Makeh Enterprises (Pvt) Ltd v Stuart Pumps Engineering (Pvt) Ltd

### Preamble
1
HB 54/25
HCBC 975/24
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MAKEH ENTERPRISES (PVT) LTD

Versus

STUART PUMPS ENGINEERING (PVT) LTD

IN THE HIGH COURT OF ZIMBABWE

DUBE J

BULAWAYO 13 FEBRUARY & 24 JULY 2025

Opposed application

Mr C Danda for the Applicant

Mr J Ndubiwa for the Respondent

Introduction

DUBE J: 	This is an application brought in terms of Section 123(1)(a)(i)(ii) of the Insolvency Act [Chapter 6:07]. The application sought to object to the Respondent company’s board resolution to commence voluntary corporate rescue proceedings.

Factual Background

The applicant (“Makeh Enterprises”) and the respondent (“Stuart Pumps”) entered into an agreement of lease sometime in 2021, which lease still subsists. The respondent accrued rental arrears in the sum of US$ 184 000. The respondent has been failing or neglecting to settle the debt. The parties have previously been involved in a long history of litigation pertaining the settlement of the debt. While the applicant company was in the process of trying to recover its debt, the respondent company gave notice in terms of Section 122 of the Insolvency Act [Chapter 6:07] that the board had resolved that the company voluntarily begin corporate rescue proceedings. The applicant objects to the company resolution on the basis that the company is not financially distressed and there are no reasonable prospects for rescuing the company and restoring it to financial health.

Counsel for the parties duly appeared and made submissions on the application. I proceed to summarise the positions of the parties respectively.

Mr Ndubiwa for the respondent raised two preliminary points.

At the commencement of the hearing, I informed the parties that the court will hear submissions in respect of points in limine and the merits, should any be dispositive of the matter that would mark the end of this matter. In the event that they are all dismissed, I would determine the matter on the merits.

The first preliminary point is that the applicant failed to comply with section 123(3)(b) of the Insolvency Act which provision is peremptory and requires that an applicant making objections to the resolution to commence corporate rescue proceedings should serve the said application on all affected persons by standard notice. The affected persons being shareholders and creditors of the company. Standard notice as defined in Section 2 of the Act means notice by registered mail, fax, email or personal delivery.

Counsel for the respondent further submitted that there are no certificates of service filed to show that the application was served on shareholders and creditors. The only certificates of service are to the Master of the High Court and the Registrar of companies. In support of the argument, he placed reliance on the decision of the Supreme Court in Mettalon Gold Zimbabwe (Pvt) Ltd and Ors v Shatirwa Investment (Pvt) Ltd SC 107-21 for the proposition that failure to make such notice makes the application a nullity. The rationale being that the outcome of the litigation may have dire and adverse effects on shareholders and creditors. Counsel lastly prayed that the point in limine should be upheld and the application struck off the roll with costs on an attorney client scale.

In response, counsel for the applicant stated that Section 123 of the Insolvency Act intended to provide for and secure operating companies. The respondent company was a dormant and shelf company and therefore not a company as envisaged by the Act. He went on to highlight that the basis of their objection was that it being a dormant or shelf company they do not know who the affected persons are.

The 2nd point in limine raised is that the board resolution is defective as it was taken at a meeting of 19 January 2023. He further stated that as of 19 January 2023 the board could not have been in contemplation that Stuart Pumps would commence voluntary corporate rescue proceedings on the 11th of July 2024. He contends that what is even more worrying is the fact that the co-director Phildah Mabvira who signed the resolution is deceased and was already; at the time the resolution was taken. He relied on the case of Beach Consultancy (Private) Limited v Makonya HH 696-21 and Madzivire and Ors v Zvarivadza and Ors 2006(1) ZLR 514 (S). In response counsel for the applicant submitted that the authorities cited by the respondent refers to issues that are not known by the board. He further highlighted that the authority given by the resolution is identified and the facts are the same. These points in limine were not addressed in the heads of argument by the applicant.

I will deal with the first point in limine raised as I believe it is capable of disposing of this matter.

Whether the application is invalid by reason of the failure to give notice to affected persons.

Section 123 of the Insolvency Act [Chapter 6:07] states as follows:

“123.	Objections to company resolution

(1)Subject to subsection (2), at any time after the adoption of a resolution in terms of section 122, until the adoption of a corporate rescue plan in terms of section 146, an affected person may apply to a Court for an order—

(a)setting aside the resolution, on the grounds that—

(i) There is no reasonable basis for believing that the company is financially distressed;    or

(ii) There is no reasonable prospect for rescuing the company; or

(iii) The company has failed to satisfy the procedural requirements set out in section 122;...…

(3)An applicant in terms of subsection (1) must—(a) serve a copy of the application on the company and the Master; and (b) notify each affected person of the application by standard notice.”

Standard notice is defined in section 2 of the Act to mean notice by registered mail, fax, e-mail or personal delivery. Service by way of standard notice is a peremptory requirement as the act uses the word “must”. Failure to adhere to peremptory provisions renders an application fatally defective.

In the case of Mettalon Gold Zimbabwe (Pvt) Ltd and Ors v Shatirwa Investment (Pvt) Ltd SC 107-21 the Court enunciated the following sentiments:

“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.”

A similar approach was followed in the case of Redwing Mining Company (Pvt) Ltd v Associated Mine Workers Union of Zimbabwe and 2 Ors SC 96-22 wherein the court held that:

“The application must, without fail, be served on the company, the Master and the Registrar of companies. Each affected person must be notified of the application by standard notice and be allowed to participate in the court proceedings. The rationale is that every affected person must be accorded the opportunity to protect their rights and interests that may be affected by the placement of the company under supervision and corporate rescue proceedings.”

In casu, the applicant conceded that they had not served the application on the affected persons as they did not know who the affected persons are. Affected persons are shareholders and creditors of the Company. I am not convinced by the assertion that the applicant did not know who the shareholders and creditors of the company were. The two companies have a long relationship of lessor and lessee and it is not believable that the applicant can make a bold denial that they are not aware of the shareholders and creditors. A simple visit to the Registrar of companies’ office would have resolved this as they would have gotten the information on the shareholders and creditors of the company.

I am also not convinced by the applicant’s response that the respondent being a dormant or shelf company was not a company as envisaged by the Companies Act. The applicant has been leasing out its premises to Stuart Pumps, it is owed rental arrears by the same company. There is a long history of litigation between itself and the respondent company. It is one of the creditors of the respondent company. It cannot therefore make an assertion at this juncture that the respondent is a dormant company.

In the result I found the point of law raised by the respondent to be meritable. Corporate rescue proceedings have far reaching consequences on creditors, shareholders and the society at large. Therefore it is critical that the procedures laid down be followed to the latter. Because of the decision reached regarding this point in limine, no useful purpose would be served by dealing with the rest of the points in limine raised by the respondent.

DISPOSITION

In the result it is ordered as follows;

The application be and is hereby struck off the roll with costs on an ordinary scale.

Sengweni Legal Practice   applicant’s legal practitioners

Mashayamombe and Company respondents’ legal practitioners