Business for many South African companies has started to mature in Angola. After the civil war came to an end in 2001, foreign companies rushed to get into the country for a slice of a booming economy that has, over the past decade, consistently grown faster than the Chinese economy.

In the early days most advice we dispensed when advising foreign companies about investing in Angola was about the most appropriate corporate structure, drawing up agreements between foreign and Angolan companies, applying for ANIP (Angolan National Private Investment) approval, translating loads of documents and then having everything certified by the Angolan Consulate. The translation and legalization costs often exceeded legal fees.

While we still regularly advise on setting up foreign businesses in Angola, some companies have now encountered the bane of doing business anywhere, namely clients who do not pay, resulting in legal action against a defendant that finds itself in Angola, in a jurisdiction that is unknown to the investor. Often the agreements would provide for arbitration to take place in Johannesburg or elsewhere, subject to South African law or some other legal system in which both parties have faith. If not, the investor is in the hands the Angolan legal system.

At this point it is necessary to state that, despite fears to the contrary, the Angolan legal system is very sophisticated. It may be bureaucratic and slow, but in general it caters for most issues that modern business may present. The problem, not insurmountable, usually lies in enforcing those same sophisticated rules, which can often be painstakingly slow.

Nevertheless, in a worst case scenario, if a debtor has to be sequestrated or liquidated, Angola’s Civil Process Code sets out the procedures and requirements.

Angolan law on Insolvency is very similar to South African insolvency law regarding voidable preferences, payments made to prejudice creditors or to benefit one creditor over another and the like.

A person (irrespective of whether it is a legal or natural person) is considered insolvent when it cannot pay its obligations, however, unlike in South African law, not when a company’s liabilities exceed its assets.

Application for the person’s insolvency can be made by the insolvent person or company itself, any creditor or by the Angolan Public Ministry.

Angola distinguishes between three types of insolvency: casual, negligent and fraudulent. Directors of companies who go into negligent or fraudulent insolvency can be subject to criminal sanctions as set out in Angola’s Criminal Code. In the event of negligent or fraudulent insolvency, the directors can be sentenced two between two and eight years imprisonment. However, there are no provisions allowing creditors to go after the assets of the directors.

After receipt of an application for insolvency, a judge must appoint an administrator within 48 hours.

From the moment the application is made, the insolvent person is prohibited from trading any longer.

The administrator is obliged to liquidate the assets of the insolvent person for the benefit of the creditors. Preferential creditors, i.e. creditors who have some kind of real right over the goods of the insolvent, are paid immediately in proportion to their debt from the proceeds of the sale of the assets. However, if there is not enough money to pay each preferential creditor’s claim in full, then they become concurrent creditors in respect of the unpaid portions of their claims.

Preference can be obtained by registering a real right (called a hypothec in Angola) at the local notarial office over any of the following:

1.Urban and Rural buildings
2.Long term leases
3. Leaseholds (the right to utilize the surface of land which belongs to the state)
4. The right to use state concessions
5. Usufructs
6. Moveable goods attached to immovable property
7. Parts of a building that can be subdivided to become separate property

The law requires that there be at least sufficient funds to cover 5% of the claims of concurrent creditors before any proportional distribution is made. If the percentage is less than 5%, the money is paid into the General Coffer of the Courts, and the creditors see nothing.

Irrespective of whether a creditor is preferred or con- current, the administrator must retain 25% of the proceeds of all goods liquidated as guarantee for the administration costs of the insolvency.

Set off of debts is also recognized in Angolan law in terms of its Civil Code. The debts do not have to be liquid to qualify for set off. In the context of insolvency, whether a debt has been set off prior to insolvency must be determined together with all the other claims. If it has not been set off prior to insolvency, the debt owed to the insolvent estate can be claimed in its entirety, whereas the debt owed by the insolvent estate will be paid only pro rata (in the absence of a preferential debt).

There is at present no business rescue or judicial management procedure available in Angola, but creditors representing 75% of the debt owed by a company may propose a creditors agreement with the insolvent company prior to the company being declared insolvent.

By Emile Myburgh, Consultant, Bowman Gilfillan

Bowman Gilfillan has offices in South Africa, Kenya, Tanzania and Uganda