C Marufu and 11 Others v Midsec (Pvt) Ltd and The Sheriff for Zimbabwe

### Preamble
1
HB 100-19
HC 2421/17
XREF HC 3286/17
---------




C MARUFU

and

J MSADZONGA

and

J MATANDE

and

A STEMERE

and

J MUSEMWA

and

O MRERUSWA

and

P MPARURI

and

J MAJEYA

and

E SIBANDA

and

M MUNJANJA

and

J CHANDO

and

E CHUMA

versus

MIDSEC (PVT) LTD

and

THE SHERIFF FOR ZIMBABWE

HIGH COURT OF ZIMBABWE

TAKUVA J

BULAWAYO 5 JUNE 2018 AND 27 JUNE 2019

Opposed Matter

L Mashanyarare for the applicants

T Gombiro for the respondent

TAKUVA J:	Applicants seek leave to execute two writs of execution against the 1st respondent, a company under judicial management.

The background reveals a protracted litigation between the parties.  Applicants are employees and former employees of the 1st respondent.  Following 1st respondent’s neglect and outright refusal to pay their salaries, applicants approached the National Employment Council for the Security Industry for redress.  They obtained awards in their favour in 2014.  The 1st respondent unsuccessfully challenged the award in the Labour Court.  Applicants then sought enforcement in this court but 1st respondent again challenged the same, subsequently applicants obtained writs of execution and attached property belonging to the 1st respondent.  By the verge of the sale, 1st respondent applied to be placed under judicial management.  It was so placed on 10 May 2017 under HC 3286/17 on the following terms;

“1.	The applicant Midsec (Pvt) Ltd is provisionally placed under judicial management pending the grant of an order or discharge of this order.

2.	Subject to section 300-301 of the Companies Act [Chapter 24:03], Nomore Chabarika is appointed as provisional judicial manager of the above company with the powers set out in section 303 of the Act.

3.	Any interested party may appear before this court sitting at Harare on 26th of July 2017 to show cause why a final order should not be made placing the applicant company in judicial management and ordering that the costs of these proceedings shall be costs of judicial management.

4.	A copy of this order shall be served on the applicant by the Deputy Sheriff.

5.	While the company is under judicial management, all actions and proceedings and

the execution of all writs, summenses and other processes against the company shall be stayed and be not proceeded with without the leave of the court.

6.	The order shall be published once in the Government Gazette and once in the Herald and Chronicle newspapers in a Friday edition, Publication shall be in the short form annexed to this order.

7.	Any person intending to oppose or support the application on the return day of this order shall:

(a)	Give due notice to the applicant C/o Mberi Chimwamurombe Legal Practice, 5 Bodie Avenue, Eastlea, Harare (ref Mr Chimwamurombe)

(b)	Serve on the applicant a copy of an affidavit which he files with the Registrar of the High Court.”

This order was confirmed on 13 September 2017.

Aggrieved by this order, particularly paragraph 5, applicants filed this application seeking an order in the following terms;

“(a)	Applicants be and are hereby granted leave to execute the writs issued pursuant to the judgments of this court in case number HC 2012/15 and HC 954/16 and against respondents.

(b)	First respondent shall pay costs of this application on a higher scale.”

Applicants are desirous to proceed with execution of the writs in case numbers HC 2012/15 and HC 954/16.  The argument by the applicants is that the writs arise from labour services rendered and first respondent agreed to pay for those services.  For the first respondent to remain functional, it requires the services of the applicants.  Further, applicants contended that the first respondent applied to be placed under provisional judicial management only to frustrate execution in that:

(i)	First, it applied for the award to be set aside in the Labour Court under case number MD/APP/109/16

(ii)	It then applied for the High Court orders to be set aside on flimsy grounds see HC 1835/16.

(iii)	When applicants opposed the application, first respondent then applied to be placed under judicial management.

Despite demand made in writing on 29 June 2017 for the supply of the report of the provisional judicial manager, no reply or update on any plan of revival was sent to the applicants.  The first respondent, it was contended has vast properties and is owed US$1086 238-60 by its debtors as at 31 December 2016 as shown by Annexure I.  For that reason, so the argument went, granting leave to execute will not destroy or prejudice other creditors.

Notwithstanding the fact that the first respondent has been under judicial management for more than 12 months, applicants have not received even a cent and have not been appraised of what is happening.  There is also no indication in the notice of opposition that first respondent or the judicial manager whose appointment was confirmed in September 2017 has introduced any management changes.

Finally, it was argued that applicants are not seeking for a loan but payment for their sweat and what is due to them in terms of the Labour Act [Chapter 28:01].  Failure to pay arrear salaries has left applicants in abstract or abject poverty, some of them are sick while others have school children whose lives are being destroyed by first respondent’s conduct.

As regards points in limine, it was argued in the main that they have no merit and should be dismissed since the writs were issued in that form and no challenge was made.  Alternatively, applicants applied to be condoned in terms of 01 Rule 4C for leaving out the words “under judicial management”.

The application is opposed by the first respondent.  Firstly, 1st respondent argued in limine that the citation of the applicants and first respondent is fatally defective in that by citing applicants using initials and not their full names amounts to a material misdescription of the applicants inconsistent with “the common law”.   As regards the 1st respondent, the contention was that there is presently no entity known as Midsec (Pvt) Ltd since the company was placed under judicial management.

It was submitted that on the basis of the first point alone, the application should be dismissed.  First respondent abandoned the second point in limine.

On the merits, it was denied that judicial management was resorted to in order to evade indebtedness and frustrate the applicants.  Since the Master’s report also confirms that the company was in need of the procedure of judicial management.  It was also argued that all that first respondent intends to do is to be capacitated to pay its debts but at the same time remaining viable and operational.

Furthermore, 1st respondent contended that at all material times the applicants were made aware of the intention to place the company under judicial management and they even failed to oppose the confirmation of the provisional order.  Also, the applicants are not the only creditors and since they have filed their claims with the judicial manager, they should wait for the process of statutory ranking in terms of classification and ranking of creditors.

Finally it was stated that applicants have not presented any evidence to show that they are in abstract poverty, have fallen sick or are in arrears with their children’s school fees.  First respondent also blamed applicants for “not pursuing their matter with seriousness and nerve required at the time” to challenge the judicial management applications.

The law

The court’s power to grant judicial management is derived from section 299 and 300 of the Companies Act [Chapter 24:01] (The Act).  The objective of a judicial management order is to take away the management of the company from its directors and place the company under management of a provisional and final judicial manager after confirmation of the provisional order.  Section 301 (1) of the Act provides for the contents of a judicial management order as follows;

“Section 301 (1) A provisional judicial management order shall contain—

(a)	the date of the return day, which shall not be less than sixty days from the date of

the grant of the provisional judicial management order;

(b)	----

(c)	----

And may contain directions that while the company is under judicial management all actions and proceedings and the execution of all writs, summonses and other processes against the company be stayed and be not proceeded with without the leave of the court.” (my emphasis).

The court has discretionary power to grant or decline such an order.  See Irvin and Johnson Ltd v Qelofse Fisheries Ltd 1954 (1) SA 231 E at 237, ZFC Ltd v K M Financial Solutions (Pvt) Ltd HH 47/15.

The Act has no provision for the circumstances under which a court may permit legal processes against the company notwithstanding the existence of the judicial management order.  However, since it is an order of the court, it is one in respect of which the court has discretion that must be exercised judicially and not arbitrarily or capriciously.  See Mupini v Makoni 1993 (1) ZLR 80 (S); Jere v Chitsunge 2003 (1) ZLR 116 (H).

R. H Christie Business Law in Zimbabwe Juta and Company 1998 at page 422 states;

“The object of a judicial management order is to avoid the drastic remedy of winding up when a company is in financial difficulties due to mismanagement or some other cause, but there is a reasonable probability that under more carefully controlled management it will surmount its difficulties.---”

In Bindura University of Science Education v Tetrad Investment Bank Ltd (under Provincial Judicial Management) and The Sheriff of Zimbabwe (N.O) ZHOU J observed that;

“The discretion reposed in the court in respect of execution of a writ against a company which is under judicial management must, like in every case where the court has a discretion, be exercised judicially upon a consideration of the relevant factors and circumstances.  Where the discretion is conferred by statute it must be exercised in the light of the objects of the statute concerned.  As was held in Millman NO v Swartland Huis Meubeleerders (Edms) BPK; Repfin Acceptances Ltd Intervening 1972 (1) SA 741 (c) at 744B (per BAKER AJ):

“The objectives of a judicial management order are to postpone a liquidation of a company which is in difficulties and to provide a moratorium for that company for a period long enough --- to enable that company to meet its obligations and to become a successful concern.”

In the case of Pellon NO and Others v Zondagh and Others (41/02) [2002] ZANWHC 24, the court said

“It is clear --- that the court has a discretion to grant leave.  Such discretion must be exercised by taking into account, inter alia, the purpose of judicial management---.  A material consideration is the effect on the judicial management of the granting of leave.”

See also Argee and Sons v Level Brothers 1981 ZLR 437 where SMITH J held that the discretion as to whether or not to grant a stay of execution must be exercised judicially.  Factors to consider are;

(1)	Whether, by granting leave to execute, the respondent would thereby be granted a preference over the other creditors.

(2)	The other remedies available to the respondent.

It is trite that a court should not readily accede to a request for leave to execute against a company under judicial management where such execution would destroy the company and prejudice all the other creditors.  See Western Bank Ltd v Laurie Fossati Construction (Pvt) Ltd 1974 (4) SA 607 at 611.

As regards the first point in limine on the citation of the applicants, I find that this did not in any manner prejudice the first respondent in that the writs were issued using initials and surnames.  The first respondent did not object then and it would be unfair and prejudicial to the applicants to object how.  I find that although applicants have been improperly cited, the error is non-fatal and I condone it in terms of order 1 Rule 4C of this court’s rules.

On the merits, although I am not unmindful of the difficulty in which the first respondent found itself in, this in my view, is a peculiar case in which the court must also be sensitive to the stark reality that the interests of the applicants must be protected.  Surely as an employer, the first respondent has legal obligations in terms of the Labour Act to pay wages and other benefits. It is infact a criminal offence for an employer to fail to pay wages.  Applicants have not been paid since 2013.  In 2015 they obtained the awards which led to the two writs.  Currently, their salaries are not being paid.  At the time of the hearing, the judicial manager had been in office for more than 12 months but had not even paid a cent to the applicants.  In these circumstances, it is naïve to suggest that there should first be evidence of hardship before leave to execute is granted.

Also, the two writs amount to US$50 000-00.  It is common cause that first respondent has debtors in excess of US$1 million.  Debtors are assets in accounting parlance.  Instead of outlining what efforts he has made in those 12 months to chase upon the debtors, the judicial manager has contended himself in raising technical issues in his opposing affidavit.  The first respondent and surprisingly the judicial manager want to treat applicants like slaves whose “pay day” was never to be.

Further, it was not seriously disputed that first respondent owns several immovable properties.  The writs target one such house owned by the first respondent.  No evidence was placed before me that if this house were to be attached and sold, judicial management would be defeated.  Quite clearly, it can still proceed unhindered.   The 1st respondent’s request to lead further evidence on what the judicial manager had done up to the date of the hearing was dismissed and I indicated that the reasons will be in the main judgment.  These are they.

The issue of the judicial manager’s tardiness was raised by the applicants in their founding affidavit paragraph 16 as follows;

“16 from the date it was placed under Provisional Judicial Management, nothing has been sent to applicants as commitment or arrangement to settle the debt or update.  Applicants of any plan of revival despite demand.  See Annexure H.” (my emphasis)

Instead of putting the court in its confidence by narrating what the judicial manager had done since his appointment, the first respondent through the judicial manager responded in paragraph 9 of the opposing affidavit thus:

“9 Ad Paragraph 16-17

This is denied.  The applicants are not being truthful.  I have been informed that a meeting was conducted by the management of Midsec (Pvt) Ltd in particular Mr Edwards (Managing Director) and Mr Makwa (Human Resources) on the intention to put the company under provisional judicial management.  At all material times the employees have been aware of the intention to place the company under provisional judicial management.

9.1	Furthermore, as required by the Companies Act [Chapter 24:03], the first respondent actually issued a notice in the Herald newspaper as well as the Government Gazette calling upon any creditors meeting on 30 August 2017.  All ex-employees and current employees of the company placed their claims have been acknowledged and will follow the statutory ranking in terms of classification and ranking of creditors”

What is abundantly clear is that the first respondent’s attention was brought to this issue

but it failed to address it.  It should have done so.

The first respondent submitted that the Bindura University case (supra) is distinguishable on the ground that the respondent in that case had been under provisional judicial management for more than 2 years “at the time the application was made” while in casu the first respondent has only been under judicial management since September 2017” (my emphasis)

I disagree for the following reasons.  Firstly, a perusal of the judgment shows that the proceedings started in 2014 under HC 2106/14 and Tetrad Investment Bank Ltd was placed under provisional judicial management on 29 January 2015.

Secondly the application for leave to execute was filed in 2015 under HC 1239/15.  Thirdly, it was heard on 30 November 2016 and finalized on 24 May 2017 under HH 319/17.

Therefore, the period of 2 ½ years referred to by ZHOU J in his judgment relates to the period between the date the respondent in that case was placed under judicial management and the date of the hearing and not the date when the application was made.

In casu the relevant period is twelve months and not 5 months.  Accordingly the Bindura University case is not distinguishable.  In that case, the learned judge said;

“The respondent has not shown that if execution takes place it will go into liquidation or will be prevented from recovering.  It is not enough to make unsubstantiated allegations which are not backed by figures in order to justify denying a party which is owed its money the night to recover the money owed.  It must be remembered that the applicant is not asking for a loan but is seeking to recover what is due to it.  For the first respondent to merely allege that it is protected by the order is insufficient as that order clearly provides that with the leave of the court execution may proceed.” (my emphasis).

These comments apply with equal force to the present case.  I do not agree that a period of 12 months in the circumstances of this case, where the judicial manager assumed the management role of a company that is operating can be described as a short period.  In his report, the Master stated;

“Because of the management short comings cited above, it is reasonable to think that Midsec can benefit from judicial management.  A judicial manager can correct the management shortcomings and bring the company back to life.  The security industry is a flourishing industry that has a huge and continuing market base.  All that is needed is for Midsec to craft and implement a competitive strategy, which is what a judicial manager can do.” (my emphasis)

In my view this conclusion aptly sums up the role of the judicial manager in casu.  To say he requires more than 12 months to appoint a finance manager and to revamp the marketing department is unreasonable and unconvincing.

All in all, it has not been shown that acceding to the request for leave to execute against the first respondent such execution would destroy the first respondent or prejudice the other creditors.  There are no other remedies available to the applicants.

Accordingly, it is ordered:

1.	That applicants be and are hereby granted leave to execute the writs issued pursuant to the judgments of this court in case numbers HC 2012/15 and HC 954/16 against the first respondent.

2.	That the first respondent pays the costs of these proceedings.

Mavhiringidze and Mashanyare, applicants’ legal practitioners

Mberi Chimwamurombe, 1st respondent’s legal practitioners