REALWorld Law

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Foreign lenders can be granted security over real estate subject to obtaining exchange control approval from the Reserve Bank of Zimbabwe as stipulated in Exchange Control Act Regulations Statutory Instrument 109 of 1996.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Fees and levies charges in the granting of security are applicable for stamp duties and notarial fees. Government Stamp Duties are levied in terms of the Stamp Duties Act [Chapter 23:09], while Notaries fees are in terms of the tariffs of the Law Society of Zimbabwe. However, if the debtor has been declared insolvent, and has surrendered the property for auction, the creditor must pay sequestration costs, tax on sequestration and capital gains tax and value added tax.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Yes, there are financial assistance rules.                                                  

Section 208 of the Companies and Other Business Entities Act [Chapter 24:31] states that it is generally unlawful for a company to provide financial assistance for the purpose of a person acquiring, or proposing to acquire, shares in a public company unless such assistance is given in accordance with a special resolution of the company and it is able to pay its debts as they become due in the ordinary course of its business.

Furthermore, before a company can give valid security over its real estate, for example, in the case of debenture registration (if a debenture binds movable and immovable property), registration should be effected in the Deeds Registry.

In terms of corporate benefit, directors are bound by their fiduciary duties under common law  and Part IV of the Companies and Other Business Entities Act [Chapter 24:31]. They have a duty to act in good faith to the benefit of the company and its members.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

According the Exchange Control Act Regulations Statutory Instrument 109 of 1996, any application for the transfer of funds arising out of the purchase of immovable property by a foreign resident shall be submitted to the Reserve Bank through an authorized dealer for approval. Exchange Control approval must be obtained prior to obtaining such loans. The tenure, repayment periods, security and interest terms etc of such loans must be registered and must be in line with the exchange control guidelines and parameters for external borrowings.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

This entirely depends on the terms of the agreement or the lender deciding whether the debt should be elevated or subordinated.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Foreign law will be applied provided that the clause does not seek to oust the jurisdiction of local courts completely and does  not  conflict with Zimbabwean law.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

If the security has not been validly perfected, the lender is not considered a secured creditor should the borrower become insolvent or fails to meet its obligations, their security will only be serviced once all secured and unsecured debts have been settled on a first-in first-out basis.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

A holder of security is not considered a real owner, therefore they are not liable for any environmental damage unless they also occupy the real estate. The Environmental Management Authority will hold the occupier and owner of the property liable.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Firstly, the lender will need to place the borrower in mora through a letter of demand. This letter contains deadlines and highlights the consequences of the debtor’s failure to meet those deadlines. If the debtor fails to meet those deadlines, the lender will appeal to the court of law to make a ruling. The court will then authorize the messenger of court to attach, remove and sell by public action, the property of the debtor. After the sale, the messenger of court will pay the creditor or lender the amount due to them.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

In terms of the Part XXIII Insolvency Act [Chapter 6:07], a company may be placed under corporate  rescue for mismanagement or if for any other cause the company is unable to pay its debts or there is a probability it will be unable to pay its debts. There must be a “reasonable probability” that should the company be placed under corporate rescue , it will be able to pay its debts and meet its obligations. Furthermore, the decision to place a company under corporate rescue must be deemed just and equitable to all interested parties by the High Court.

When a company is granted a corporate  rescue  order, the assets of the company are placed under the control of the judicial manager, who is then tasked with the responsibility of restructuring the company and resuscitating the business. More importantly, creditors’ payments are suspended, and the company is protected from legal action against it by creditors.

A scheme of arrangement is also provided for in terms of section 147 of the Insolvency Act  (Chapter 6:07) and involves giving the company flexibility to reach an agreement with shareholders and creditors. The lender will be one of the creditors involved in the scheme of arrangement.

In the event that more than one creditor holds a security interest over the same real estate asset, the provisions of the Insolvency Act (Chapter 6:07) will be applicable, which states that preference is given to creditors who prove their claim before the court has given judgement concerning the repossession and sequestration of an estate. A creditor of an insolvent estate who intentionally delays proving their claim until the court has given judgment in those proceedings may not be entitled to share in the distribution of any money or the proceeds of any property recovered as a result of those proceedings.

However, when two creditors’ security interests conflict, the creditor who financed the property is entitled to preferential rights.

Furthermore, secured creditors are given first priority before tax and all other claims. To secure the property, the creditor would also have to take physical control of

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

This ultimately depends on the wording of the agreement between the borrower and the lender. This is to say, should the agreement list insolvency as default, then the lender is permitted by law to foreclose on its security interest, with the residue going to the insolvent estate.

If the agreement does not list insolvency as default, but the security has been perfected then the lender has a preferential right over other creditors in the event of insolvency of the borrower.

Last modified 12 Jun 2024

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

According to section 89 of The  Insolvency Act [Chapter 6:07], preference is given to creditors who prove their claim before the court has given judgement concerning the repossession and sequestration of an estate. A creditor of an insolvent estate who intentionally delays proving his claim until the court has given judgment in those proceedings may not be entitled to share in the distribution of any money or the proceeds of any property recovered as a result of those proceedings.

However, when two creditors’ security interests conflict, the creditor who financed the property gets preferential rights. Furthermore, secured creditors are given first priority before tax and all other claims. To secure the property, the creditor would also have to take physical control of it.

Last modified 12 Jun 2024