The
first respondent was placed under provisional liquidation on the 13th
of June 2013 which was confirmed on the 11th
of July 2013. The second and third respondents were then appointed
provisional liquidators.
Subsequently,
on 19 December 2013, the creditors held a meeting before the fourth
respondent where they passed a resolution that the first respondent
be placed under judicial management. At this meeting, over 200
creditors voted that the company be placed under judicial management
while 4 creditors were for liquidation. The applicants then filed an
application seeking an order removing the first respondent from
liquidation and placing it under provisional judicial management.
This court, per KAMOCHA J, granted an interim order on the 14th
day of March 2014 in the following terms:
“Interim
relief granted
Pending
the finalisation of this matter, applicants be and are hereby granted
the following relief:
(a)
The 1st
respondent be and is hereby removed from provisional liquidation and
placed under provisional judicial management.
(b)
Pending the return date, this order shall operate as a provisional
Order of Judicial Management.
(c)
The Assistant Master be and is hereby ordered to appoint Thabani
Lihle Siziba of Waterbuck Trust (Pvt) Ltd as the Judicial Manager of
the applicant with powers conferred by section 221(2)(a) to (h) as
read with section 303 of the Companies Act [Chapter 24:03].
(d)
A copy of this order shall be served on the Assistant Master.
(e)
This order shall be published once in the Government Gazette and in
one Friday edition of the Chronicle newspaper.
(f)
All court actions and proceedings and the execution of all writs,
summons and other court processes against the company be and are
hereby stayed and must not be proceeded with without the leave of the
court.
(g)
Whilst the Provisional Judicial Management Order is in force, all
actions, executions of writs, summons and other proceedings against
the 1st
respondent shall not be proceeded with without leave of this
honourable court. Any goods attached or removed shall forthwith be
released from such attachment and placed in the custody of the
Provisional Judicial Manager.
(h)
Any existing directors of the company be and are hereby divested of
their power and authority as directors and managers of the 1st
respondent.
(i)
Any interested party may inspect a copy of the application at the
office of the Assistant Registrar of the High Court, Bulawayo or at
the office of the Assistant Master of the High Court, Bulawayo.
(j)
Any interested party may appear before this court sitting at Bulawayo
on the 17th
day of April 2014 to show cause why a final order should not be made
placing the respondent's company in Judicial Management.
(k)
Any person (including creditors) intending to oppose or support the
application on the return date of this order shall:-
Give
due notice to the applicant c/o Cheda and Partners Legal
Practitioners, 6th
Floor LAPF House, 8th
Ave/Jason Moyo Street, Bulawayo within twelve (12) days of date of
publication of this order.”
The
terms of the final order sought by the applicants are as follows:
“That
you show cause why a final order should not be made in the following
terms:-
1.
The 1st
respondent, Geozing Pawnbrokers (Pvt) Ltd, be and is hereby placed
under final judicial management.
2.
The Assistant Master be and is hereby ordered to appoint Thabani
Lihle Siziba of Waterbuck of the 1st
respondent with powers conferred by section 221(2)(a) to (h) as read
with section 303 of the Companies Act (Chapter 24:03).”
The
applicants are now seeking confirmation of the provisional order
referred to above. The application is opposed by the second and third
respondents.
The
relevant facts that are either common cause or not seriously disputed
are that:-
1.
Geozing Pawnbrokers (Pvt) Ltd, a duly incorporated private limited
company was in the business of money lending and investment.
2.
The applicants, who are the creditors of Geozing Pawnbrokers (Pvt)
Ltd, invested various sums of money into the company with the
investments bearing interest at the rate of 30% per month.
3.
Around March 2013, the company failed to pay the investments which
were due and its various schemes collapsed leaving a vast number of
creditors exposed.
4.
The applicants applied and obtained the orders cited above.
The
applicants have relied on section 305 of the Companies Act [Chapter
24:03] (the Act) which sets out the grounds which the court must
consider in deciding whether or not to confirm the provisional order.
These grounds are encapsulated in section 305(1) as follows:
“305
Return day of judicial management order
(1)
On the return day filed in the provisional judicial management order,
or on the day to which the court or a judge may have extended it, the
court, after considering –
(a)
The opinion and wishes of the creditors and members of the company;
and
(b)
The report of the judicial manager prepared in terms of section three
hundred and three; and
(c)
The number of creditors who did not prove claims at the first meeting
of creditors and the amounts and nature of their claims; and
(d)
The report of the Master; and
(e)
The report of the Registrar;
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 become a successful concern and that it is just and
equitable to grant such an order,
it may discharge the provisional judicial management order or make
any other order that it thinks just.”…,.
Reliance
was also placed on Zimbabwe
Textile Workers Union v David Whitehead Textiles Ltd & Ors
HH170-14.
In
casu,
the creditors and members of the company's opinion and wishes are
contained on page 5 of the minutes of a meeting held on the 19th
of December 2013. The relevant portion states:
“Over
200 creditors voted that the company be placed under Judicial
Management while 4 present were for liquidation.”
The
report of the provisional judicial manager supports the confirmation
of the order. In his report, the provisional judicial manager states:
“It
is my considered opinion that Geozing Pawnbrokers (Pvt) Ltd should be
nursed back into financial health and must be given another chance in
life to resume its course as a successful entity based on the
following reasons:
(a)
The protection of the judicial management order enables all creditors
to their money in an orderly manner as opposed to who gets the writ
first and those who move in later get nothing. The current graph at
the pawn broking shop shows a positive result.
(b)
The rock sampling at the mine shows an output of 30 grammes per tonne
and once the mine runs at 100% capacity we are assured of not less
than 2kg a month which amounts to about $95,000= gross. I wish to
stress that this could not have been done in the past as we were
operating at 30% since the matter was opposed. The 30% was done as a
trial to assess the mine's viability and the results were
impressive.
(c)
Our marketing staff at the pawn shop are doing a sterling job in
securing clients and at present they have widened their customer base
as everyone is in need of money.
(d)
Payments of some creditors in full shows that if the company is given
another chance then it will definitely pay all the creditors.
(e)
The current projects that are running are long term and if allowed to
mature they will reach out to more clients and bring in more income
to pay off creditors.
It
is therefore my humble opinion that if Geozing Pawnbrokers (Pvt) Ltd
is given another chance it will recover from this financial set-back,
but, most importantly, it will manage to pay all its creditors. It is
also pertinent to note that the Geozing Pawnbrokers (Pvt) Ltd assets
are now in the form of running businesses and if the company is
liquidated creditors will not receive anything.”
The
report also covered the following areas:
1.
An account of the general state of affairs of Geozing Pawnbrokers
(Pvt) Ltd;
2.
Reasons why Geozing Pawnbrokers (Pvt) Ltd is unable to pay its debts
at the moment;
3.
A statement of Geozing Pawnbrokers (Pvt) Ltd assets;
4.
A complete list of Geozing Pawnbrokers (Pvt) Ltd creditors; and
5.
Particulars of sources of funding to resuscitate Geozing Pawnbrokers
(Pvt) Ltd.
As
regards the number of creditors who did not prove claims at the first
meeting of creditors, the provisional judicial manager provided the
following data:
“(a)
The approved creditors are now at 1,846 from 1,873 with a claim value
of $3,605,921=67 compared to the previous amount of $3,625,540=67.
(b)
The unapproved creditors are 1,791 with a claim value of
$2,838,366=58.”
The
Master, in his report dated 25 February 2016, believes that it will
be to the best interest of the company if an order for final judicial
management is granted. His opinion is based on the fact that the
company has kick-started the following business operations:
(a)
Pawn shop business;
(b)
Poultry project;
(c)
Bottle store; and
(d)
Mining of gold.
Finally,
the Master recommended that the creditors' wish be taken into
consideration and the final judicial manager be given at least a year
to try to trade and pay creditors.
The
applicants argued that the second and third respondents have no locus
standi in judicio
since they have absolutely no interest in the affairs of this company
in that their mandate expired when the order for provisional judicial
management was granted.
It
is common cause that the second and third respondents are ex
co-liquidators. Their opposition is solely based on their views of
the company. The two respondents, however, argued that they had a
“judiciary duty to protect the interests of the creditors by
liquidating the company.”
While
I have my doubts over the validity of this submission, this point is
moot for the simple reason that lack of opposition does not entitle the court to dispense with the requirements set out in section 305(1)
of the Companies Act [Chapter 24:03].
The
respondents have set out two broad grounds for opposing this
application, namely;
(a)
That the applicants have failed to discharge the onus to prove that
the winding up proceedings of Geozing Pawnbrokers (Pvt) Ltd should be
set aside in terms of section 227 of the Companies Act; and
(b)
That the applicants have failed to prove that Geozing Pawnbrokers
(Pvt) Ltd can be enabled as a successful concern through the process
of judicial management.
Section
227 of the Companies Act [Chapter 24:03] states:
“227
The court may, at any time after the making of an order for winding
up, on the application of the liquidator or of any creditor or
contributory and on proof to the satisfaction of the court that all
proceedings in relation to the winding up ought to be stayed or set
aside, make an order staying or setting aside the proceedings on such
terms and conditions as the court deems fit.”
The
respondents' argument is that section 227 applies where some new
factor
has rendered the order of winding up unnecessary thereby justifying
its setting aside. See Storti
v Nugent & Ors
2001 (3) SA 783 (W) where GAUTSCHI AJ, commenting on section 354 of
the South African 1976 Companies Act (now repealed), which is similar
to section 227 of the Zimbabwean Act, said;
“A
moment's reflection reveals that an application to set aside or
stay winding up proceedings may arise in two broad situations. On the
one hand, the winding up order may be attacked on the basis that it
should never have been granted by reason of some defect in the
procedure or the merits of the application; on the other hand, the
winding up order may be unassailable in itself but later
events
may render a stay or a setting aside of the winding up proceedings
necessary or desirable. In my view, the section is intended to cover
the latter situation not the former. My reason for this is the
following: firstly, the winding up order is assailable and it may be
rescinded under the common law and there is no need for a section in
the Companies Act to provide for such a situation.”…,.
See
also Ward
& Another v Smit & Others:
In Re
Gura v Zambia Airways Corp Ltd
1998 (3) SA 175 (SCA) where it was held that “exceptional
circumstances” had to be disclosed in order to grant a discharge of
a winding up order which was, in effect, a rescission.
It
was contended, for the respondents, that in
casu
the applicants have not led any evidence to prove that the order
winding up the company should be set aside, nor have they led any
evidence to suggest that the circumstances have changed since the
granting of the original winding up order.
In
my view, this submission has no merit in that the applicants filed
minutes of a creditors meeting attended by Mr M. Ncube (one of the
liquidators) where a compromise was reached and a resolution passed
to apply for the setting aside of the final liquidation order. At
this meeting, Mr Zingane, the former director was asked to present a
statement of the company's affairs which he did. These
developments, in my view, can be classified as 'later events' or
exceptional circumstances justifying a setting aside of the winding
up proceedings – see R. H. CHRISTIE, Business
Law in Zimbabwe
2nd
Ed 1998…, where the learned author states:
“If
the liquidator, authorized by a joint meeting of creditors and
contributories (s 221(4) is able to arrive at a compromise with
creditors, it may be possible to apply for the cancellation of the
winding up order, reinstatement of the company and discharge of the
liquidator: Ex
parte Osmond and Shacklock
1944 SR 181: Ex
parte Beretta & Sons (Pvt) Ltd
1963 R & N 66 1963 (2) SA 146.”
On
that basis, therefore, and on the basis of the evidence relating to
the company's state of affairs, the provisions of section 227 of
the Companies Act [Chapter 24:03] were satisfied.
The
second and third respondents also submitted that the company cannot
be enabled as a successful concern through the process of judicial
management because of the following reasons:
(1)
Judicial management, in
casu,
is an improper vehicle in that the company owes its creditors over
US$5,000,000= while its assets total approximately US$1,000,000=.
Consequently, less the costs of liquidation, the creditors can expect
to be paid approximately seventeen cents on the dollar.
(2)
The business of Geozing Pawnbrokers (Pvt) Ltd is illegal, and,
therefore, the appointment of a judicial manager would be of no
purpose as there is no legitimate business to manage.
I
take the view that the fact that there is a huge gap between the
amount of debt and the value of the company's assets does not
render the vehicle of judicial management improper. The test is
whether or not there is a reasonable probability that the company, if
placed under judicial management, will be enabled to become a
successful concern and that it is just and equitable to grant such an
order. I am satisfied, from the evidence on record, that the company
can operate profitably. It is common cause that liquidation will
result in creditors earning six cents for every dollar invested.
While it is accepted that it would take the company a considerable
period to pay off all the debt, this cannot be the basis for denying
the creditors their wish to have the company placed under judicial
management. It has not been denied that Geozing Pawnbrokers (Pvt) Ltd
owns mining claims in Turk Mine which, although ill-equipped, have
the potential to produce profits. Also, the second and third
respondents have not challenged the existence of various businesses
or projects being run by the company. What they have simply said is
that they will generate very little over the years.
Finally,
the argument over the illegality of Geozing Pawnbrokers (Pvt) Ltd's
operations is untenable in that it was not disputed that whatever
charges had been preferred against the company were withdrawn and
preferred against Mr Zingane in his personal capacity. The Articles
of Association of Geozing Pawnbrokers (Pvt) Ltd were not produced.
Therefore, the unlawful operations remain a bold and unsubstantiated
allegation.
In
the final analysis, I find that the applicants have satisfied the
requirements for the confirmation of the Judicial Management Order.
Put differently, I find that the proposed business rescue constitutes
a better option than the liquidation of Geozing Pawnbrokers (Pvt)
Ltd.
Accordingly,
it is ordered that:-
1.
The first respondent, Geozing Pawnbrokers (Pvt) Ltd, be and is hereby
placed under final judicial management.
2.
The Assistant Master be and is hereby ordered to appoint Thabani
Lihle Siziba of Waterbuck Trust (Pvt) Ltd as the Judicial Manager of
the first respondent with powers conferred by section 221(2)(a) to
(h) as read with section 303 of the Companies Act [Chapter 24:03].
