MAVANGIRA
J: The applicant seeks a Provisional Order in the following terms as amended:
“TERMS OF INTERIM RELIEF SOUGHT
IT
IS ORDERED:
1.
That the first respondent's share certificates in
Africa First Renaissance Corporation Limited be deposited with the registrar,
High Court, Harare pending the final determination of this application.
2.
That the first respondent be and is hereby interdicted
from transferring, disposing of or encumbering in any other way, their
shareholding in Africa First Renaissance Corporation Limited pending the final
determination of this application.
3.
That the Respondents pay the costs of this application,
the one paying the other to be absolved.
TERMS OF THE FINAL ORDER SOUGHT
IT IS ORDERED:
1.
That in the event of the respondents failing to
discharge all of their obligations towards the Applicant, including the payment
of all capital amounts due and owing to the Applicant together with all
interest accrued, by 30 October 2011, the first respondent's shareholding in
Africa First Renaissance Corporation Limited, be transferred to the Applicant.
2.
That the Respondents pay the costs of this Application
jointly and severally, the one paying the other to be absolved.”
The
facts presented to the court by the applicant are as follows. Sometime in or
around July 2009, the Reserve Bank of Zimbabwe
issued to the applicant Zimbabwe Foreign Currency Bonds with a face value of
US$2,392,044,93 with a tenure of six months. At the first respondent's specific
request and instance, the applicant ceded the Bonds to the first respondent on
the terms and conditions set out in an agreement signed on 22 September 2009.
in terms of the agreement the first respondent was obliged to pay the sums of
US$957,070,26 on or before 12 January 2010 and the sum of US$1,434,974,67 on or
before 2 February 2001. The cession was secured by the first respondent's
listed investments whose face value at the time was in the region of
US$5,700,000. Although it was not specified, it was at all times understood
that the listed securities related to the first respondent's shareholding of about
30% in Africa First Renaissance Corporation (AFRE), an insurance company.
Between
15 February 2009 and 18 May 2011 the applicant deposited with the second
respondent a cumulative total of US$3,100,000 specifically for the settlement
of the applicant's unnamed external creditors who also included its unnamed suppliers.
It is alleged that the second respondent failed to settle the applicant's
indebtedness to the external creditors and that it instead it converted the
amount to its own use. At various intervals the applicant also gave the second
respondent instructions to invest its money. The following are the directives
which were given. On 3 March 2010 an instruction was given by the applicant to
the second respondent to invest US$500 000 for one year. On 2 March 2011 an
instruction was given by the applicant to the second respondent to invest US$2
000 000 000 for 30 (thirty) days. It is alleged that in both instances the second
respondent failed to repay the invested monies, including interest, into the
applicant's account. The amounts were converted to the second respondent's own
use.
Upon
demand being made of the second respondent to settle these amounts, the first
respondent acknowledged its indebtedness in the sums of US$3,1 million and
US$2,6 million. It did so by way of a letter dated 25 April 2011. The letter
which was authored by the executive director and majority shareholder in the first
respondent, one P.Timba, is headed:
“RE: SECURITY
FOR ECONET FUNDS HELD BY RENAISSANCE FINANCIAL HOLDINGS GROUP (RFHL)”
The letter reads:
“Econet Wireless
(Private) Limited deposited funds amounting to US$3,1 million with Renaissance Merchant Bank Corporation (“RMB”) and
US$2,6 million with Renaissance Financial Holdings Limited (excluding
interest). As security for the said amounts plus interest thereon, Renaissance
Financial Holdings Limited, the holding company of RMB hereby cedes, transfers
and makes over its 30% shareholding in Africa First Renaissance Corporation
Limited (“AFRE”) to Econet Wireless (Private) Limited.
This letter
shall constitute the instrument of transfer required in terms of the Companies
Act in the event that the amount hereby secured or any part thereof is not paid
in full by the 30th of October 2011. RFHL hereby nominates and
appoints Sheila Mugugu as its lawful attorney on its behalf to do everything
necessary to ensure that registration of ownership of the shares is transferred
into the name of Econet Wireless (Private) Limited in the event that payment is
not effected as aforesaid.
If payment of
the outstanding amount or any part thereof is not effected on the due date, the
entire 30% shareholding of AFRE hereby ceded shall be transferred to Econet
Wireless (Private) Limited and held by Econet Wireless (Private) Limited,
provided that should a valuation be conducted by Deloitte & Touche as an
expert and not as an arbitrator, at the instance of either party, determines
that the 30% shareholding in AFRE has a value that exceeds the outstanding
amount. In that event, the excess shall be returned to RFHL. In the event that
the valuation shows that the outstanding amount is more than the value of the
shares, RFHL will pay the balance.” (sic)
The
applicant understands that the 30% shareholding in AFRE by whose cession the first
respondent secured its indebtedness to it, constitutes the first respondent's
major asset. The applicant also states that although the cession was effected
on 25 April 2011, the first respondent was given up to 30 October 2011 to
settle its indebtedness to the applicant. It states that the respondents'
indebtedness is still to be settled.
In
the applicant's founding affidavit reference is made to media reports to the
effect that the respondents may be facing liquidity problems and that after
some investigations by the Reserve Bank of Zimbabwe it was reported in the
Financial Gazette of 19 to 25 May 2011 that the National Social Security
Authority (NSSA) was “considering a 'bailout' of the respondents.” It was also
reported that NSSA would be particularly interested in an investment in the
first respondent because such an investment would give the institution access
to the huge property portfolio held by AFRE in which RFHL holds a 30% stake. It
is further stated that as this is the same 30% stake ceded by the first
respondent to the applicant in the letter of 25 April 2011, the applicant's
legal practitioners immediately wrote to the respondents on 20 May 2011 seeking
clarification of the contents of the newspaper article. A specific request was
made in the letter that the shares be not disposed of before the applicant's
indebtedness is settled. The letter was copied to the Reserve Bank of Zimbabwe, NSSA and the Ministry of Finance.
The
founding affidavit also makes reference to the Financial Gazette of 2 to 8 June
2011 in which was reported that the same shareholding might be sold by one
Jayesh Shah in respect of monies owed to him by the second respondent. The
applicant states that the 30% shareholding in AFRE and the shareholding in that
newspaper report is the same 30% ceded to the applicant by the first
respondent. The applicant states that it has become extremely concerned that
the security which the first respondent ceded to it might be the basis through
which third parties take over the affairs of the respondents without making any
arrangements to settle the amounts admittedly owed to the applicant. It is for
this reason, the applicant states, that it has approached this court on an
urgent basis; to secure the first respondent's shareholding in AFRE pending a
resolution of its indebtedness to the applicant.
At the onset of the hearing in
chambers Mr. Chinake, the
respondents' legal practitioner raised a number of preliminary points for the
court's determination. He submitted that the broad contextual backdrop is that
in essence the court is dealing with an insolvency situation. Consequently, the
court's duty is to protect the interests of all creditors, depositors and
shareholders and not merely one creditor as would happen were the court to
grant the relief sought by the applicant. He submitted that the first
respondent is the holding company which wholly owns the second respondent, the
bank. He submitted that both respondents are regulated entities and that on 2
June 2011, a day before this urgent chamber application was filed, the second
respondent was placed under curatorship by the Reserve Bank of Zimbabwe. The
relevant “Direction in Terms of the Provisions of Section 53 (1)” of the
Banking Act, [Cap 24:20] was placed
before and produced as evidence of that fact. The Direction reads:
“1. The Reserve
Bank of Zimbabwe (“Reserve Bank”) hereby orders and directs
that
Renaissance Merchant Bank Limited (“Renaissance Merchant Bank”), be placed,
forthwith, upon service of this direction upon the Chairman of its Board of
directors, under the management of a curator
for six months.
2.
After a thorough investigation by the Reserve Bank it
was determined that:
i. Renaissance Merchant Bank is in an unsound
financial position in that -
(a) the bank is technically insolvent with
negative capital adequacy ratios; (b)
there is a high level of non-performing insider and related party exposures;
(c) the bank
has been experiencing chronic liquidity and income generation
challenges; and
(d)
there have been poor corporate governance practices and violations of
banking laws and regulations.
3.
It is most unlikely that Renaissance Merchant Bank will
be restored to a
healthy
position unless it is placed under curatorship.
4.
The Reserve Bank considers that immediate action is
necessary to prevent
irreparable
harm to the banking institution and its depositors, creditors and shareholders
and to the banking sector in general.
5.
The Reserve Bank hereby appoints Mr. Reggie Saruchera
to be the curator of
Renaissance
Merchant Bank. In that capacity he will exercise all and any of the powers set
out in subsection (2) of the Banking Act until such time as the financial
situation of Renaissance Merchant Bank is resolved.
6.
In order to preserve the current financial resources of
Renaissance Merchant
Bank and to
prevent the uncontrolled withdrawal of funds and assets Renaissance Merchant
Bank, the Reserve Bank hereby orders and directs that all deposits with
Renaissance Merchant Bank and all assets invested in it are hereby frozen for a
period of six months from the date of this direction. This means that there
will be no dealing with deposits except to the extent that the curator may
permit.
7.
Renaissance Merchant Bank will however, remain open to
the banking public
as the
institution will continue to provide limited financial services at the
discretion of the curator. The curator will take over and assume the management
of Renaissance Merchant Bank in such a manner as he considers prudent and most
likely to promote the interests of the institution, its depositors and
creditors.
8.
The curator will, in due course, recommend to the
Reserve Bank how the
financial
situation of Renaissance Merchant Bank should be resolved.”
Mr. Chinake referred the court to ss 53 to 56 of the Banking Act being
the applicable provisions in situations concerning curatorship. He further
submitted that the business of the second respondent has been suspended for two
weeks with effect from Friday and that this has been done for the reasons
stated in paragraphs 4, 5 and 6 of the “Direction”; the protection of all
depositors, creditors and shareholders of the institution. He submitted that it
is the duty of the curator to consider all claims including the applicant's
claim. The curator must thus be afforded the opportunity to conduct his
business. He submitted that it is for this reason that the law requires that
the leave of the court be obtained first before proceedings such as these are
instituted.
The court was also referred to ss
260 and 310 of the Companies Act, [Cap 24:03].
Section 260, it was submitted, provides that where a company enters into an arrangement
with its creditors just before it becomes insolvent or in circumstances where
its insolvency is imminent, that arrangement must be sanctioned by a special
resolution of the company. Such arrangement must also be brought before the
court within a month for review, or amendment, or being set aside or confirmed.
The provisions are strict and do not allow for unilateral acts. Section 310, it
was submitted, prohibits undue preferences in circumstances where a company is
insolvent. It was submitted that in casu although
the depositor banker relationship goes back more than a year, it was only in
April 2011 when it was common cause that the Renaissance group was in trouble,
that this additional assurance or security was sought. In such circumstances
therefore, the cession of the 30% shareholding in April 2011 is undue
preference of a creditor and the entertainment of this application by this
court would be tantamount to allowing the applicant to circumvent the laws of
the country which provide for and require the protection of every creditor. In
insolvency matters only secured creditors enjoy a preference over other
creditors.
The second preliminary point raised
by Mr. Chinake is that the matter is
not urgent because although the application was signed on 16 May 2011, it was
only filed on 3 June 2011. Furthermore, from the narration of events in the
founding affidavit, the applicant has known about the problems at the
Renaissance group for quite some time and chose not to do anything about it
until after the second respondent was placed under curatorship. In addition,
the front page of the Herald of Friday 3 June 2011 reported on the placing of
the second respondent under curatorship, yet the application was still filed,
it was submitted, without the court being advised that circumstances had changed.
He pointed out that in return for the cession the first respondent was given
until 30 October 2011 to settle the debt. The debt is thus not due and the
applicant ought not to have approached the court at this stage. The court is in
effect being asked to grant relief on a debt that is not due, on an urgent
basis yet the relief sought would have significant???
consequences. The applicant must wait until 30 October 2011. It was further
submitted that the order being sought by the applicant is thus incompetent. As
the second respondent is now under a curator, there is no reason for this court
to oust the curator's jurisdiction, and that, on an urgent basis.
In support of the contention that
the matter is not urgent, Mr. Chinake referred the court to Makamure v Devon
Engineering (Pvt) Limited, 2008 (2) ZLR 319; HH106/08 and Nyika
Investments (Pvt) Limited v Zimasco Holdings & Others 2001 (1) ZLR 212.
The next submission made was that
even on its own papers the applicant accepts that there are other competing
claims against the same security which they are claiming, yet the said parties
have not been brought before the court. Specific reference was made to one Mr.
Jayesh Shah and possibly NSSA.
In his response to these issues
raised, Mr. Nkomo for the respondents
submitted that in as far as the issue of joinder of the other claimants was
concerned, the respondents' legal practitioners' letter of 20 May was also sent
to them. He submitted that Mr. Shah also has the same shareholding yet the
respondents have not advised
the court as to who they owe and how much they owe. He submitted that the
applicant has had to come to court before 30 October 2011 because there already
are competing claims by other people to the same shareholding which was ceded
to it. Furthermore, its letter to the respondents requesting an undertaking
that the same shareholding would not be disposed of has gone unanswered. He
submitted that had there been a response to its letter, it would not have come
to court. The applicant is now asking for security because the Renaissance
group is in financial problems. He submitted that the issue of non joinder is
inconsequential and must be dismissed with costs.
On the issue of urgency, Mr. Nkomo submitted that when the applicant
realised that the respondents were in financial problems, it had to write the
letter of 20 May 2011 because the 30% shareholding or US$8 million does not
belong to an individual but to a company and a response to that letter would
have enabled it to answer to its shareholders who are the owners of the money.
By 3 June 2011, ten working days later, there being no response to the letter,
the applicant had to bring the matter to court. He submitted that the urgency
must be calculated or deemed to have been set in motion on 20 May when the
letter was written and that the need to act arose when the letter went
unanswered by the respondents.
Mr. Nkomo also submitted that while Mr. Chinake had reached the correct conclusions regarding the law as to
curatorship, he had however, missed the point that the respondents are two
separate entities with separate boards and that they operated separately. The
cession in issue was made to the applicant by the first respondent which has a
shareholding I AFRE; the second respondent does not. He submitted that the
letter of 25 April 2011 advised the applicant to deal with the first respondent
only and not with the second and that the debt was thus restructured on 25
April 2011. Furthermore, the first respondent is not under curatorship. The
curator who has been appointed has no mandate and is not empowered to go into
the affairs of the first respondent. He submitted that the issue of curatorship
is therefore irrelevant in this matter. He submitted that the applicant is not
seeking any relief against the second respondent and that there is a
typographical error on paragraph 2 of the interim relief sought. He thus sought
an amendment of the Provisional Order and the effect of that amendment is such
that relief is now being sought only against the first respondent. He submitted
that should the applicant seek to recover its money now, it does not go to or
look to the second respondent but to the 1st because the 1st
respondent is now the debtor as confirmed by the letter of 25 April 2011 in
terms of which it took up the debt and ceded its 30% shareholding in AFRE to
the applicant. At the close of his submissions on this aspect the asked Mr. Nkomo what the role of the second
respondent was in these proceedings. He responded by indicating that he wished
to withdraw the application as against the second respondent and that he was
tendering costs. The formal notice of withdrawal was filed with the Registrar
on the morning of 8 June 2011.
It
was also Mr. Nkomo's submission that
this application is also meant to stop the possible use of s 26 of the
Insurance Act by the Minister of Finance in view of his indication to the House
of Assembly that that was a possibility. He submitted that the preliminary
points raised have no merit and must be dismissed with costs.
In response to the withdrawal
against the second respondent, Mr. Chinake
submitted that the withdrawal is inconsequential. The statutory position is
that the curator must be given an opportunity to investigate the second
respondent and deal with creditors and debtors alike. He submitted that it was
because the applicant was aware of this requirement that it cited the second
respondent; because the money was paid into the bank, the second respondent.
The second respondent is thus a real, substantial and interested party. He
submitted that the court must determine the case that was placed before it. Mr.
Chinake submitted that the first
respondent, an entirely different corporate entity, seeks by way of the letter
of 25 April 2011 to compromise a creditor debtor relationship between the
applicant and the second respondent. Whether or not the second respondent is
aware of this is anyone's guess. In any event, the curator of the second
respondent in carrying out his duties or conducting his business will also be
dealing with deposits made by the applicant into the second respondent.
The applicant has now withdrawn the
application as against the second respondent. The second respondent is thus no
longer of any relevance to this application. It is trite that the first and the
second respondents are legally two separate corporate entities. It is also
common cause that it is the second respondent which has been placed under
curatorship, and not the first respondent. The placement of the second
respondent under curatorship and any submissions made in relation thereto are
thus of no consequence in this matter. It also a fact established on the papers
that by its letter of 25 April 2011, the first respondent took over and assumed
the second respondent's indebtedness to the applicant. In terms of the contents
of that letter the applicant gave the first respondent up to 30 October 2011 to
settle its indebtedness. However, there appear to be competing claims which
subsequently became known to the applicant, for the same 30% shareholding which
the first respondent ceded to the applicant as already stated above. Hence the
applicant's letter of 20 May 2011 requesting an undertaking to the effect that
the shares would not be disposed of before its indebtedness is settled. The
applicant waited about ten or so days after writing the letter before it filed
this application. In the circumstances of this case a period of about ten days
cannot, in my view, be said to be inordinate.
It is also my view that the
withdrawal against the second respondent cannot be said to be inconsequential
particularly if consideration is taken of the nature of the relief sought in
conjunction with the fact that the first respondent is a separate legal entity
to the second respondent. The withdrawal against the second respondent taken in conjunction with the fact
that the first respondent is not is not under curatorship seems in my view, to
render redundant Mr. Chinake's submissions regarding what he
referred to as the broad contextual backdrop which the court must consider in
determining this matter.
For the above reasons it appears to
me that the applicant has established justification for the hearing of this
matter on an urgent basis. I therefore dismiss the first respondent's
preliminary issue relating to urgency with costs.
Mtetwa & Nyambirai, applicant's legal practitioners'
Kantor & Immerman, first respondent's legal practitioners.
