Banking & Finance 2022 Comparisons

In an effort to increase activity in the macro-economic sector, the Movable Property (Securities Act) No 3 of 2016, the Banking and Financial Services Act No 7 of 2017, the Companies Act No 10 of 2017 and the Corporate Insolvency Act No 9 of 2017 have recently been enacted.

However, Zambia’s economic situation has regressed in recent years, due to several macro-economic challenges, resulting in low growth, high fiscal deficits, rising inflation and debt service obligations. In addition, market interest rates and commercial banks’ lending rates have maintained a downward trend.

According to the Bank of Zambia’s Credit Market Report of 2019, there has been an increase in demand for credit. However, due to the recent inflationary economic trend, the demand for credit has been coupled with increased credit default risk. This has in turn resulted in an increase in secured or asset-backed loan products and a decrease in the value and volume of unsecured loan products on the credit market.

Notably, recent reports show that some commercial banks have reduced or are considering reducing interest rates on personal loans and mortgages in an effort to provide access to affordable finance, which is critical for economic growth.

The COVID-19 pandemic has had a devastating and unprecedented effect on the Zambian economy. According to the Bank of Zambia 2020 Annual Report, the economic fall-out arising from the pandemic resulted in increased investor aversion, a broadly downward trend in the interest rates on the credit market and a slow growth in credit, due to the heightened credit-default risk with more stringent lending conditions.

The destructive effect of the COVID-19 pandemic saw Zambia default on its Eurobond repayment, becoming the first African nation to do so in the COVID-19 era. However, Zambia’s economic performance in the latter part of 2021 and the first two quarters of 2022 indicates that it is once again gaining momentum. In the third quarter of 2022, inflation currently stands at 10.2% (down from 22.1% in 2021), with the Zambian kwacha gaining 28% against the US dollar, making it the second-best performing currency in 2022. Zambia is also beginning to make significant progress in its efforts to drive macro-economic recovery from COVID-19. The upward economic thrust and the new administration’s drive to ensure enhanced transparency and debt management reporting are expected to positively boost investor confidence and contribute to ensuring fiscal sustainability.

Despite these positive steps, the value and volume of unsecured loans are still decreasing due to the increased failure by credit providers to recover their loan instalments.

The high-yield market in Zambia is strongly dominated by the government.

However, due to the recent economic developments characterised by high inflation, there has been a decrease in the demand for government securities.

There has been a notable growth in the number of participants in the credit market, with an increase in micro-finance institutions, non-deposit-taking financial institutions, money lenders and mobile money service providers. However, according to the Bank of Zambia, the number of alternative credit providers has not been subject to any “significant growth”. In addition, the Bank of Zambia has had difficulties obtaining an accurate picture or depiction of the credit market due to the growing number of alternative credit providers who are not properly regulated, albeit contributing to the appreciating value of credit disbursed on the market.

One of the most notable and significant banking and finance techniques adopted by financial institutions is the acceleration of digital transformation. Commercial banks are making huge investments in technology-based innovations and the training of staff to handle new technology. In an effort to ease access to banking facilities and financial services and boost their financial performance, many banks and financial institutions have introduced or adopted electronic platforms such as Automated Teller Machines (ATMs), mobile banking transactions, internet banking, etc. These techniques have reportedly had an overall positive effect on the performance of commercial banks and other financial institutions in Zambia.

The following legislation has recently been introduced:

• the Movable Property (Security Interest) Act No 3 of 2016;
• the Companies Act No 10 of 2017, which repealed and replaced the Companies Act Chapter 388 of the Laws of Zambia;
• the Corporate Insolvency Act No 9 of 2017; and
• the Banking and Financial Services Act No 7 of 2017, which repealed and replaced the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.

This legislation has made it easier for consumers to obtain credit using simpler securities, amongst other things.

There have also been a number of tax or regulatory developments that are expected to have a significant impact on the loan market in Zambia.

Whilst international lending markets have continued to embrace ESG-driven green loans and sustainability-linked loans, there has been little development pertaining to ESG or sustainability-linked lending in Zambia. The Securities (Green Bonds) Guidelines 2019 under the Securities Act No 41 of 2016 have recently been issued and apply to issuers of bonds that are labelled green, based on criteria envisaged in the Guidelines. The Guidelines offer the legal framework, rules and guidelines that will shape the development of a green bond market for Zambia.

Under the Banking and Financial Services Act No 7 of 2017 (the BFSA), a company is precluded from conducting banking business or financial business or providing financial services without being licensed to do so under the BFSA. The licences issued by the Bank of Zambia under the BFSA are as follows:

• a banking licence;
• a financial business licence; and
• a financial institution licence.

A licence can be obtained from the Bank of Zambia by submitting an application in the prescribed manner and form, which must be accompanied by:

• the articles of association or other constitutive documents;
• the physical and postal addresses of the principal administrative office;
• the permanent residential addresses of the applicant’s directors, chief executive officer and managers;
• the name and permanent residential address of every subscriber for any class or series of shares issued by the applicant;
• the addresses of each branch proposed to be opened by the applicant and, in the case of a mobile office, the area proposed to be served;
• full particulars of the business the applicant proposes to conduct;
• the amount of the applicant’s capital; and
• the names of the applicant’s associates and affiliates.

In considering an application for a licence, the Bank of Zambia considers the following:

• the applicant's capital adequacy;
• the applicant's financial condition, resources and history;
• the applicant's associates and affiliates;
• the transparency of the legal, operation, managerial, governance and ownership structures;
• the character and experience of the directors, significant shareholders, beneficial owners, founders or persons proposing to be concerned in the management of the banking business, financial business or financial service;
• the convenience and needs of the community intended to be served by the banking or financial business or provision of a financial service; and
• the prospects for the profitable operation of the banking or financial service business.

Therefore, banks and non-banks are only authorised to provide financing upon obtaining the requisite licence from the Bank of Zambia. In addition, the BFSA gives the Bank of Zambia the authority to license, regulate and supervise all banks registered under the Act.

Foreign lenders are not restricted from granting loans to companies in Zambia, although they may be required to obtain a licence under the Banking and Financial Services Act No 7 of 2017 if they are providing financial services in Zambia frequently (as determined by the Bank of Zambia).

A subsidiary of a foreign company may be granted a licence under the Banking and Financial Services Act No 7 of 2017 if the foreign company is a financial service provider and is authorised to engage in banking business in the country where its principal place of business is located and the Bank determines that the foreign financial service provider is adequately supervised by the competent authorities in the country of incorporation.

The granting of security to foreign lenders is not restricted in Zambia and the assets over which a security may be created are not limited. The security may take the form of mortgages, charges, pledges, liens and assignment of rights. However, the creation of the securities is subject to the provisions governing the perfection and enforcement of securities as prescribed by the law in Zambia, such as depositing, lodging and registering the securities in public registers, such as:

• the Collateral Register under the Movable Property (Security Interests) Act No 3 of 2016;
• the Miscellaneous Register and the Lands Register under the Lands and Deeds Registry Act, Chapter 185 of the Laws of Zambia; and
• the Companies Register under the Companies Act No 10 of 2017.

The granting of guarantees to foreign lenders is also not prohibited in Zambia. However, it is important that the following statutory provisions are complied with.

• The Banking and Financial Services Act No 7 of 2017 prevents an entity from giving a guarantee worth more than 25% of its regulatory capital. Furthermore, an entity is prohibited from providing a guarantee that exceeds 5% of its common equity tier-one capital to its directors, whether individually, jointly or severally, to any person that has control of the entity, or to any body of persons in which one or more directors has control or is a director, partner, agent or shareholder.
• The Companies Act No 10 of 2017 prohibits related public entities from providing guarantees. A foreign entity operating within Zambia is considered to be a public entity if:
1. one entity is a subsidiary of the other;                     
2. one entity is a holding company of the other; or
3. both entities are a subsidiary of another company.

The Bank of Zambia promotes the efficient operation of the foreign exchange systems by monitoring the balance of payments' regulations, and monitors foreign exchange inflows and outflows, borrowings and trade credits, receipts of both principal and interest on loans to non-residents and international money transfers into and out of Zambia.

The following limitations on foreign currency transactions were prescribed by the Bank of Zambia in June 2021:

• the aggregate over-the-counter foreign currency cash transactions of a bureau de change with commercial banks shall not exceed USD20,000 or 70% of its regulatory capital per day, and shall not exceed USD5,000 per day for an individual;
• the aggregate over-the-counter foreign currency cash transactions of a commercial bank with an account holder shall not exceed USD10,000, and shall not exceed USD5,000 for an individual; and
• companies can only deposit a maximum of USD100,000 in their bank accounts per day, whereas individuals can only deposit USD20,000.

In order for it to track deposits or purchases of foreign currency carried out by banks, a report of all weekly deposits or purchases carried out by the banks is submitted to the Bank of Zambia.

There are no legal or regulatory restrictions on a borrower’s use of proceeds from loans or debt securities. Such restrictions are a matter of contract between the borrower and the lender, and are usually set out in the loan documentation and the borrower’s constitutive documents.

The agent and trust concepts are recognised in Zambia and are governed by English common law principles and the doctrines of equity.

Loan-transfer mechanisms are not expressly governed by any statute in Zambia and are subject to the law of contract. The loan transfer does not in essence adversely affect the security. The benefit of the associated security package can be transferred by assigning that benefit, subject to the law of contract.

There is no legislation that expressly provides for debt buy-back by the borrower or sponsor in Zambia. However, commercial banks and other financial institutions do enter into bilateral agreements that permit debt buy-backs. Such agreements may notably be subject to certain banking principles.

The Bank of Zambia has also previously undertaken and entered into debt buy-back arrangements with domestic creditors.

There is no legal or regulatory framework governing “certain funds” with respect to public acquisition finance transactions in Zambia; these would essentially be a contractual matter to be dealt with by and between the parties involved, and may be provided for in the transactional documents.

Public acquisition finance transactions, vis-à-vis mergers and acquisitions, are subject to the approval of the Competition and Consumer Protection Commission (CCPC) established under the Competition and Consumer Protection Act No 24 of 2010. While there is no prescribed framework on how the financing of such transactions ought to be dealt with, the CCPC may request any documentation it deems relevant to the application for approval, for the purposes of considering the proposed transaction. The role of the CCPC is to assess the competitive impact and macro-economic aspects of a proposed transaction.

It is worth noting that the financing of public acquisition finance transactions is subject to other legislation, such as the Companies Act No 10 of 2017, which governs the provision of financial assistance by a company.

There is no withholding tax payable on principal amounts or other payments made to lenders.

Interest is not defined in the Income Tax Act, Chapter 323 of the Laws of Zambia, but is to be taken as an amount calculated according to a fixed ratio on debt or money lent. Interest can be earned on savings or deposit accounts, treasury bills, government bonds or any other financial instruments, or on debt or money lent.

Withholding tax is not payable on interest earned by individuals from savings or deposit accounts held with financial institutions such as banks and building societies. However, interest earned in investment accounts and from government securities such as Bank of Zambia treasury bills and government bonds is subject to withholding tax at a rate of 15% for residents and 20% for non-residents.

The services of banks and financial institutions are exempt from value-added tax. The only tax consideration on the part of the lenders is income tax, which would be payable on the annual profits of the lenders.

There are currently no usury laws or rules that limit the amount of interest that can be charged. The Bank of Zambia sets its policy rates and the banking and financial service institutions determine the competitive range within which interest rates will be charged.

The following assets are typically available as collateral to lenders:

• land;
• goods in stock;
• accounts receivables;
• contractual rights;
• debt securities;
• intellectual property;
• shares;
• money;
• negotiable instruments; and
• negotiable documents.

Security typically takes the following forms:

• mortgages;
• pledges;
• liens;
• assignment of rights; and
• charges.

A mortgage may be either legal or equitable. A legal mortgage is created by the execution of a mortgage deed and registration of the mortgage with the Registrar of Lands and Deeds and the Companies Registrar. A legal mortgage is perfected by lodging the mortgage deed for registration by the Registrar. Failure to register the mortgage under the provisions of the Lands and Deeds Registry Act, Chapter 185 of the Laws of Zambia, will render it null and void. However, where the title deeds have been submitted to the lender by the borrower, they may instead be said to have created an equitable mortgage. Failure to register the mortgage under the Companies Act No 10 of 2017 will render it invalid and unenforceable against a liquidator or receiver under insolvency proceedings.

An equitable mortgage is created by a borrower depositing the borrower’s title deeds with the lender, with the intention of securing a debt owed to the lender by the borrower. The deposit of the title deeds is normally accompanied by a memorandum of deposit of title.

The Movable Property (Security Interests) Act No 3 of 2016 provides for the formalities for creating security interests in movable property, which includes goods, intangibles, securities, money, negotiable instruments and negotiable documents. A security is perfected under the Movable Property Act by registering the security agreement using a financing statement into the Collateral Register.

Stocks held on the security exchange market may also be pledged as security for a debt. The security agreement must be registered with the Lusaka Securities Exchange Central Securities Depository, which will register the pledge against the stock/shares.

Zambian law allows for the creation of a floating charge, as well as a fixed charge for both corporate and unincorporated bodies. Section 86 of the Companies Act No 10 of 2017 empowers the directors of a company to charge any of the property belonging to it.

It must be noted that the permission of floating and fixed charges is not without its restrictions. For instance, Section 129 of the Corporate Insolvency Act 2017 prohibits the creation of a floating charge within the period of one year prior to the commencement of winding-up proceedings, unless it can be demonstrated that the company was solvent immediately after the creation of the charge.

There are no express laws governing guarantees in Zambia; the granting of guarantees is governed by contract law.

Section 82 of the Banking and Financial Act No 7 of 2017 prohibits an entity from granting a guarantee whose value exceeds 25% of the regulatory capital of that entity. Furthermore, an entity is prohibited under the same section from giving a guarantee that exceeds 5% of its common equity tier-one capital, without prior approval from the Bank of Zambia, to:

• its directors, whether individually, jointly or severally;
• any person who has control of the entity; or
• any body of persons in which one or more of the directors has control or is a director, partner, agent or shareholder.

Section 103 of the Companies Act 2017 prohibits the giving of guarantees by public entities that are related. Under the Act, this kind of relationship pertains to any two companies whereby:

• one entity is a subsidiary of the other;
• one entity is a holding company of the other; or
• both entities are a subsidiary of another company.

That notwithstanding, the Act provides the following exceptions:

• if the giving of guarantees is part of an entity’s ordinary course of business;
• if prior written approval of the company was given at a general meeting; and
• if approval has not been obtained within 12 months of a general meeting being held, on the condition that the liability under the guarantee will be discharged within 18 months.

Where adequate credit support is concerned, the Banking and Financial Services Act 2017 places great emphasis on the provision of secured financial assistance with adequate collateral. Failure by a lender to abide by this is termed under the Act as unsafe and unsound practices, which is a ground for a lender to lose its licence under Section 17 of the Act. Furthermore, lenders have access to a credit registry established under the Credit Reporting Act 2018, which enables them to gather information on the creditworthiness of potential borrowers before credit can be extended to them. This also helps them to ascertain whether a borrower is deserving of secured credit.

The Companies Act No 10 of 2017 generally prohibits a company from providing financial assistance to a person for the acquisition of shares in the company. The Act does, however, allow a private company to offer financial assistance for the acquisition of shares in itself, subject to approval by the shareholders of the company. A private company is allowed to give financial assistance for the acquisition of shares either in itself or in another private company that is a holding company, unless it is a subsidiary of a company that is not incorporated in Zambia or a public company.

It is important to note that the Act prohibits the provision of financial assistance unless:

• the company that proposes to provide financial assistance is a wholly owned subsidiary; or
• such a transaction is approved by special resolution.

The giving of guarantees or any other kind of financial assistance for the acquisition of an entity's own shares is only subject to the approval of its members through a special resolution, which is 75% of the votes of members entitled to vote.

If the target is a holding company, financial assistance for the purposes of the acquisition of its own shares can only be given by approval through a special resolution of the holding company or any other company that is both the company’s holding company and a subsidiary of the holding company, other than a wholly owned subsidiary.

Moreover, in the case of a holding company, where its board of directors propose to give financial assistance, and where the shares to be acquired are its shares, they must, no more than seven days before the special resolution is put to a meeting, make a statutory declaration that shall be availed to the members at the meeting, along with the auditor’s report. A statutory declaration must contain the following information:

• the particulars of the assistance to be provided and of the business of the company of which they are directors;
• the identity of the person to whom the assistance is to be given; and
• a statement that, to the best of the board’s knowledge and belief, the company will be able to pay its debts in full if the company is to be wound up, or as they fall due in the following year.

Note that financial assistance can only be given after 30 days from the passing of the resolution, unless every member who is entitled to vote for the resolution voted in favour of it. It must be noted that, under Section 184 of the Act, a member can make an application to the High Court to cancel such a resolution. All that is required is for the application to be supported by not less than 20% of the members, who are those who voted against the resolution. Furthermore, the application must be lodged within 21 days after the resolution was passed. Until the application is determined by the court, no such financial assistance may be given, unless the court allows otherwise.

There are no other restrictions or significant costs in connection with consents required to approve the grant of security or guarantees, other than those mentioned in 5.3 Downstream, Upstream and Cross-Stream Guarantees and 5.4 Restrictions on Target.

A mortgage is released by the execution of a memorandum of discharge and release by the mortgagee or security holder, which is then lodged for registration with the Registrar of Lands and Deeds and the Companies Registrar in the prescribed form and manner.

Securities perfected under the Movable Property (Security Interests) Act are discharged or released by discharging the registered financing statement lodged in the Collateral Register. The security will be discharged accordingly.

The rules governing the priority of competing security interests are to the effect that security holders shall have priority in relation to one another in accordance with the times at which the security interests are lodged for registration – ie, the earlier registered interest will take precedence over an interest registered thereafter. This is provided for under the Lands and Deeds Registry Act, the Companies Act and the Movable Property (Security Interest) Act 2016.

The subordination of priority of security interests is permissible under the Acts, which provide that a secured creditor can, under an agreement, subordinate their priority to any other competing creditor.

Only a party that accepts the subordination is affected by the agreement; the rights of third parties will not be affected. Contractual subordination will survive the insolvency of a borrower incorporated in Zambia, given the supremacy of the Act, except for the fact that they are not binding upon third parties.

Security documents do provide for instances when a borrower will be deemed to have defaulted on its obligations thereunder and to warrant the enforcement of the security created.

A secured creditor under a mortgage can enforce its collateral by appointing a receiver, suing for the money due, foreclosure, possession and sale of the mortgaged property.

A debenture is enforced by the appointment of a receiver over all the assets charged in favour of the lender.

Under the Movable Property (Security Interest) Act No 3 of 2016, a secured lender can enforce its collateral by taking possession of the collateral, rendering the collateral unusable, removing the collateral or disposing of the collateral.

The choice of a foreign law as the governing law of the contract, the submission to a foreign jurisdiction and a waiver of immunity can be upheld in Zambia.

Under Zambian law, a foreign judgment or award may be recognised and enforced on the basis of both common law and the Foreign Judgments (Reciprocal Enforcement) Act, Chapter 76 of the Laws of Zambia.

In the case of Pakou and Others v Rudnap Zambia Limited (1998) Z. R. 233, the Supreme Court held that, at common law, a foreign judgment must be made by a court of competent jurisdiction in order for it to be recognised and enforced. In order for a foreign judgment to be enforceable in Zambia, the foreign judgment must not only be pronounced by a superior court of the country of origin, but must also be final and conclusive between the parties.

A judgment creditor may apply to the High Court to enforce it in Zambia, no later than six years from the date of judgment. If there have been any proceedings by way of appeal of that judgment, the judgment creditor must apply within six years after the date the last judgment was given in those proceedings, in order to have the judgment registered in the High Court.

Where, at the date of application, a foreign judgment has been wholly satisfied or could not be enforced by execution in the country of the original court, the Foreign Judgments (Reciprocal Enforcement) Act stipulates that such a judgment cannot be registered with the High Court and is therefore not enforceable.

In addition to the perfection of security and enforcement mechanisms prescribed by the law in Zambia and the registration of foreign judgments in Zambia, another matter worth considering in the enforcement of rights under a loan or security agreement is the requirement for a document executed outside Zambia to be authenticated in accordance with the provisions under the Authentication of Documents Act, Chapter 75 of the Laws of Zambia, to ensure its validity, enforceability, admissibility in evidence and recognition and/or enforcement in the courts of the Republic of Zambia. Should such a document require, for instance, the intervention of the courts of Zambia in enforcement, it will need to be authenticated.

Under Zambian law, a company can undergo two kinds of reorganisation procedures outside of insolvency:

• business-rescue proceedings; and
• schemes of arrangement.

Business-Rescue Proceedings

Business-rescue proceedings are governed by the provisions of the Corporate Insolvency Act No 9 of 2017 (the Act). The purpose of business-rescue proceedings is to enable the financial recovery of a company that is financially distressed, by making provision for:

• the interim administration of the affairs of the company, its property and its business, by a business-rescue practitioner;
• an interim moratorium on the rights of all claimants against the company, or regarding the property that is in its possession; and
• the creation and implementation (with approval) of a business-rescue plan to salvage the company by the restructuring of its business, property, debt and all other financial affairs generally, in a manner that maximises the chances of the company to continue to exist as a going concern or, where this is not possible, to enable the company to operate in a manner that produces better returns for its creditors or shareholders than would have been the result if the process of liquidation were resorted to.

Business-rescue proceedings are only available to a company that is financially distressed and has reasonable prospects of being rescued.

A business-rescue administrator’s duty is to formulate a business-rescue plan in consultation with the creditors, the management of the company and, where necessary, the shareholders. Notably, the rights of secured creditors are said to be suspended for the duration of the business-rescue proceedings to give the company a chance to be resuscitated.

While the practice is fairly new, having only just been introduced by the Act, it has received a warm welcome on the commercial market.

Schemes of Arrangement

This is a procedure whereby a financially distressed company can reach an agreement with its creditors regarding the payment of all, or part of, its debts over an agreed period of time.

Under the Act, a scheme of arrangement can be initiated by the company, its creditors or the members, any of whom can apply to the High Court to ask for:

• one or more scheme creditors’ meetings to be called; and
• the authorisation of the scheme.

Following such an application, the Court will make an initial order, allowing for more meetings of creditors to be called and setting out the guidelines for convening and holding such meetings. At a meeting of creditors, the voting power is assigned to the creditors in proportion to the amount of debt owed by the company to each creditor.

The approval threshold for the scheme is 75% of the votes of the creditors entitled to vote in person or by proxy. Once this threshold is reached at the creditors' meeting, the scheme then becomes binding on all creditors.

The company or any creditor subsequently petitions the Court to approve the scheme, after which the Order sanctioning the scheme must be filed with the Registrar of Companies, following which the scheme becomes effective and therefore binding on all affected parties.

A scheme of arrangement will terminate after it has been implemented and such implementation has been conveyed to the Court.

Upon the commencement of business-rescue proceedings, a moratorium is placed on the company that is the subject of the business-rescue proceedings, and legal proceedings cannot be commenced against the company without the consent of the business-rescue proceedings. Business-rescue proceedings have been said to operate to suspend the rights of secured creditors, thereby giving the company an opportunity to be revived financially. Lenders cannot, therefore, enforce their loan or security against a borrower that is under business-rescue proceedings.

With respect to receivership and liquidation/winding-up, the interest of the secured creditors takes precedence over unsecured creditors. In addition, the Act prescribes a hierarchy of priority debts to be settled by the appointed receiver or liquidator before any other debts of the company can be settled. A lender’s right to enforce its security is therefore subject to the hierarchy prescribed by statute and the interests of secured creditors.

Section 127 of the Corporate Insolvency Act No 9 of 2017 prescribes a hierarchy of preferential debts, as follows:

“(1) In a winding-up, the following shall be paid in priority to all other unsecured debts–

(a) costs and expenses of a winding-up including the payable taxed costs of a petitioner, the remuneration of the liquidator, and the costs of an audit carried out;

(b) amounts due, including–

(i) wages or salary accruing to every employee within the period of three months before the commencement of the winding-up;

(ii) leave accruing to every employee within the period of two years before the commencement of the winding-up;

(iii) paid absence, not being leave, accruing to every employee within the period of three months before the commencement of the winding-up;

(iv) recruitment or other expenses or other amounts repayable under a contract of employment;

(c) severance pay to each employee, equal to three months’ wages or salary;

(d) all amounts due in respect of workers’ compensation which accrued before the commencement of the winding-up;

(e) any tax, duty or rate payable by the company for any period prior to the commencement of the winding-up;

(f) Government rents less than five years in arrears at the commencement of the winding-up;

(g) rates payable to a local authority that were due and payable within three years before the date of commencement of the winding-up; and

(h) any other creditors.

(2) Debts referred to in subsection (1) shall rank as follows –

(a) firstly, debts referred to in subsection (1) (a);

(b) secondly, debts referred to in subsection (1) (e), (f) and (g);

(c) thirdly, debts referred to in subsection (1) (b), (c) and (d); and

(d) fourthly, debts referred to in subsection (1) (h).”

With respect to receivership, section 8 of the Act provides for payment of preferential debts by prescribing:

“Where a receiver is appointed on behalf of the holder or trustee of any debenture of a company that is secured by a floating charge, or possession is taken by or on behalf of the holder or trustee of the debenture of property comprised in or subject to the charge, if the company is not at the time in the course of being wound-up, the debts which in every winding-up are to be paid in priority to all other debts, as provided in this Act, shall—

(a) be paid out of any assets coming into the hands of the receiver or the person taking possession in priority to any claim for principal or interest in respect of the debentures; and

(b) the date of the appointment of the receiver or of possession being taken, shall be considered to be the date of commencement of the winding-up.”

Zambia does not have the concept of equitable subordination or anything similar.

The insolvency of a borrower does not invalidate the security provided by the borrower. Most security documents may, as a matter of agreement, provide that the insolvency of the borrower may amount to default, thereby permitting the lender to enforce its security. The realisation of the security may, however, be subject to other legal provisions governing insolvency in Zambia.

Project finance forms part of the banking and finance sector, which is governed by the Banking and Financial Services Act 2017. The ability to offer project finance to project supporters or investors is the prerogative of the lending institutions, and a number of the large commercial banks offer this facility to companies that qualify. The full details of project financing and which banks have financed projects, as well as the amounts advanced, are not readily available, as their finance agreements are subject to confidentiality.

Project finance is regulated and managed in line with each financial lending institution’s credit policies and as long as they ensure that, in providing project finance, they are not creating a risk to the finance system and that they comply with the provisions of the Banking and Financial Services Act 2017, these institutions are at liberty to advance project financing facilities without interference from the Central Bank, the Bank of Zambia. Common law contract law principals apply, and all financial agreements advancing project finance must comply with the Banking and Financial Services Act 2017.

Following technical and feasibility studies, the requisite permits and licences and the execution of appropriate contracts, prospective investors or project sponsors engage the financial lender institutions to apply for and negotiate the terms of project financing for their project.

Public-private partnership (PPP) transactions are governed by the Public-Private Partnership Act 2009, as amended by the Public-Private Partnership (Amendment) Act 2018, which established and mandates the Public-Private Partnership Department (PPP Department) under the Ministry of Finance to promote, facilitate, implement and monitor the procurement, contracting and delivery of public infrastructure and social services through partnerships between public sector and private sector entities. The role of the PPP Department is to facilitate, advise on and monitor the effective implementation of PPP projects in infrastructure and service delivery. Other relevant policies and legislation include the Public-Private Partnership Policy, the Zambia Public Procurement Act 2020, the Citizen Economic Empowerment Act 2006 and the Public Finance and Management Act 2018.

PPP transactions may be commenced by way of solicited or unsolicited proposals. Solicited project proposals occur when a government ministry, parastatal, state-owned enterprise, local authority or agency put out a proposal they would like to partner on. Unsolicited proposals occur when the private sector – usually a company, co-operative, consortium or an individual – approach the government with a proposal for a project they would like to partner on.

The contracting authority will submit an evaluation report with recommendations to the PPP Department for review and further submission to the Public-Private Partnerships' Technical Committee and then to the Public-Private Partnerships Council for approval of the project. In evaluating the report, the PPP Department will determine the project’s potential value for money, its affordability to the government and whether it provides optimum technical, financial and operational risk transfer to the private sector.

The preamble of the Act specifically states that a purpose of the act is to remove restrictions that previously existed over PPPs. The Act includes various mandatory provisions that must be included in the agreement. Details relating to concessions, compensation and other terms of a project are to be agreed on between the government entity initiating the project, called the Contracting Authority, and the private partner, called the concessionaire.

It is worth noting that there is a restriction on the creation of securities over public property or other property, assets or rights needed for the provision of a public service, where the creation of such security is prohibited by the laws of Zambia. Also, disputes between the Contracting Authority and a concessionaire should be settled through the dispute settlement mechanisms agreed by the parties in the agreement, and failing that by way of arbitration.

Obstacles and limits to PPPs include the following:

• in addition to the Public-Private Partnership Act 2009, the PPP Department is guided by the Public-Private Partnership Policy, which determines the areas of infrastructure and social services in which to engage;
• developers are limited to projects in the focus areas identified as priority areas for the country within the national development plan framework;
• in order to create opportunities for the local private sector, some investor or project opportunities are only open specifically to local or Zambian investors, thereby limiting foreign investment; and
• there is sometimes a limited capacity in the local private sector to invest in large-scale projects, despite priority being given in particular areas.

Depending on the nature of the project, it would be prudent to obtain licences and permits from the relevant statutory bodies charged with oversight of the affected industry, but this is not essential at the project finance stage unless expressly required by the financing institution. Given that project finance is the remit of the commercial banks, in line with the provisions of the Banking and Financial Services Act 2017, project sponsors only need to meet the requirements of the financial institution at application.

The registration of transaction documents is dependent on the nature of the document required in advancing the facility. Security documents, liens, charges and similar security documents must be registered with the Patents and Companies Registration Agency, while mortgages and similar documents must be registered with the Ministry of Lands in order to secure the financing institution’s interests.

Governing provisions are found in the Companies Act 2017, the Movable Property (Security Interest) Act 2016 and the Lands & Deeds Registry Act, Chapter 185 of the Laws of Zambia.

The oil, gas and power sectors are all regulated by the Energy Regulation Board, which was established to regulate the energy sector, including electricity, fossil fuels and other forms of energy.

This sector is primarily governed by the Energy Regulation Act 2019; other relevant legislation includes:

• the Rural Electrification Act 2003;
• the Petroleum Act, Chapter 435 of the Laws of Zambia;
• the Electricity Act, Chapter 433 of the Laws of Zambia as amended by the Electricity (Amendment) Act 2003; and
• the Energy Act 2003.

The mining sector is primarily regulated by the Mines and Minerals Development Act 2015, as amended by the Mines and Minerals Development (Amendment) Act 2016 and regulations issued under it, including the Mines and Minerals Development (General) Regulations 2016. The responsible government body is the Ministry of Mines and Minerals Development (the Ministry of Mines).

In addition to ensuring that risk assessments have been conducted, representatives of financial institutions and the representatives of project sponsors or investors must, in structuring project financing documents, consider the relevant provisions of the following legislation and relevant regulations issued thereunder, where applicable:

• the Banking and Financial Services Act No 7 of 2017;
• the Companies Act 2017;
• the Movable Property (Security Interest) Act No 3 of 2016;
• the Public Procurement Act No 8 of 2020;
• the National Council for Construction Act No 10 of 2020;
• the Public Private Partnership Act 2009;
• the Citizens Economic Empowerment Act 2006; and
• the Zambia Development Agency Act No 11 of 2006.

Confidentiality clauses are standard in project financing agreements and should be included to ensure sensitive details of the transaction are kept out of the public domain.

Restrictions will apply in relation to which projects qualify as critical, depending on the assessment of the country’s critical needs in health, education and basic infrastructure. Furthermore, there are restrictions on foreign investors, with projects in particular sectors being exclusively for citizen-run or locally incorporated companies. These restrictions are at the discretion of the government of Zambia and change periodically in line with policy changes.

Project financing is commonly by way of credit facilities availed by financial lending institutions and the commercial banks, with the necessary security, facility and other necessary documents being executed to secure the financing institutions’ interests.

Project finance is managed and regulated by internal policies of the financial lending institutions, meaning that supervision from the Bank of Zambia is kept to a minimum as long as there is adequate internal management of credit risk and the terms and conditions of the facility are in line with the Banking and Financial Services Act 2017. The financial institutions and banks are at liberty to set the criteria they may employ when determining which projects to finance, as well as the terms and conditions of the facility.

In applying for project finance, project sponsors usually have to include the project company/special purpose vehicle constitution documents, tax registration certificates and feasibility study reports with project and cash-flow projections and audited financial statements of the last two to three years.

In advancing debt finance, commercial banks may either act as single financiers or co-finance with another bank or a group of banks.

The export of natural resources from Zambia is a highly regulated area, with various documents and permits required.

The minimum standard export procedure requirements are:

• a Customs and Excise Declaration Form from the Zambian Revenue Authority indicating the range and value of products being exported;
• a stamped certificate of origin from the Zambia Revenue Authority for each export market in cases where preferential market access exists;
• a certificate, depending on the region of export;
• an SADC Certificate for exports within the Southern African Development Community (SADC);
• a COMESA Certificate for exports within the Common Market for Eastern and Southern Africa (COMESA) region;
• a EUR1 Certificate for exports to the European Union;
• a Generalised System of Preferences Certificate of origin for those markets offering preferences to Zambia; and
• an AGOA Certificate (African Growth and Opportunity Act) for exports to the United States of America.

At the time of exporting the consignment, customs officials at ports of exit must be provided with the Customs and Excise Declaration Form, accompanied by a commercial invoice, a packing list, a certificate of origin and shipping consignment notes, either an airway bill or bill of lading.

In addition to the above, the following certain exports have specific procedures, as follows.

• Animal and fish products:
1. exporters are required to obtain an International Sanitary Certificate from the Department of Veterinary Services; and
2. must meet the import requirements from the importing country.
• Live animals must meet the import requirements from the importing country and require:
1. a veterinary certificate from the Department of Veterinary Services;
2. a quality certificate from the Department of Veterinary Services;
3. an International Sanitary Certificate from the Department of Veterinary Services; and
4. a CITES Certificate from the Zambia Wildlife Authority if they are endangered species.
• Plant products and seed require:
1. an import permit from the importing country to be presented to the Zambia Agriculture Research Institute (ZARI) for the export of agriculture products such as seeds, stems and fruits plants – ZARI will then prepare a phytosanitary (SPS) certificate; and
2. an export permit from the Ministry of Agriculture and Livestock.
• Cereal products require:
1. a Phytosanitary Certificate (SPS) from the Mount Makulu Research Station; and
2. an export permit from the Ministry of Agriculture and Livestock, and the Agribusiness and Marketing Department (Import and Export Permit Office) for prohibited food products such as maize, maize meal, maize bran, wheat and wheat flour.
• Precious and semi-precious stones require a Mineral Export Permit from the Ministry of Mines and Mineral Development, with samples of the product to be exported to be provided for the purposes of laboratory analysis and valuation.
• Chemicals and chemical products require:
1. a permit from the Zambia Environmental Management Agency (ZEMA) for agrichemicals;
2. a permit from the Zambia Medicines Regulatory Authority for medicinal products and dangerous drugs; and
3. an export permit from the Ministry of Health for dangerous drugs.
• Wood and wood products must meet the import requirements with regard to the fumigation of timber products, and require:
1. a Clearance Certificate for exports of raw timber from the Forestry Department under the Ministry of Lands and Natural Resources; and
2. a certification mark from the Zambia Bureau of Standards.

Exporters also need to maintain a foreign currency-denominated account with a commercial bank for receipt of all export proceeds and to ensure that all transactions to the value of, or in excess of, USD5,000 or the kwacha equivalent are done by way of electronic funds transfer.

All projects must be approved by the ZEMA following a review of the developer’s project brief or environmental impact statement. This review involves engagement with the relevant stakeholders, who include the general public and line Ministries. If satisfied that the project will have no significant impact on the environment, or that the project brief discloses sufficient mitigation measures to ensure the acceptability of the anticipated impacts, the ZEMA will issue a decision letter, with conditions as appropriate.

This process is governed by the Environmental Management Act 2011 and the Environmental Protection and Pollution Control (Environmental Impact Assessment) Regulations 1997.

In addition, the Environmental Management (Licensing) Regulations 2013 provide for emissions licences, set emissions limits, waste management licences, procedures for the management of hazardous waste, pesticides and toxic substances, and ozone-depleting substances, as well as general provisions on the issuances of orders and licences to protect the environment.

The Occupational Health and Safety Act 2010 and the Factories Act, Chapter 441 of the Laws of Zambia have provisions and sections on the health, safety and welfare of workers. The Ministry of Labour and Social Security governs matters to do with occupational health and safety.