MATHONSI J: This
application for a judicial management order made in terms of s 299 (1) (a) as
read with s 207 (1) and s 242 (b) of the Companies Act [Chapter 24:03] makes for very interesting reading indeed. The basis
for seeking that order is contained in para 10 of the founding affidavit of
Serish Pershotam Ranchod, a director of the applicant. He says:
“10. The
application is made on the following basis:
10.1
Applicant company registered a
mortgage bond over its sole immovable property as security for a loan extended
to an affiliate company, Myramar Farming (Pvt) Ltd by Salzman ET CIE SA, a
company registered in Panama.
10.2
Myramar Farming (Pvt) Ltd has since
been placed under provisional judicial management under case No HC 5914/14
because it is currently unable to pay its debts although it has high prospects
of discharging its debts under judicial management. (Refer to Annexure D).
Consequently, Applicant's property faces execution by Salzman ET CIE SA.
10.3 Execution of applicant's sole property will
result in applicant plunging into certain liquidation as it will no longer be
able to conduct its main objective of holding and managing the immovable
property.
10.4 It is therefore just and equitable that the
applicant be placed under Provisional Judicial Management as the moratorium
granted by judicial management will prevent execution of applicant's property
whilst Myramar Farming, the principal debtor to Salzman ET CIE SA liquidates
its debt under judicial management,”
One should give credit to the
applicant, at least it is brutally honest. Judicial management is not being
sought for any other reason than to circumvent the consequences of a suretyship
which the applicant went into wherein it secured a huge loan taken by its
sister company from a creditor who has been unable to realise any outlay from
the principal debtor because it has also sought and obtained a judicial
management order under case number HC 5914/14. It is therefore not paying the
debt of $750 000-00 which it owes to the creditor. Although the applicant stood
as surety for the due settlement of that debt and registered a surety mortgage
bond over its immovable property, being Stand 540 Salisbury Township in favour
of the creditor, it has no intention whatsoever to pay the debt.
It is for that reason that it has
elected to shelter under the cloak of judicial management for no other reason than
to ensure that its property is safe from execution while Myramar Farming (Pvt)
Ltd, the principal debtor, hopefully pays the debt owed to the creditor. It has
not escaped my gaze that the deponent of the founding affidavit is the common
denominator in all this in that he holds a 20 per cent shareholding in Myramar
Farming (Pvt) Ltd, the principal debtor which benefited from the loan. He also
has an interest in the applicant hence he has already avoided paying the debt
under Myramar by obtaining a judicial management order. Using the same modus operandi he has moved quickly to
avoid paying the same debt under the present applicant by securing a
provisional order for judicial management for all the wrong reasons. That way a
creditor which entrusted a large sum of money to these companies has to be left
without a remedy when Ranchod and his associates have fully benefited from the
loan. Is that the reason why the procedure for judicial management was
invented?
In terms of s 300 of the Companies
Act [Chapter 24:03]:
“The court may grant a provisional judicial management
order in respect of a company-
(a)
on
an application referred to in paragraph (a) of subsection (1) of section two hundred
and ninety-nine, if it appears to the court-
(i)
that
by reason of mismanagement or for any other cause the company is unable to pay
its debts and had not become or is prevented from becoming a successful
concern; and
(ii)
that
there is a reasonable probability that if the company is placed under judicial
management it will be enabled to pay its debts or meet its obligations and
become a successful concern; and
(iii)
that
it would be just and equitable to do so;
(b)
on
an application referred to in paragraph (b) of subsection (1) of section two
hundred and ninety-nine, if it appears to the court that-
(i)
if
the company is placed under judicial management the grounds for its winding up
may be removed and that it will become successful concern; and
(ii)
that
it would be just and equitable to do so.”
Section
299 (1) allows the court on an application being made by a person entitled to
do so, for the winding up of a company to grant a provisional judicial
management order instead. Section 242 (b) provides that a company may be
voluntarily wound up if it resolves by special resolution that it be wound up
voluntarily.
The
circumstances giving rise to this application are accurately set out in the
respondent's heads of argument. They are that there are essentially 3 main
actors involved in the matter namely Salzman ET CIE SA, the creditor, a company
incorporated in Panama, Myramar Farming (Pvt) Ltd incorporated in Zimbabwe
which is the principal debtor and the applicant, also incorporated in Zimbabwe
and is the surety and co-principal debtor.
The
principal debtor approached the creditor for a loan o $1 245 000-00 which the
creditor was only prepared to advance upon security in the form of a surety
mortgage bond on immovable property being furnished. The applicant, being a
sister company of the principal debtor with a common shareholder was prepared
to grant that security. In 2010 the applicant executed surety mortgage bond
number 2367/2010 in favour of the creditor binding itself as surety and
co-principal debtor in the sum of $750 000-00 for the due performance of the
principal debtor's obligations under the loan agreement. The applicant
mortgaged its immovable property being Stand 540 Salisbury Township measuring
595 square metres. It undertook that in the event of the principal debtor's
failure to pay the debt, it would itself pay any amount due to the creditor in
terms of the loan agreement.
Content
with that security the creditor then advanced the sum of $1 245 000-00 to the
principal debtor. When the principal debtor defaulted, the creditor instituted proceedings
in this court against the principal debtor which came to naught when the
principal debtor was placed under judicial management. The creditor was forced
to turn to the surety, the present applicant, for redress directing a letter of
demand on 25 February 2014. When no response was forthcoming the creditor
issued summons against the applicant on 8 September 2014 in HC 7916/14 seeking
payment of the sum of $750 000-00 and an order declaring the mortgaged property
specially executable.
Meanwhile, the applicant moved
quickly, and without notice to the creditor, to obtain a provisional judicial
management order on 10 September 2014 bringing the creditor's suit to a crashing
halt. It is the confirmation of that provisional order which is strenuously opposed
by the creditor on the grounds that while the basis for seeking to place the
applicant under judicial management is that the mortgaged property is the
applicant's sole property, such cannot found a basis for that order because the
applicant knew, when it mortgaged the property that it was its sole asset but
proceeded all the same. To grant such relief would therefore be contrary to all
notions of security for a debt and the principles of freedom and sanctity of contract.
In addition, the application constitutes an abuse of court process in order to
frustrate and/or delay a just claim while not laying out a proper case for the
grant of a judicial management order.
Before
I determine the merits of the application I have to deal with the preliminary
points taken by Mr Uriri for the
applicant. He has taken 2 points in
limine namely that the deponent of the opposing affidavit does not have
valid authority to oppose the application on behalf of the creditor because the
power of attorney and company resolution relied upon are defective and secondly
that the notice of opposition filed on behalf of the creditor was filed after
the creditor was barred. It has not escaped my attention that counsel for the
applicant has assigned 16 pages of his heads of argument to the 2 points in limine that have been taken while
reserving only 3 ½ pages for the merits of the application. It is not without
reason that this is so. In all fairness to Mr Uriri I take judicial notice that the applicant's heads of argument
were not prepared by him but his instructing attorney probably before he was
briefed.
On
the first point it has been submitted that the deponent of the opposing
affidavit of Melina Mathsiya, who is the legal practitioner, representing the
creditor, cannot validly do so because the power of attorney and board
resolution are defective. Those instruments of authority were
signed by the creditor's representatives on 24 June 2014 when the Notary Public
who authenticated the signatures did so on 26 June 2014. For that reason, the
signatories did not appear before the Notary Public on 24 June 2014.
I
do not intend to be detained by an argument which appears to have been conjured
by a desperate litigant clutching at straws. Even the untrained eye can see
that the special power of attorney was typed and printed with a date of 24 June
2014 for the signature of the creditor. The Notary Public who authenticated the
signatures appended his own date stamp with 26 June 2014 and signed. There is
therefore no basis for suggesting that the document was signed on different
days. I am prepared to surmise that the correct date of signing by all the
parties was 26 June 2014 and reject the suggesting that the document was signed
on different dates. Errors of that nature do occur in the heat of the moment
and are so insignificant that they should not be allowed, on their own, to
decide the outcome of important litigation.
Regarding
the resolution of the board, it records at the top that it is an extract of the
minutes of a meeting which was held on 24 June 2014. At the bottom it is signed
by a representative of the company whose signature was authenticated by a
Notary on 26 June 2014. So what? Again there is nothing to suggest that it was
not signed in the presence of the Notary who authenticated the signature.
Accordingly I dismiss that objection.
Mr
Uriri was not done yet. He submitted
that those documents are still invalid and of no use for purposes of this
matter because the board resolution
appointed: “Mtetwa and Nyambirai Incorporating Wilmot and Bennett as its
attorney and agent for purposes of recovering the monies due and owing to it by
Myramar Farming (Pvt) Ltd”.
As
Mtetwa and Nyambirai renounced agency on 21 May 2015 (significantly long after
the notice of opposition was filed on 20 November 2014) and Wilmot and Bennett
are no longer part of the former law firm, Ms Matshaya, is therefore not authorised to represent the creditor.
Surely that cannot possibly be a serious argument. What is apparent is that
when the notice of opposition was filed the 2 law firms were operating as one.
They must have broken up somewhere along the way to practise as distinct
entities and Wilmot and Bennett continued to represent the creditor and filed a
notice of assumption of agency separately. In my view that did not invalidate
the appointment because they were also appointed albeit as incorporated by
Mtetwa and Nyambirai.
The
second leg of that argument is equally not sustainable. It is that the law firm
was appointed to recover money owed by Myramar Farming (Pvt) Ltd and not to
defend the applicant's application. The process of recovering money owed by the
principal debtor has taken the creditor's agent to the opposition of an
application clearly designed to avoid paying. That money is also owed by the
applicant as co-principal debtor, a co-principal debtor that has renounced the
benefit of excursion. It would be naive to invalidate the document on the basis
that it makes reference to the principal debtor and not the surety.
In
any event the purpose of attaching a company resolution or even a power of
attorney is to demonstrate that it is the company which is litigating and not
an unauthorised person. The court will not disbelieve a deponent of an
affidavit who says or he or she has authority of the company to represent it
unless it is shown evidence to the contrary. It is not enough for the applicant
to just complain about such authority without placing anything before the court
to suggest that it is not the company that is before the court: African Banking Corporation of Zimbabwe
Limited t/a Banc Abc v DWC Motors (Pvt) Ltd and Others HH 123/13.
Mr
Mpofu relied on the authority of Mudzengi & Ors v Hungwe& Anor 2001 (2) ZLR 179 (H)
182 D – F in making the useful point that it is rather startling and unusual
for an applicant to object to the locus
standi of a respondent that it has cited. While this is an ex parte application, there is no doubt
that it is anchored on the fact that a debt is owed to the creditor, which the
applicant does not wish to pay at the moment. That authority therefore applies
to this matter. The applicant cannot question the creditor's locus standi when it is the sole
creditor owed money and judicial management has arisen precisely because of
that debt.
It is important that the applicant
is in fact not only a surety but also a co-principal debtor who has renounced
the benefits of excursion and division. In that regard it matters not that the
documents giving authority refer to Myramar Farming (Pvt) Ltd and not the
applicant itself. The line between them has become blurred because of that, apart
from the fact that both the power of attorney and resolution are couched in
such wide and sweeping terms that they allow the agent to do virtually anything
on behalf of the creditor.
Even if I were wrong in making the
foregoing conclusions, I would still dismiss the objection to the instruments
of authority on the basis that the rules of court no longer require a legal
practitioner to produce a power of attorney to represent a litigant. It is
trite that a legal practitioner is an agent of his or her client and that he or
she has authority to depose to an affidavit on behalf of the client with a
rider that the legal practitioner can only depose to those facts to which he or
she has personal knowledge.
In Zimbank Ltd v Trust Finance
Ltd & Anor 2006 (2) ZLR 404 (H) 407G; 408A Mavangira J stated:
“I agree
with the applicant's counsel's submission that it is trite that a legal
practitioner is his client's agent. See para 4 of his heads of argument. I do
not, consider the omission in the founding affidavit of the allegation that the
deponent was 'authorised', to be fatal, particularly also, in view of the
history or background of the application. This same legal practitioner acted for
the applicant in the proceedings which subsequently led to the taxation now
sought to be reviewed and in which the issue of his authority was not an issue.
I am satisfied that the deponent's averment in the founding affidavit is
sufficient in the circumstances of this matter, to show his authority to depose
thereto and therefore find that the deponent was duly authorised by the
applicant as he states.”
I
associate myself fully with that pronouncement which equally applies to the
present matter and accordingly uphold the opposing papers and the
representation of the creditor.
The applicant also objected to the
opposing papers on the basis that they were filed out of time. This is because
the provisional order for judicial management was published in the Government Gazette
and the Herald on 16 October 2014 and when the notice of opposition was filed
on 20 November 2014 it was out of time. Counsel for the applicant also
submitted, without evidence to support that submission and virtually leading
evidence from the bar, that the provisional order was also attached to a letter
dated 16 September 2014 addressed to Mtetwa and Nyambirai, then representing
the creditor. He said that correspondence can be produced at the hearing should
the need arise. For that reason the 10 days during which to file opposition
expired on 30 September 2014 meaning that, the creditor is barred as the papers
were filed 50 days out of time. Appearing to contradict himself, he also
submitted that the opposing papers should have been filed by 30 October 2014
but were filed 20 days out of time.
I agree with Mr Mpofu for the creditor that the issue of service of the provisional
order for judicial management is governed by r 247 (3) (c) of the High Court of
Zimbabwe Rules, 1971 which provides:
“Where a
provisional order relates to the sequestration of an estate, the winding up of
a company or any other matter in which interested parties generally are to be
given an opportunity to oppose the
granting of a final order, the provisional order shall specify the manner in
which the provisional order is to be published and, where appropriate, the
persons on whom copies of the provisional
order, together with all supporting documents are to be served”
Unfortunately
the provisional judicial management order whose confirmation is being contested
is not in the usual Form 29 D of the Rules of Court. So in determining whether
the creditor is barred, it is to that order that one must find the answer. The
relevant provisions of that order are the first sentence of para 1 para(s) 3
and 4 which I reproduce hereunder verbatim:
“IT IS ORDERED THAT:
Any
interested party shall show cause to this court sitting in Harare on this 26th
day of November 2014, on why an order should not be made in the following
terms……..
2…………………..
3. This order shall be published once in the Zimbabwe
Government Gazette and once in the Herald
newspaper. Publication shall be in the short form annexed to this order.
4. Any person intending to oppose or support the
application on the return day of this order shall:- :-
(a) Give due notice to the applicant at care of
its legal practitioners, Messrs G. N.
Mlotshwa & Company of Titan Law Chambers, 8th Floor Gold Bridge, Eastgate, Harare.
(b) Serve
on the applicant a copy of any affidavit which he files with the Registrar of
the High Court.”
That
is all that the order directs a person desirous of opposing the confirmation of
the order to do, to show cause why the final order should not be made on the
return date, to give notice to the applicant through its legal practitioners at
the given address and to serve a copy of any opposing affidavit filed on the
applicant. Nowhere in that order is a dies
inducae created. Such is only referred to in the publication that was
published in the Herald and Government Gazette which called upon interested
parties to file opposition by 30 October 2014 and serve it upon the applicant's
legal practitioners. The proof of publication is only attached to the answering
affidavit. Mr Uriri conceded that
there is nothing on the papers to suggest that the publication's parentage can
be found in the court order.
It is important that in terms of the
founding affidavit, the sole reason for approaching the court for an order for
judicial management was that the applicant owed the creditor money secured by a
surety mortgage bond which debt it did not want to liquidate after the
co-principal debtor became incapacitated. The creditor was the only interested
party and it boggles the mind therefore why the applicant preferred to proceed ex parte without citing the creditor. It
is also significant that there is no proof that even after the order was
granted it or the application were served upon the creditor. Instead the
applicant expected the creditor to know of the application through publication
together with the whole world. There is merit therefore in the submission by
counsel for the creditor that the applicant was proceeding with remarkable stealth
in order to prevent the creditor from contesting the order.
I have already made reference to r
247 (3) (c) which requires that the provisional order should, “where
appropriate”, specify the persons on whom it should be served along with the
supporting documents. There is no doubt in my mind that in the circumstances of
this matter it was appropriate for the creditor to be specified and to be
served with the order and the application, instead of placing reliance only on
publication as the applicant did. It is for that reason that the judge who
granted the provisional order did in fact query, as appears from his endorsement
on the record cover, that:
“Why should this application be filed without notice
to Salzman CT CIE SA?”
The
fact that he subsequently granted the provisional order, does not obliterate
the onus resting upon the applicant to comply with r 247 (3) (c). What we
therefore have is a party who has failed to fully comply with the procedure set
out in the rules under circumstances suggesting a deliberate attempt to
incapacitate a creditor from contesting the application, now trying to rely on
its own default to snatch at a final order unopposed. That cannot be allowed to
happen.
I therefore come to the inevitable
conclusion that there was no dies inducae
imposed by the provisional order which would result in the creditor being
barred as it was only imposed by a notice of publication which was prepared in
complete disregard of r 247 (3)(c) requiring that the creditor be specified and
served with both the order and the application. The order itself may be said to
have been incomplete by reason of failure to direct service upon a known sole
creditor mentioned in the application.
Even if I am wrong in that finding,
I would still not uphold the point in limine
for another reason namely that it is trite that a creditor is entitled to
appear on the return day of a provisional order for a winding up or judicial
management and show cause why the order should not be confirmed. That is the
spirit of subrule 3 or r 247 para (a) of which requires the provisional order
to be in Form 29 D (it was not) while para (b) requires it to specify the date
and place at which the court will hear
argument on confirmation. I therefore dismiss that point in limine as well.
On the merits of the application it
was argued half-heartedly in support of confirmation in the heads of argument
that I must consider the interests of both the creditor and the shareholders in
deciding whether it is just and equitable to grant the order, that there are
other sureties that can discharge the debt instead of the applicant and that
the illiquidity of the applicant is temporary, even though throughout the
application the applicant does not propose to pay the debt at all. In fact the
thrust of the application is that the applicant should be sheltered by the
order while someone else pays the debt at a later date. Reliance was placed on
the authority of Repp v Ondundu Goldfields 1937C PD 375, Millman v Swartland Huis Meulbileerdere (Edms) Bpk 1972 (1) SA 741 and Gutman v Sunlands Township (Pvt) Ltd
1962 (2) SA 348 (C)
In terms of s 305 of the Companies
Act:
“the
court [……………] may grant a final judicial management order if it appears to the
court that there is a reasonable probability that the company concerned, if
placed under judicial management will be enabled to became a successful concern
and that it is just and equitable to grant such an order.”
Earlier
in this judgment I alluded to the main reasons for seeking judicial management
as set out in the founding affidavit as being a moratorium to prevent execution
against the mortgaged property of the applicant. Clearly therefore it has
nothing to do with the acceptable grounds provided for in the Act. It has
nothing to do with enabling the applicant to be a successful concern. In fact
it has not even been shown that it is not a successful concern or that whatever
problems it faces are a result of mismanagement to be cured by the involvement
of a judicial manager. Mr Uriri
relied solely on “the just and equitable” provision.
The applicant simply does not want
to pay a debt which has benefited its shareholders who appear to have taken a
loan in the name of one company in which they have beneficial interest, secured
it by virtue of a property of another company in which they have beneficial
interest. When the time to pay came they did not do so, in fact they probably
have no desire to pay, but rushed to shelter under judicial management both for
the principal debtor and the surety. An abuse of court process has never been
so crass. The use of court process for the purpose for which it was never
meant, that is abuse.
I therefore have no hesitation in
concluding that it is not just and equitable to grant the final order. The
authorities relied upon cannot serve the applicant. It has proceeded in bad
faith and this court cannot be seen to lend assistance to a bad debtor who
contemptuously does not intend to settle a debt lawfully owed but wants to use
the process of the court as a shield against foreclosure.
In the result, it is ordered that:
1.
The provisional order for judicial management granted on 10 September
2014, be and is hereby discharged.
2.
The application is hereby dismissed.
3.
The applicant shall bear the costs of suit.
GN
Mlotshwa & Company, applicant's legal practitioners
Wilmot and Bennett,
respondent's legal practitioners
