act contemplates post-commencement finance with statutory priority, this provision suggests the existence of a credit market willing and able to lend to distressed companies. In Lesotho where the financial system is rather small and prone to risk, the likelihood of widespread adoption of rescue finance
stays uncertain.29 The absence of complementary mechanisms such as state-backed credit guarantees or development-finance interventions; the statutory provisions on their own may prove inadequate. Resistance by creditors adds a further complication. Secured creditors, may prefer liquidation, particularly where their claims are well protected by collateral. Unless the judiciary is prepared to exercise its supervisory powers robustly, the risk remains that creditors will use their voting power to block rescues that might otherwise yield a higher return than liquidation.30
Other challenges arise from the economic structure of Lesotho itself. The economy is heavily reliant on small and medium-sized enterprises, many of which lack robust accounting systems or formal structures to engage with complex rescue procedures.31 A rescue framework designed around larger corporations may therefore be inaccessible or unattractive to the majority of businesses. International instruments such as the UNCITRAL recommendations on micro and small enterprise insolvency stress the importance of simplified, low-cost procedures for such firms, yet the Lesotho framework does not appear to have adopted these refinements.32
Recommendations and Conclusion
The introduction of corporate rescue under the Insolvency Act 2022 signals an important policy milestone for Lesotho, however its practical success will depend on measures that extend beyond the statutory provisions. There are various recommendations applicable to enhance the effectiveness of the rescue regime and ensure that it contributes meaningfully to economic sustainability.
First, there is a need to strengthen institutional capacity. The Registrar General’s Office, courts, and regulatory bodies must be sufficiently resourced and trained to administer rescue proceedings efficiently. Specialised judicial training in insolvency law may improve consistency and predictability, thereby boosting creditor confidence. Records from South Africa show that inconsistent judicial interpretation can undermine rescue efforts; Lesotho can avoid similar risks by investing in specialist competence at an early stage.33
Second, attention must be given to the development of rescue practitioners. The law entrusts significant responsibility to these actors, yet it falls short on detailed requirements for their regulation and accountability. Establishing a professional framework for accreditation, training, and oversight would mitigate risks of mismanagement and enhance the credibility of the process. Further, collaboration with professional bodies in the region could accelerate the development of this cadre.34
Third, the challenge of post-commencement finance must be addressed. Although the Act grants priority status to such financing, the underdeveloped nature of Lesotho’s financial markets means that statutory provisions alone do not guarantee the necessary credit flows. Government-backed guarantee schemes, partnerships with development finance institutions, and tailored credit products could encourage lenders to support distressed but viable businesses. Without such interventions, the lack of rescue finance will remain a major obstacle to successful restructuring.35
Finally, the framework should be made more responsive to the needs of small and medium sized enterprises. Given their vital role in Lesotho’s economy, designing simplified, yet cost effective rescue procedures for SMEs can extend the regime’s reach and avoid the risk that the majority of businesses default to informal closures. Incorporating elements of the UNCITRAL recommendations on micro and small enterprise insolvency would be a useful step in this direction.36
In conclusion, the Insolvency Act 2022 represents a notable attempt to align Lesotho’s insolvency framework with international standards and to foster a rescue-oriented culture. Its emphasis on restructuring rather than liquidation reflects a recognition that insolvency law can serve broader socio-economic objectives, including job retention and business continuity. However, legislation alone cannot achieve these goals. Without complementary reforms addressing institutional capacity, practitioner development, financing mechanisms, SME accessibility, and monitoring, corporate rescue risks becoming a symbolic rather than substantive reform. If embedded within wider economic development strategies, however, corporate rescue has the potential to evolve into a powerful instrument for economic sustainability, positioning Lesotho to conserve enterprises, safeguard livelihoods, and strengthen resilience in the face of financial distress.
BIBLIOGRAPHY
BOOKS
Xie B., Comparative Insolvency Law The Pre-pack Approach in Corporate Rescue (Edward Elgar 2016).
JOURNAL ARTICLES
Burdette D, ‘Some initial thoughts on the development of a modern and effective business rescue model for South Africa’ [2013] 36(1) South African mercantile law journal < https://unov.tind.io/record/28630 > accessed 23 August 2025.
Calitz J. and Freebody G, ‘Is post-commencement finance proving to be the thorn in the side of business rescue proceedings under the 2008 Companies Act?’ [2016] 49(2) De Jure Law Journal < https://www.dejure.up.ac.za/ > accessed 23 August 2025.
Maphiri M., ‘The Suitability Of South Africa’s Business Rescue Procedure In The Reorganization Of Small- To Medium-Sized Enterprises: Lessons From Chapter 11 Of The United States Bankruptcy Code’ [2018] 8(1) The Michigan Business & Entrepreneurial Law Review < https://repository.law.umich.edu/ > accessed 23 August 2025.
Matenda R. F. et al, ‘South African business rescue regime: Systematic review highlighting shortcomings, recommendations and avenues for future research’ [2023] 12(2) International Journal of Research in Business and Social Science < https://www.researchgate.net/ > accessed 23 August 2025.
Naidoo T. et al, ‘Business rescue practices in South Africa: An explorative view’ [2018] 11(1) Journal of Economic and Financial Sciences < https://jefjournal.org.za/ > accessed 22 August 2025.
Ntsane K. Lesenyeho K. N. and Nwafor O. A, ‘Exploring the Goal of Corporate Rescue under the Lesotho Insolvency Act of 2022’ [2025] 4(1) African Journal of Law and Justice System < https://journals.co.za/ > accessed 22 August 2025.
STATUTES
Insolvency Act NO.9 of 2022
WEBSITES
Government of Lesotho, National Strategic Development Plan II (2018/19–2022/23).
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UNCITRAL, Legislative Guide on Insolvency Law (2 nd ed, 2025).
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World Bank, ‘Principles for Effective Insolvency and Creditor/Debtor Regimes’ (World Bank Group, 19 November 2015) < https://www.worldbank.org/ > accessed 23 August 2025.
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1 Zurayda Mayet, ‘Revitalising Companies in Lesotho: Corporate Rescue under the Insolvency Act 2022’ (Mayet & Associates, 1 May 2024) < https://zmayetlaw.co.ls/ > accessed 22 August 2025).
2ibid
3 Ntsane K. Lesenyeho and Anthony O. Nwafor, ‘Exploring the Goal of Corporate Rescue under the Lesotho Insolvency Act of 2022’ [2025] 4(1) African Journal of Law and Justice System < https://journals.co.za/ > accessed 22 August 2025.
4ibid
5 Aurelio Gurrea-Martínez, ‘The Role of Corporate Insolvency Law in the Promotion of Economic Growth’ (Centre for Commercial Law in Asia, 02 July 2020) < https://ccla.smu.edu.sg/sgri/ > accessed 22 August 2025.
6 Government of Lesotho, National Strategic Development Plan II (2018/19–2022/23).
7ibid n1
8 Stefan Steyn and Tim Stokes, ‘Business Rescue in South Africa Proving its Worth: An Analysis’ (MMI, 2025) < https://thecoregroup.associates/mmi-ca/ > accessed 22 August 2025.
9ibid
10 Bridget Letsholo and Innocentia Moele, ‘An overview of Business Rescue in South Africa’ (CMS Lawnow, 16 August 2024) < https://cms-lawnow.com/ > accessed 22 August 2025.
11 Talira Naidoo et al, ‘Business rescue practices in South Africa: An explorative view’ [2018] 11(1) Journal of Economic and Financial Sciences < https://jefjournal.org.za/ > accessed 22 August 2025.
12 Bo Xie, Comparative Insolvency Law The Pre-pack Approach in Corporate Rescue (Edward Elgar 2016).
13 UNCITRAL, Legislative Guide on Insolvency Law (2 nd ed, 2025).
14 Levenstein E and Barnett L, ‘Basics of Business Rescue’ (Werksmans Attorneys, 2025) < https://www.werksmans.com/ > accessed 23 August 2025.
15 Insolvency Act 2022, s 149 (1) (c).
16 Insolvency Act 2022, s 150
17 World Bank, ’Principles For Effective Insolvency And Creditor Rights Systems’ (World Bank Group, 21 December 2005) < https://documents.worldbank.org/ > accessed 23 August 2025.
18 World Bank, ‘Principles for Effective Insolvency and Creditor/Debtor Regimes’ (World Bank Group, 19 November 2015) < https://www.worldbank.org/ > accessed 23 August 2025.
19 ibid (n13), (n17)
20 Juanitta Calitz and Giles Freebody, ‘Is post-commencement finance proving to be the thorn in the side of business rescue proceedings under the 2008 Companies Act?’ [2016] 49(2) De Jure Law Journal < https://www.dejure.up.ac.za/ > accessed 23 August 2025.
21 Insolvency Act 2022, s 151.
22 Insolvency Act 2022, s 150 (1) (b).
23 Insolvency Act 2022, s 150 (2).
24Insolvency Act 2022, s 184 (1).
25 Insolvency Act 2022, s 157.
26 ibid (n18)
27 Burdette D, ‘Some initial thoughts on the development of a modern and effective business rescue model for South Africa’ [2013] 36(1) South African mercantile law journal < https://unov.tind.io/record/28630 > accessed 23 August 2025.
28 Frank Ranganai Matenda et al, ‘South African business rescue regime: Systematic review highlighting shortcomings, recommendations and avenues for future research’ [2023] 12(2) International Journal of Research in Business and Social Science < https://www.researchgate.net/ > accessed 23 August 2025.
29 Mikovhe Maphiri, ‘The Suitability Of South Africa’s Business Rescue Procedure In The Reorganization Of Small- To Medium-Sized Enterprises: Lessons From Chapter 11 Of The United States Bankruptcy Code’ [2018] 8(1) The Michigan Business & Entrepreneurial Law Review < https://repository.law.umich.edu/ > accessed 23 August 2025.
30 ibid n (13)
31 ibid n (6)
32 United Nations Commission On International Trade Law, ‘UNCITRAL Legislative Recommendations on Insolvency of Micro- and Small Enterprises’ (UNCITRAL, 2021) < https://uncitral.un.org/ > accessed 23 August 2025.
33 ibid n (20)
34 ibid
35 ibid n (25)
36 ibid n (28)
