MATHONSI
J:
The
applicant, an incorporation registered in the United Arab Emirates,
has made an approach to this court, on court application, seeking a
provisional liquidation order against the respondent, another
incorporation cherishing its domicile in Zimbabwe, on the basis that
it is unable to pay its debts and that it is just and equitable that
the respondent be wound up.
The
application is made in terms of s207 of the Companies Act [Cap 24:03]
(the Act).
At
the commencement of the hearing, Mr Moyo for the respondent made two
applications namely for the admission of 2 supplementary affidavits
filed by the respondent and for the exclusion of a letter dated 26
June 2012 written by Kantor and Immerman, the respondent's legal
practitioners, to Dube Manikai and Hwacha the legal practitioners for
the applicant marked “Strictly without prejudice”. Mr Moyo also
sought the exclusion of annexures attached to the applicant's
answering affidavit running into 110 pages being a Preacquisition Due
Diligence report dated 26 March 2012 prepared by Ernst and Young, but
is referred to as the audited accounts of the respondent on the
papers, and a Business Valuation report dated 16 March 2012 prepared
by Banc ABC.
Both
preliminary applications were opposed by Mr Girach who appeared for
the applicant. In respect of the supplementary affidavits, Mr Moyo
submitted that after the respondent had filed its opposing affidavit,
the applicant had gone on to file an answering affidavit which is so
lengthy that, taken together with its annexures, it runs into 231
pages in which it raised new issues not covered in the founding
affidavit. This then made it necessary for the respondent to file an
additional affidavit to address those new issues.
Mr
Moyo submitted that the second affidavit sets out the current state
of affairs of the respondent and seeks to inform the court what has
transpired between the parties since the application was filed.
In
his opposition to the admission of the additional affidavits Mr
Girach submitted that nothing should be read from the volume of the
answering affidavit which makes only essential averments. The
applicant had to file a lengthy answer because the respondent started
denying liability in its opposing affidavit when all the time it had
acknowledged it and asked for time to pay. In order to assert its
case the applicant was constrained to place before the court all the
relevant documentation establishing liability. Mr Girach maintained
that the documents annexed to the answering affidavit speak to the
respondent's liability and its inability to pay.
Regarding
the letter of Kantor and Immerman dated 26 June 2012, which was
written on a “without prejudice” basis and therefore privileged,
Mr Girach conceded that it should not have been relied upon by the
applicant on the ground of privilege. Rule 235 of the High Court of
Zimbabwe Rules, 1971 provides:
“After
an answering affidavit has been filed, no further affidavits may be
filed without the leave of the court or a judge.”
The
respondent gave a good explanation as to why the two extra affidavits
became necessary. In a way Mr Girach's point that the applicant had
to place more evidence before the court than had been included in the
founding affidavit, is the very basis why, in the interest of
justice, the respondent should also be allowed to comment on that
evidence.
ANZ
v Media and Information Commission 2006 (1) ZLR 128 (H) 131 E.
The
gravaman of this matter is a determination of whether the respondent
is insolvent and therefore should be wound up. The application having
been filed on 4 July 2012 but only set down for argument on 10
September 2013, the court will certainly benefit from an update of
the current extent of liability as well as measures that have been
put in place to improve the fortunes of the respondent.
For
these reasons, I granted leave to the respondent to introduce
additional affidavits which can only assist the court in determining
the dispute between the parties.
I
also expunged the letter of Kantor and Immerman dated 26 June 2012 on
the ground of privilege.
Regarding
the annexures to the answering affidavit Mr Moyo's gripe with them
was two fold namely that the authors of the reports made it clear
that they were not to be used in this
court and that they are misleadingly referred to in the answering
affidavit as the audited accounts of the respondent when they are
demonstrably not. In respect of the “Pre-acquisition Due Diligence
Report” prepared by Ernst and Young dated 26 March 2012, the
erstwhile auditors added an endorsement on the face of that draft
report that “Reliance Restricted”. Ernst and Young went on to
qualify their report in the following:
“This
draft report was prepared on the specific instructions of the
directors of Holbud Limited (Holbud) solely for the purpose of
assisting them in connection with the proposed acquisition of an
equity stake in Victoria Foods and should not be relied upon for any
other purpose. For the reason that others may seek to use it for
different purposes, this report should not be quoted, referred to or
shown to any other parties unless so required by court order or
regulatory authority, without our prior consent in writing.”
They
went on to say:
“This
report is based on a limited review of Victoria Foods and may not
capture certain aspects that a full scale commercial due diligence
investigation would reveal.”
The
valuation report of the respondent by Banc ABC contains similar
qualifications which Mr Girach argued is standard procedure in the
preparation of financial reports of that nature.
In
my view, the objection to the production of the two reports made on
behalf of the respondent cannot sustain an exclusion of the reports
in question.
To
my mind, the qualifications I have alluded to above speak to their
evidentiary value, what reliance can be placed on them in determining
the dispute between the parties and whether they sit in a higher
pedestal than the financial record relied upon by the respondent.
I
am only prepared to go that far and look at them in that light and
not to exclude them from the record as the applicant is entitled to
rely on whatever evidence it has at its disposal in seeking to
persuade the court to grant the relief that it seeks.
The
applicant, which is in the business of selling bulk grain commodities
to wholesale customers, entered into written Commodity Supply
Agreements with the respondent, which is into the business of
purchasing such commodities for resale to the local retail market.
In
pursuance thereof, the applicant supplied wheat, maize and rice to
the respondent and invoiced
the respondent for payment which was due within a period of 60 days
from the date of invoice. The total invoiced by the applicant was a
sum of US$6,542,048-60. It would appear that the responded made
certain payments towards the debt and was credited for such payment
as well as for some wheat which was damaged by rain and weight
variance thereby reducing the claim of the applicant to
US$5,685,841-61.
On
29 February 2012 the parties signed a document with the title
“Victoria Food Sign off” which sets out figures of what was
allegedly delivered to the respondent, in terms of which they agreed
that what was owed by the respondent to the applicant was a sum of
US$6,542,048-60. Subsequent to that a dispute arose as to the exact
amount owing and despite the agreement signed on 29 February 2012,
the respondent disputed the figures presented by the applicant, the
quantities allegedly delivered and the values. It turned out that
some of the wheat allegedly delivered was still locked up in the
applicant's silos and had not in fact been delivered. During the
process of reconciliation conducted by the parties, the applicant
agreed to reduce its claim from the original figure of
US$6,542,048-60 to US$5,685,841-61. However, the respondent still
disputed that figure.
In
terms of the agreements entered into between the parties between
February 2010 and August 2011 the standard terms of the Grain and
Feed Trade Association's Rules 100 (GAFTA No.100) applied, meaning
that all disputes between the parties were to be resolved by
arbitration in the United Kingdom. It is probably for that reason
that the parties instead agreed to refer the dispute to arbitration
but not in the United Kingdom. It was referred to the Commercial
Arbitration Centre in Harare and retired Justice Smith had the
privilege of being appointed to arbitrate.
Presumably
having grown extremely impatient with that process as the debt
remained unpaid, the applicant made an about turn and launched this
application in terms of s206(f) and (g) of the Act, namely, that the
respondent is unable to pay its debts and that it is just and
equitable that it be wound up.
The
applicant insisted that when demand for payment was made the
respondent failed to effect payment even as it acknowledged
indebtedness and repeatedly undertook to pay. Additionally, the
applicant maintained that it has lost confidence in the manner in
which the respondent company is run and as creditor, it would rather
have it wound up, it being just and equitable to do so.
As
proof of the applicant's inability to pay, the applicant made
reference to various correspondence penned by CFI Holdings Limited
the holding company of which the respondent is a subsidiary, between
March 2011 and March 2012 wherein promises to pay were made but none
was effected.
I
must mention however that throughout that correspondence, no specific
figure was cited as the amount owing, although the respondent
expressed a willingness to settle the debt. The respondent has
opposed the application stating that the debt is not yet due because
there is a serious dispute as to the exact amount owing which dispute
has been referred to arbitration.
The
arbitration is still to be undertaken in order to settle the dispute
and determine the amount due. It made reference to areas of conflict,
namely, the allegedly undelivered wheat worth US$462,835,60 which is
included in the claim, weight differences accounting for about
US$46,438,08 and $167,500,00; defective delivery (rotten rice) worth
$14,000,00 and errors in computation of interest which would reduce
its liability by $73,192,21.
For
these reasons, the respondent argued, the dispute should be resolved
by arbitration in terms of the agreement of the parties.
The
respondent also stated in the supplementary affidavit of Stephen
Paradzai Kuipa which I have admitted, that it has secured an investor
to inject capital in its business. The liability to the applicant
having been disclosed to the investor, the debt owed to the applicant
will be paid from that investment. Meanwhile, the respondent has paid
to the applicant a total sum of $2,165,000,00 towards the reduction
of the debt.
Mr
Girach for the applicant submitted that the best evidence of solvency
is the payment of debts and the respondent having failed to pay on
demand, it is insolvent and should be wound up. In his view, the
disputation of the amount owing by the respondent is merely a ruse to
buy time. The respondent has not shown that the debt is not due, it
has not produced a reconciliation showing what it regards as being
due, a clear sign that the respondent wants to leave the issue
hanging in order to buy time.
In
terms of s205 of the Act;
“A
company shall be deemed to be unable to pay its debts -
(a)
if a creditor, by cession or otherwise, to whom the company is
indebted in a sum exceeding one hundred United States dollars then
due, has served on the company a demand requiring it to pay the sum
so due by leaving the demand at its registered office and if the
company has for three weeks thereafter neglected to pay the sum or to
secure or compound for it to the reasonable satisfaction of the
creditor; or
(b)
if the execution or other process issued, on a judgement, decree or
order of any competent court in favour of a creditor, against the
company is returned by the Sheriff or Messenger with the endorsement
that no assets could be found to satisfy the debt or that the assets
were insufficient to do so; or
(c)
if it is proved to the satisfaction of the court that the company is
unable to pay its debts and in determining whether a company is
unable to pay its debts, the court shall take into account the
contingent and prospective liabilities of the company.”
In
approaching this case, I am mindful of the fact that in an
application for a provisional order for liquidation the applicant is
only required to establish a prima facie case. I am also mindful of
the fact that even where reliance is placed on s206(g) for seeking
the relief sought by the applicant, the court has a very wide
discretionary power to accede to the application or not. Indeed even
where it has been shown that the company is unable to pay its debts,
the court still has a narrow discretion. The point is made by
GILLESPIE J in Croc Ostrich Breeders of Zimbabwe (Pvt) Limited v Best
of Zimbabwe (Pvt) Limited 1999 (2) ZLR 410 (H) 414 E-G 415 A that:
“Even
were I incorrect in such a finding I would still not countenance the
winding up of the respondent. Mr Girach, for Best of Zimbabwe, urged
upon me the discretion inherent in the court to refuse to order
liquidation notwithstanding the proven existence of grounds for
liquidation. Such discretion is deliberately provided for by the use
of the permissive 'may' in the enactment providing the grounds of
winding up by the court. Even without this the court would, in the
proper case, have the discretion flowing from its inherent
jurisdiction to prevent abuse of its process. These two sources
together provide a judicial discretion, based on all the relevant
circumstances of any case, to withhold an order of winding up even if
grounds have technically been established. The discretion is regarded
as a narrow one. Narrow in the sense that a creditor is entitled to a
winding up exdebito justitiae save in exceptional circumstances. The
essence of the discretion is a decision as to whether to withhold
relief, objective grounds for the granting of which have been
established. The factors to be considered differ depending on the
grounds advanced for the granting of which have been established. The
factors to be considered differ depending on the grounds advanced for
winding up. The discretion is a judicial value judgement to be made
on all the relevant factors.”
In
making a pronouncement on the ground for winding up set out in
s206(g) CHATIKOBO J stated in Sultan v Fryfern Enterprises (Pvt)
Limited & Anor 2000 (1) ZLR 188 (H) 192 A-B:
“Section
206(g) of the Act has been said to postulate not facts, but only a
broad conclusion of law, justice and equity as a ground for winding
up.
In
its terms and effect (the section) confers upon the court a very wide
discretionary power the only limitation originally being that it had
to be exercised judicially with due regard to the justice and equity
of the competing interests of all concerned.”
Per
TROLLIP J in Moosa N.O v Mavjee Bhawan (Pvt) Limited & Anor 1967
(3) SA 131 (T) at 136 H.”
I
have been called upon to decide whether the respondent is unable to
pay its debts and whether it is just and equitable to order
liquidation of the respondent in the circumstances of this matter.
The
facts show clearly that the respondent owes the applicant substantial
sums of money, the exact figure of which remains in dispute. Although
the respondent admits to owing some of the money, it has not admitted
a specific amount. The respondent has continued to pay to the
applicant and has, since the dispute started, paid a total sum of
$2,165,000,00. But for the dispute on the figure, it should have
been paid within 60 days of the date of invoicing. The question of
the exact amount owing has been referred to arbitration, a process
which the applicant does not appear keen to follow, it having elected
instead, to go for the winding up of the respondent.
When
setting out the grounds for winding up by the court the learned
author RH Christie, Business Law in Zimbabwe, 2nd ed, Juta &
Company Limited, stated at p427 of the inability to pay debts:
“The
cases make clear that it will not avail the company to show that its
assets exceed its liabilities if it is in a state of commercial
insolvency, i.e. that it cannot meet its liabilities without
liquidating its assets, the liquidation of assets for this purpose
being one of the objects of winding up. But if the company can show
that it has a bona fide and reasonable defence to the petitioning
creditor's claim the creditor cannot succeed. Mazongororo Paper
Converters (Pvt) Limited v Mazongororo Sales (Pvt) Limited 1987 (1)
ZLR 81(S)). Nor can he succeed if by his own actions he is causing
the company?s inability to pay its debts: Goodhope Enterprises
(Pvt) Limited v Caps Holdings Limited 1991 (1) ZLR 9 (S).”
Indeed,
where prima facie it appears that the respondent is indebted to an
applicant in an application for liquidation, the onus is on the
respondent to show that such indebtedness is disputed on bona fide
and reasonable grounds: Stamboli & Anor v Nyamutambo Transport
(Pvt) Limited 1985 (2) ZLR 320 (H); Badernhost v Northern
Construction Enterprises (Pty) Limited 1956 (2) SA 346.
In
casu it is clear that the respondent is indebted to the applicant and
that it has not paid the debt on demand. Prima facie the applicant
would be entitled to an order of winding up. However, the respondent
has shown that the amount being claimed by the applicant is disputed
and that such dispute is awaiting arbitration. The respondent has
pointed to discrepancies in the applicant's figures and indeed the
applicant has also made some small concessions, reducing the amount
claimed in the process. In my view the respondent has discharged the
onus resting upon it to show that the indebtedness is disputed on
bona fide and reasonable grounds. It would be unsafe to allow the
liquidation of the respondent, regard being had to its far reaching
consequences, only for the liability to be successfully contested. I
would therefore not countenance the winding up of the respondent in
the circumstances.
Even
if I am wrong in that conclusion, this is a matter in which I would,
in the exercise of my narrow discretion, withhold the order of
winding up because of a number of reasons. In the first instance,
the parties agreed to refer the dispute to arbitration and that
arbitration process is yet to commence. Surely referral of the matter
to arbitration was upon a realisation that there was a bona fide
dispute involving figures.
In
the second instance, without a fair determination of the dispute, the
applicant stopped midstream and then pursued this application for a
winding up. In so doing it is seeking to deprive the respondent an
opportunity, provided by the agreement between the parties, to have
the dispute determined by arbitration.
Indeed
the applicant would like the consequences of winding up to set in
without it having proved its claim, without subjecting the claim to
the test of arbitration.
More
importantly, the respondent has been shown to have assets of
substantial value. While the existence of assets will not necessarily
disentitle the creditor to a winding up order, it is a factor that I
cannot overlook especially in the circumstances of this case where
the respondent has shown that not only has it been paying the debt,
it having paid in excess of $2 million, but also that it is in the
genuine process of recapitalisation. It occurs to me that the
insistence of the applicant on a winding up, against this background
is indicative of an abuse of process, the employment of the judicial
process for a purpose other than that for which it was intended.
To
my mind, the applicant is aware that arbitration which was agreed by
the parties would not yield positive results and has therefore
elected to employ the procedure for winding up in order to enforce
payment of a disputed debt. This is unacceptable as it amounts to
harassment or oppression of the respondent; Millward v Glaser 1950
(3) SA 547(W) at 551.
In
the result, the application is hereby dismissed with costs.
Dube,
Manikai & Hwacha, applicant's legal practitioners
Kantor
& Immerman, respondent's legal practitioners
