The appellant was, through two separate applications,
appointed provisional liquidator of Archer Clothing Manufacturers (Pvt) Ltd and
Lasker Brothers (Pvt) Ltd, companies duly registered in terms of the laws of
Zimbabwe.
The applications were for the winding up of each of the two
companies.
Subsequent to his appointment, he, in the course of ...
The appellant was, through two separate applications,
appointed provisional liquidator of Archer Clothing Manufacturers (Pvt) Ltd and
Lasker Brothers (Pvt) Ltd, companies duly registered in terms of the laws of
Zimbabwe.
The applications were for the winding up of each of the two
companies.
Subsequent to his appointment, he, in the course of his
duties, ranked the Commercial Bank of Zimbabwe (first respondent) a concurrent
creditor of Archer Clothing Manufacturers (Pvt) Ltd.
The first respondent was grieved by the appellant's
decision.
It, in terms of section 222(3) of the Companies Act
[Chapter 24:03] applied to the court a quo for the setting aside of the
appellant's decision. It alternatively sought the rectification of the first
mortgage bond registered against Lasker Brothers (Pvt) Ltd on the basis of
which the appellant had made his decision, from a first mortgage bond against
Lasker Brothers (Pvt) Ltd, to a surety bond securing the first respondent's
loan to Archer Clothing Manufacturers (Pvt) Ltd….,.
The Commercial Bank of Zimbabwe (hereinafter called the
first respondent) loaned US$2,500,000= to Archer Clothing Manufacturers (Pvt)
Ltd. It purportedly secured that loan by registering a first mortgage bond
against Stand 42 Plumtree Road, Belmont, Bulawayo owned by Lasker Brothers
(Pvt) Ltd.
The bond gave the impression that a loan had been granted
to Lasker Brothers (Pvt) Ltd.
The bond was registered on 1 March 2011, contrary to an
inter-creditor agreement of 11 February 2011 entered into by the first respondent,
BancABC Botswana Limited, Interfin Banking Corporation Limited, Kingdom Bank
Limited and Archer Clothing Manufacturers (Pvt) Ltd. The inter creditor
agreement prohibited the registration or perfection by any participating
creditor of its security against Archer Clothing Manufacturers (Pvt) Ltd.
It was on the basis of these facts that the appellant
ranked the first respondent a concurrent creditor of Archer Clothing
Manufacturers (Pvt) Ltd.
The court a quo granted the orders sought by the first respondent.
The appellant, believing that he had correctly performed his duties as a
provisional liquidator, appealed against the decision of the court a quo to
this court.
The appeal raises the following issues for determination by
this court:
1. Whether or not the decision of the appellant to treat
the first respondent as a concurrent creditor was correct?
2. Whether the rectification of the first mortgage bond to
a surety bond was procedurally and correctly ordered.
3. Whether the court a quo erred in ordering the appellant
to pay the costs of the application.
Whether or not the
decision of the appellant to treat the first respondent as a concurrent
creditor was correct
Counsel for the appellant submitted that the appellant was
appointed provisional liquidator for the two companies through two
applications. He thus had to deal with them as two different companies. He
further submitted that the two companies' veil of incorporation had not been
lifted, therefore, the appellant could not have dealt with them as a single
economic entity. He submitted that the section 222(3) of the Companies Act
[Chapter 24:03] application should have been dealt with on its own to
determine whether the appellant had correctly ranked the first respondent as a
concurrent creditor of Archer Clothing Manufacturers (Pvt) Ltd.
He argued that the reliance on the alternative application
for the rectification of the first mortgage bond registered against the
property of Lasker Brothers (Pvt) Ltd, to a surety bond securing the
indebtedness of Archer Clothing Manufacturers (Pvt) Ltd is a factor the
appellant could not have taken into consideration as it was not in existence at
concursus creditorium.
Counsel for the first respondent, while conceding that the
appellant's decision was prima facie correct, submitted that the appellant
should have treated the two companies as one single economic entity and held
the first mortgage bond against Lasker Brothers (Pvt) Ltd as a basis for
finding that the first respondent was Archer Clothing Manufacturers (Pvt) Ltd's
preferential creditor. She further submitted that the court a quo correctly
rectified the first mortgage bond against Lasker Brothers (Pvt) Ltd's property
to a surety bond securing Archer Clothing Manufacturers (Pvt) Ltd's
indebtedness to the first respondent. She argued that the rectification of the
bond justified the setting aside of the appellant's decision.
I do not agree.
It is common cause that when the appellant ranked the first
respondent a concurrent creditor there was no mortgage bond registered between
the first respondent and Archer Clothing Manufacturers (Pvt) Ltd. The bond which was in existence was a first
mortgage bond registered against the property of Lasker Brothers (Pvt) Ltd in
favour of the first respondent. Lasker Brothers (Pvt) Ltd was not indebted to
the first respondent. The first mortgage bond against Lasker Brothers (Pvt) Ltd
was therefore not based on any obligation by Lasker Brothers (Pvt) Ltd to the
first respondent.
The first respondent's application to the court a quo was
triggered by the appellant's letter to the first respondent's legal
practitioner's, dated 29 January 2014, in which he said:
“On the issue of CBZ's status they are as pointed out to
yourselves, a concurrent creditor. They
have no security as against Archer Clothing Manufacturers. You will note from
the papers, copies of which you have, that a credit facility was extended to
Archer Clothing Manufacturers (Pvt Ltd on the 23rd December 2010.
The same document states clearly that a mortgage bond against 42 Plumtree Road
Belmont in the name of Archer Clothing (Pvt) Ltd will be registered.
On 1 March 2011, a mortgage bond was registered, not
against Archer Clothing Manufacturers (Pvt) Ltd, as the recipients of the
money, but Lasker Brothers (Pvt) Ltd.
This clearly was not valid as Lasker Brothers (Pvt) Ltd
never got any money from CBZ your clients….,.” …,.
This is a correct statement on how Archer Clothing
Manufacturers (Pvt) Ltd was granted the loan facility and a first mortgage bond
was registered against the property of Lasker Brothers (Pvt) Ltd. The position
is supported by the identity of the parties to the mortgage bond, and what is
stated at page 33 of the record, which reads:
“And the Appearer declared that whereas the mortgagor has
been granted certain loan, credit and/or facilities by CBZ Bank Limited.”
It is common cause that Lasker Brothers (Pvt) Ltd was not
granted any facility by the first respondent.
The facility was granted to Archer Clothing Manufacturers (Pvt) Ltd
against which it sought to be declared a secured creditor on the basis of a
mortgage bond which the first respondent registered against the property of
Lasker Brothers (Pvt) Ltd. The appellant had no authority to rectify the bond.
He could not have changed things after concursus creditorium. He had to make a
decision on the basis of the facts as they were at concursus creditorium.
Concursus creditorium occurs at the time of
liquidation.
In the case of Ward v Barret, N.O. & Another N.O. 1963
(2) SA 546 which was relied on by the appellant, STEYN CJ…, said:
“In the result,
creditors enjoy as from that date, the protection which is necessary to ensure
payment according to recognised priority of claims and to prevent the
satisfaction of one creditor to the prejudice of another. In Walker v Syfret NO
1911 AD 141 at p. 160 LORD De VILLRES CJ held
that the effect of an order winding up a company is to establish a concursus
creditorium, and nothing can thereafter be allowed to be done by any of the
creditors to alter the rights of the other creditors. INNES JA (at p. 166),
after stating that a sequestration order crystallises the insolvent's position
went on to say:
'The hand of the law
is laid upon the estate, and, at once, the rights of the general body of
creditors have to be taken into consideration. No transaction can thereafter be
entered into with regard to estate matters by a single creditor to the
prejudice of the general body. The claim of each creditor must be dealt with as
it existed at the issue of the order.'”…,.
In terms of section 112 of the Companies Act [Chapter
24:03], all creditors and contributories are brought under concursus creditorum when a liquidation order is
granted. Section 112 of the Companies
Act [Chapter 24:03] provides that:
“An order for winding up a company shall operate in favour of all the creditors and of all
the contributories of the company as if the petition had been presented by
all creditors and contributories jointly.”…,.
In my view, the order operates in favour of each creditor
as per the facts of his or her case on the date of the order. The order cannot
act in favour of all creditors if some creditors are allowed to improve their
status after the granting of the order.
The liquidator must therefore act on the facts as they were
at concursus creditorium.
The appellant had no authority to rectify or change the
facts as they were at concursus creditorum.
His decision was therefore guided by the facts which existed at that time….,.
Whether the
rectification of the mortgage bond to a surety bond was procedurally and
correctly ordered
Counsel for the appellant submitted that the rectification
of the first mortgage bond to a surety mortgage bond securing the first
respondent's loan to Archer Clothing Manufacturers (Pvt) Ltd clouded the court a
quo's determination of the application in terms of section 222(3) of the Companies Act [Chapter 24:03].
He further submitted that rectification where there are
disputes of fact should be instituted by action procedure.
Counsel for the first respondent submitted that the court a quo correctly granted rectification and
correctly used it to grant the first respondent's application in terms of section
222(3) of the Companies Act [Chapter 24:03].
I do not agree.
The rectification of the bond by the judge, before he
reviewed the liquidator's decision, is not provided for by section 222(3) of the Companies Act [Chapter 24:03]. As already
said, the application in terms of section 222(3) is in the form of a review of
the liquidator's decision or conduct.
A review merely deals with the correctness or otherwise of
the administrative authority's decision. It cannot be accompanied by some other
application whose decision is intended to influence the setting aside of the
liquidator's decision. That adulteration turns it from a review to an
application in which the reviewing court exercises its jurisdiction both, as a
court of first instance and a reviewing authority.
That cannot be procedurally correct.
Rectification of the bond should, if it was possible for
the first respondent to overcome the limitations imposed by concursus
creditorum, have been applied for before the appellant's decision so that he
would take it into consideration in determining its status.
It is also common cause that rectification was ordered on
the basis of an application which was afflicted by disputes of facts.
There was a dispute over whether or not rectification would
prejudice parties with whom the first respondent had agreed not to “perfect or
register outstanding security in respect of its claims.” The appellant had, at
a creditor's meeting, been asked by one of the creditors to follow up and
clarify the first respondent's status.
In an inter-creditor agreement between the first
respondent, BancABC Botswana Limited, Interfin Banking Corporation Limited,
Kingdom Bank Limited and Archer Clothing Manufacturers (Private) Limited it had
been agreed that:
“No creditor Bank shall take any steps in any manner
whatsoever which shall or is likely to have the effect of preferring or
improving one Creditor Bank's position against the other Creditor Banks.”
The rectification of the bond had the effect of preferring
or improving the first respondent's position against other creditor Banks,
which held surety bonds against Lasker Brothers (Pvt) Ltd's properties in
respect of Archer Clothing Manufacturers (Pvt) Ltd's indebtedness to those
Banks. The appellant, had, at record pp 46 and 47 paras 6(e) and 7(c), raised
the issue of the inter creditor agreement and the raising of the first respondent's
status by other creditors at a creditor's meeting. This should have made it
clear to the court a quo that it was being asked to make a decision which would
violate the inter-creditor agreement without hearing the first respondents'
co-creditors.
The first respondent's application was made in
circumstances which show that it was being made in a desperate attempt to
improve its status in spite of the inter creditor agreement. This is exposed by
a letter dated 10 July 2009, Annexure C, which it says was used to surrender
the title deeds for the registration of the first mortgage bond. The letter
reads:
“These title deeds are to be held as security by CBZ Bank
Ltd in respect of facilities afforded
Archer Clothing Manufacturers (Private) Ltd.”…,.
The facilities for which the title deeds were being handed
over had, by 10 July 2009, been already afforded. Title deeds were not being
handed over in respect of facilities still to be afforded to Archer Clothing
Manufacturers (Private) Ltd. The facility for which the respondent purports to
register the first mortgage bond was granted to Archer Clothing Manufacturers
(Pvt) Ltd on 23 December 2010 - long after the title deeds had been handed over
to it for a different debt….,. This means this facility had not yet been
afforded at the time the title deeds were handed over. It therefore could not
have been handed over for a debt which was to be afforded when it specifically
states that it was being handed over for facilities already afforded.
In view of the above, the court a quo should have realised
that it was being misled. It should therefore have declined to determine the
issue of rectification through the application procedure and in the absence of
interested parties. It should have realised that the first respondent was
seeking to alter its status after concursus creditorium using false information
and without giving notice to those it had entered into an inter creditor
agreement with.
It should, in fact, be stated that rectification was not a
relevant factor in deciding whether or not the appellant had correctly
determined the first respondent's status….,.
The appeal has merit and ought to succeed. It is
accordingly ordered as follows:
1. The appeal is
allowed with costs.
2. The decision of
the court a quo is set aside and is substituted with the following;
“The application is dismissed with costs.”
