This is an appeal against the decision of the High Court (“the court a quo”) which placed the first (Metallon Gold Zimbabwe (Pvt) Ltd), the second (Goldfields of Shamva (Pvt) Ltd) and the third (Goldfields of Mazowe (Pvt) Ltd) appellants under corporate rescue proceedings in terms of section 124(1)(a) of the Insolvency Act [Chapter 6:07] (“the Insolvency Act”).
The judgment of the High Court dealt with two separate applications, numbers HC2619/19 and HC2696/19, which were consolidated for the purposes of hearing them.
The Court holds, that, the respondents did not comply with the mandatory provisions of section 124 of the Insolvency Act, which required them to notify each affected party of the application by standard notice.
The respondents failed to notify each affected party by “standard notice” as is prescribed by section 2 of the Insolvency Act.
Such non-compliance with peremptory provisions of the Insolvency Act rendered the application for corporate rescue fatally defective.
This Court finds, that, the second respondent (Associated Mine Workers Union of Zimbabwe), being the only respondent before this Court, had no locus standi to make the application for corporate rescue as it does not meet the definition of “affected person” in terms of section 120 of the Insolvency Act [Chapter 6:07].
The second respondent is a registered trade union representing employees in the mining industry and not a registered trade union representing employees of the company as envisaged by section 120 as read with section 124 of the Insolvency Act.
Further, the second respondent (Associated Mine Workers Union of Zimbabwe) fails to meet the criteria of a creditor, as the judgment it relied upon is not against the first appellant but against a different party.
It bears mentioning, that, the first respondent was in default at the hearing of the appeal as it realised it could not possibly defend the judgement of the court a quo.
FACTUAL BACKGROUND
The first respondent (Shatirwa Investments (Pvt) Ltd) (being a creditor of the appellant companies) and the second respondent (Associated Mine Workers Union of Zimbabwe) (being a registered trade union in the mining industry) sought an order in the court a quo that the appellants (Metallon Gold Zimbabwe (Pvt) Ltd, Goldfields of Shamva (Pvt) Ltd, Goldfields of Mazowe (Pvt) Ltd) and Mazowe Mining Company (Pvt) Ltd) be placed under corporate rescue in terms of section 124(1) of the Insolvency Act [Chapter 6:07].
They alleged, that, the appellants were failing to pay creditors and that it was very likely that the appellants would become insolvent within the immediately ensuing six months, making them worthy candidates for corporate rescue.
The first respondent, armed with an order against the appellants for US$6,394,232 issued in case HC6197/18, made the application for corporate rescue as an “affected person” being a creditor of the appellants, in terms of section 121(1)(a)(i) of the Insolvency Act.
The second respondent (Associated Mine Workers Union of Zimbabwe), in making its application, averred that it was an “affected person” in that it was a registered trade union in the industry.
The second respondent further stated, that, it also derived its locus standi from its status as a creditor of the second (Goldfields of Shamva (Pvt) Ltd) and the fourth (Mazowe Mining Company (Pvt) Ltd) appellants.
No judgment against the second and the fourth appellants was attached to the founding affidavit before the court a quo to support the claim of locus standi. It attached a copy of a judgment obtained against the first appellant (Metallon Gold Zimbabwe (Pvt) Ltd) but no claim was made against the first appellant in the court a quo on the basis of that judgement.
In defending the matter, the appellants raised a number of points in limine.
In case HC2619/19 the locus standi of the first respondent (Shatirwa Investments (Pvt) Ltd) was disputed, on the basis that its creditor status was compromised as the parties had entered into agreements for the settlement of the debt.
The first appellant (Metallon Gold Zimbabwe (Pvt) Ltd) further raised the point, that, the first respondent had failed to comply with the requirements of section 124(2)(b) of the Insolvency Act requiring an applicant for a corporate rescue order to notify each affected person of the application by standard notice.
At the hearing of the applications, the first appellant (Metallon Gold Zimbabwe (Pvt) Ltd) raised the preliminary objection that the first respondent (Shatirwa Investments (Pvt) Ltd) did not serve the Master of the High Court and the Registrar of Deeds with the applications.
The first appellant argued, that, the Master of the High Court had to be served with the applications as he was required to provide a report.
Pertaining to case HC2696/19, the appellants raised the preliminary objection that the application was not served on the fourth appellant (Mazowe Mining Company (Pvt) Ltd).
They further argued, that, the second appellant (Goldfields of Shamva (Pvt) Ltd) was a non-existent entity as it had changed its name from Gold-Fields of Shamva (Pvt) Ltd to Shamva Mining Company (Pvt) Ltd.
The second respondent (Associated Mine Workers Union of Zimbabwe), however, filed a notice of withdrawal in relation to the second appellant.
The appellants also raised the point, that, the second respondent (Associated Mine Workers Union of Zimbabwe) did not comply with the peremptory statutory requirement to notify all “affected persons” as envisaged in section 124(2)(b) of the Insolvency Act.
Subsequent to the hearing of the consolidated applications, the appellants filed two applications, in terms of Rule 235 of the High Court Rules 1971, for leave to file a further affidavit.
The appellants intended to file an affidavit conveying to the court, that, they had managed to raise $39,129,459=03. The contention was that they were now in a position to settle their debts with their creditors and provide working capital to revive the operations of the mines.
The court a quo dismissed all the points in limine raised by the appellants.
The court a quo found, that, section 124(2)(b) of the Insolvency Act [Chapter 6:07] did not provide for the manner or form of notification of “affected persons.”
The court a quo found, that, the respondents had effected proper notice on the appellants by publication in a local newspaper. The court a quo held that such notification was sufficient compliance with the requirements of the statute in the absence of knowledge of all “affected persons.”
Regarding the issue of the failure to serve the Master of the High Court with the application, the court a quo relied on the principle that what is not denied is deemed to be accepted.
Therefore, since the appellants did not raise the issue of non-service in their notice of opposition, they were deemed to have accepted that the Master of the High Court was duly notified.
In relation to the merits of the matter, the court a quo took into consideration the supporting affidavit filed by the appellants in terms of Rule 235. The court found, that, the said affidavit corroborated the case for corporate rescue, as the position taken in the additional affidavit contradicted the positions taken in the opposing affidavits.
The court expressed the view, that, in case HC2619/19, the appellants admitted indebtedness to the first respondent, but, argued that they had entered into a settlement agreement, the consummation of which was being stalled by the delay in retrieving a mining lease. They further averred that they were not in financial distress so as to warrant corporate rescue as their assets exceeded liabilities.
The finding was that no evidence was produced to support the averments.
The court also found, that, the appellants had not been open and candid with the court as they had not disclosed their production plans, projections, estimates, and financial status. The finding was that it would be impossible for the court to project that the appellants positions, in both matters, could reasonably be expected to change for the better within six months.
The court further found, that, the appellants did not present evidence to show that they were not financially distressed. They failed to place information before the court from which it could determine that in the ensuing six months the companies would be able to pay off their debts. The court also found, that, no revival plans were placed before it.
Consequently, the court a quo granted the application for corporate rescue, setting out the corporate rescue practitioners to be engaged.
Aggrieved by the decision of the court a quo, the appellants noted the present appeal.
SUBMISSIONS BEFORE THE COURT
The appellants submissions
Counsel for the appellants submitted, that, there is a very specific procedure to be followed when commencing corporate rescue proceedings. He argued, that, the respondents failed to comply with section 124(2)(b) of the Insolvency Act [Chapter 6:07] which requires an applicant for corporate rescue to notify each “affected person” of the application by 'standard notice.'
He rightly stated, that, the court a quo erred in finding that neither the manner of notification nor the form or content of “standard notice” was defined in the Insolvency Act.
Counsel for the appellants argued, that, the court a quo erred in applying a purposive interpretation of the statute, when the ordinary grammatical meaning of the words was clear and unambiguous.
He further submitted, that, the respondents could not hide behind the assertion that they did not have information of all “affected persons” as they could have obtained such information from the appellants had they requested for it.
Counsel for the appellants contended, that, an assessment of whether or not a company is in financial distress can only be effectively conducted when the creditors of the company are known. Thus, he queried how the respondents could determine that the appellants were in financial distress without having obtained information of their debts and creditors.
He stated, that, the advertisement published by the respondents in a local paper could not possibly be deemed to have notified all “affected persons” as it was beyond the reach of foreign creditors.
Counsel for the appellants also submitted, that, the second respondent (Associated Mine Workers Union of Zimbabwe) had no locus standi to institute an application for corporate rescue.
He argued, that, in terms of the Insolvency Act, only an “affected person” could institute such proceedings.
He argued, that, the second respondent (Associated Mine Workers Union of Zimbabwe) was not a registered trade union representing the employees of the appellants, as prescribed by section 121(1)(a)(ii) of the Insolvency Act. It was a registered trade union in the mining industry.
Counsel for the appellants further argued, that, the second respondent could also not derive legal standing from the provisions of section 121(1)(a)(i) of the Insolvency Act as it was not a creditor of the first appellant (Metallon Gold Zimbabwe (Pvt) Ltd).
He submitted, that, the court order from which the second respondent (Associated Mine Workers Union of Zimbabwe) claimed to derive locus standi was not against the first appellant but another company known as Metallon Gold.
Counsel for the appellants argued, that, the Legislature painstakingly laid down the procedures to be followed in corporate rescue proceedings as the process has dire consequences, in that the mere institution of proceedings initiates the process of corporate rescue.
The second respondent's submissions
Counsel for the second respondent (Associated Mine Workers Union of Zimbabwe) submitted, that, the appellants preliminary objection a quo was not raised in respect of a particular creditor who was not notified. He said the objection was raised as a bald allegation on the invalidity of the service of notice. He argued, that, the respondents served notice on creditors and attached e-mails to that effect. It was through an abundance of caution that the respondents caused the further publication of the notice in the newspaper.
In respect to the issue of locus standi, counsel for the second respondent argued, that, the appellants failed to raise that issue before the court a quo in the opposing papers. He argued, that, the principle that what is not disputed is deemed to be admitted ought to be applied against the appellants.
He further argued, that, in terms of section 29 of the Labour Act [Chapter 28:01], a trade union represents employees in an industry, whereas a workers committee represents employees at the workplace. The contention was that the second respondent (Associated Mine Workers Union of Zimbabwe) enjoyed legal standing to institute corporate rescue proceedings against the appellants in the court a quo....,.
THE PROCEDURE AND EFFECT OF CORPORATE RESCUE
The Insolvency Act [Chapter 6:07] provides two ways of commencing corporate rescue proceedings:
(i) The first procedure is in terms of section 122(1) of the Insolvency Act, which provides that the Board of a company, or, its shareholders, can make a resolution to institute corporate rescue proceedings.
This procedure is voluntary and does not require the company to approach a court.
The resolution placing the company under supervision can only be taken if the company is financially distressed, in that, it is unable to pay its debts and there appears to be reasonable prospects of rescuing the company.
For the resolution to be effective, it must be filed with the Master of the High Court, the Registrar of Companies, and the Registrar of Co-operative Societies, in the case of a co operative society.
The company must, within five business days after filing the resolution, notify every “affected person” and appoint a corporate rescue practitioner who satisfies the requirements of section 131 of the Insolvency Act.
The responsibility of the corporate rescue practitioner is to oversee management of the company during the corporate rescue proceedings.
(ii) The second procedure, which is the procedure adopted in this matter, is made by way of an application to court for an order commencing corporate rescue proceedings.
The procedure to be followed, in terms of section 124 of the Insolvency Act [Chapter 6:07], is as follows:
“(1) Unless a company has adopted a resolution contemplated in section 122, an affected person may apply to a Court, at any time, for an order placing the company under supervision and commencing corporate rescue proceedings.
(2) An applicant, in terms of subsection (1), must —
(a) Serve a copy of the application on the company, the Master, and the Registrar of Companies; and
(b) Notify each affected person of the application by standard notice.
(3) Each affected person has a right to participate in the hearing of an application in terms of this section.
(4) After considering an application in terms of subsection (1), the Court may —
(a) Make an order placing the company under supervision and commencing corporate rescue proceedings, if the Court is satisfied that —
(i) The company is financially distressed; or
(ii) The company has failed to pay over any amount in terms of an obligation under or in terms of a public regulation, or contract, with respect to employment-related matters; or
(iii) It is otherwise just and equitable to do so for financial reasons; and there is a reasonable prospect for rescuing the company; or
(b) Dismissing the application, together with any further necessary and appropriate order, including an order placing the company under liquidation.”
The application for corporate rescue is filed before the High Court by any affected person.
Section 121(1)(a) of the Insolvency Act defines “affected person” as follows:
“(i) A shareholder or creditor of the company; and
(ii) Any registered trade union representing employees of the company; and
(iii) If any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.”...,.
APPLICATION OF THE LAW TO THE FACTS
It appears to the Court, that, this matter can be disposed of by answering one pertinent issue, which is: whether or not the failure to comply with the mandatory provisions of the Insolvency Act rendered the application a nullity.
It has already been established, that, section 124 of the Insolvency Act provides for the procedure to be followed when approaching the court for an order of corporate rescue. Section 124(1) of the Insolvency Act [Chapter 6:07] provides that:
“124 Court order to commence corporate rescue proceedings
(1) Unless a company has adopted a resolution contemplated in section 122, an affected person may apply to a court, at any time, for an order placing the company under supervision and commencing corporate rescue proceedings.”
The statute is specific in relation to the appropriate applicant who is entitled to make an application for corporate rescue.
The statute is specific so as to curb the abuse of the process by parties who may not have a substantial interest in the rehabilitation of a company as well as parties who may only be interested in their personal financial gain and not the rehabilitation of the company.
In terms of the Insolvency Act, there is no ambiguity as to whom an affected person is.
It is either a shareholder, a creditor of the company, a registered trade union representing the employees of the company, or the employees of the company who are not represented by a registered trade union.
An applicant for corporate rescue is therefore confined to such persons.
In casu, the second respondent (Associated Mine Workers Union of Zimbabwe) cannot be held to be an affected person in terms of the Insolvency Act. It was never alleged by the second respondent that it was a shareholder. Therefore, it cannot qualify in terms of the first criterion set out in section 121(1)(a)(i) of the Insolvency Act.
Instead, the second respondent (Associated Mine Workers Union of Zimbabwe) alleged that it was a creditor because it was in possession of a judgment against the first appellant (Metallon Gold Zimbabwe (Pvt) Ltd).
It is apparent from the record that the judgement which the second respondent relied on is a judgment, not against the first appellant, but another company identified as Metallon Gold, that is based in the United Kingdom. The judgement does not establish that the second respondent was a creditor of any of the appellants.
In the absence of any other evidence to prove that indeed the second respondent was a creditor of any of the appellants, the Court cannot possibly clothe the second respondent with creditor status.
The second respondent further alleged, that, it qualified as an affected person in terms of section 121(1)(a)(ii) of the Insolvency Act, in that it was a registered trade union in the mining industry.
The Insolvency Act does not provide for a registered trade union in the industry but specifically provides for a “registered trade union representing the employees of the company.”
Lastly, the second respondent does not qualify as an employee of the company in terms of section 121(1)(a)(iii) of the Insolvency Act.
As such, the second respondent does not meet the requirements of an affected person, and, therefore, had no locus standi to institute corporate rescue proceedings against the appellants.
There is no reason to deviate from the definition of “affected person” prescribed by the Insolvency Act.
The respondents failed to comply with the provisions of section 124(2) of the Insolvency Act, which made their application a nullity as they failed to comply with peremptory provisions of the statute.
Section 124(2) of the Insolvency Act [Chapter 6:07] provides that:
“(2) An applicant in terms of subsection (1) must —
(a) Serve a copy of the application on the company, the Master, and the Registrar of Companies; and
(b) Notify each affected person of the application by standard notice.”
Section 2 of the Insolvency Act provides that:
“'standard notice' means notice by registered mail, fax, e-mail or personal delivery.”
This provision shows, that, the court a quo misdirected itself when it found that neither the manner of notification nor the form or content of “standard notice” was defined in the Insolvency Act.
The court a quo went on to express the view, that, there was a lacuna in the law that needed to be addressed by the Legislature as it created confusion in the procedure.
The court a quo failed to appreciate the statutory definition of standard notice as set out in section 2 of the Insolvency Act [Chapter 6:07].
It is clear that standard notice can only be effected through registered mail, fax, email or personal delivery. Nowhere in the Insolvency Act is there a provision for standard notice to be by way of publication in a newspaper.
Such notice was a nullity which vitiated the entire proceedings.
Service by way of standard notice is a peremptory requirement as the Insolvency Act uses the word “must”. Deviation from peremptory requirements of the Insolvency Act render an application fatally defective.
It is imperative to conduct corporate rescue proceedings with the utmost diligence and care as they have far-reaching consequences, not only on the creditors, shareholders, and employees of a corporation but the society at large.
Corporate rescue is predicated on a broader social justice perspective unlike the old law of judicial management that was based on private corporate interest. Consequently, it is critical that the procedures laid down for corporate rescue be complied with to the letter.
In Top Trailers (Pty) Ltd and Anor v Kotze [2017] ZAGPPHC 1268 the court expressed the following sentiments in respect of notification of affected persons:
“How Kotze should have become aware of the business rescue proceedings is not explained by the applicants.
The applicants have the obligation to notify all affected persons of the resolution but have not done so and have not proffered any explanation for their breach. They are now approbating and reprobating, demanding that Kotze should perform miracles. The applicants themselves had not complied with the law, but are using the same legislation that they disregarded to achieve a perverted outcome. The Court will not allow itself to be a party to an illegality…,.
The main argument relied on by Kotze, at the proceedings before Justice Khumalo, was that the resolution placing Top Trailers under business rescue was a nullity because of the company's non-compliance with section 129(3) of the Companies Act.
From a reading of the affidavit filed by Kotze at the hearing before Justice Khumalo, it is clear that Kotze was attacking the resolution adopted by the Board of Directors. The attack was to the effect, that, because he, as an affected person, was not notified of the resolution, as provided for in section 129 of the Companies Act, the resolution stood to be set aside.
I cannot disagree with his reasoning on this score….,.
I find that Kotze, as an affected person, a creditor of the company, should have been notified of the resolution placing Top Trailers under business rescue but he was not notified. The fact that Kotze was not notified clearly infringes on his rights as an affected person and creditor of the company.”
It is apparent, that, the failure to notify affected persons is not only a breach of peremptory provisions, but it also prejudices affected persons who have a substantial and legitimate interest in the fate of the company as they are not afforded an opportunity to respond to the application.
Ultimately, the outcome of the application may prove to be adverse to them.
The effect of non-compliance by an applicant for corporate rescue with the provisions of the Insolvency Act, relating to notifying affected persons by standard notice, renders the application a nullity.
DISPOSITION
In the result, it is ordered as follows -
1. The appeal is allowed with costs.
2. The order of the court a quo is set aside and substituted with the following –
“The applications for corporate rescue under HC2619/19 and HC2696/19 be and are hereby dismissed with costs.”
