Crempton Trading (Pvt) Ltd t/a Darolyn Winders and Contractors v Edwin Matekenya

### Preamble
1
HH 332-12
HC 4902/11
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CREMPTON TRADING (PVT) LTD

t/a DAROLYN WINDERS AND CONTRACTORS

versus

EDWIN MATEKENYA

HIGH COURT OF ZIMBABWE

DUBE J

HARARE, 30 August 2012

OPPOSED COURT APPLICATION

DUBE J:     This application initially came as an application for a provisional order for the company’s voluntary winding up. A provisional liquidation order was granted on 22 June 2011. On 27 July 2011 the respondent filed its notice of opposition. The matter is here today for the confirmation of the provisional liquidation order granted on the 22nd of June 2011. The terms of the order sought are as follows;

“1. The applicant, CREMPTON TRADING (PVT) LTD t/a DAROLYN

WINTERS & CONTRACTORS, is provisionally wound up, pending the grant of

an order in terms of para 3 or the discharge of this order.

2. Subject to subs (1) of s 274 of the Companies Act, [Cap 24:03] Theresa Grimmel

is appointed as provisional liquidator of the above company with the powers set

out in s 221 (2) (a) – (g) of the Act.

3. Any interested party may appear before the court sitting at Harare on 17 August

2011, to show cause why a final order should not be made placing the applicants’ company in liquidation and ordering that the costs of these proceedings shall be costs of liquidation.

4. This order shall be published once in the Government Gazette and once in The

Herald newspaper in a Friday edition.  Publication shall be in the short form

annexed to this order.

5. Any person intending to oppose or support the application on the return day of this

order shall:

5.1 Give due notice to the applicant at Dhlakama B. Attorneys, Legal

Practitioners, 105A King George Road, Avondale, Harare, Ref B.

Dhlakama.

5.2 Serve on the applicant a copy of any affidavit which he files with

Registrar of the High Court.

6. Pending the return day, this order shall operate as a provisional order of winding

up.”

The applicant is Crempton Trading (Pvt) Ltd, (“the company”). On the19th of May 2011 the company passed a resolution in favour of the winding up of the company. The company resolved that the company be wound up by the court. Robert Nicl Moyes was authorised to sign all documents necessary to wind up the company. Theresa Grimmel was recommended to be appointed as the liquidator of s 207 of the Companies Act, [Cap 24:03], (hereinafter referred to as the act.)

The background to the matter is that the company was incorporated in the year 2000.It states in its founding affidavit that it carried on the business of repairing and maintaining electric motors. The company carried on its business well until the country’s economy weakened. As the costs increased culminating in high overheads and reduced sales, the company began to face stiff competition resulting in it battling to pay wages and rentals for the business premises. The applicant avers that running costs of the company are high and there is no business. That applicant is insolvent and there is no prospect of recovery for the applicant. That a resolution was passed which resolved that the applicant company be wound up and further that the company’s liabilities exceed its assets.

The respondent is Edwin Matekenya and he is the respondent’s chairperson. He opposes the application and he raised two points in limine which he requested the court to deal with. The court directed the parties to proceed and argue the matter on the merits. I indicated that I would deal with the points in limine in the main judgment.

The first point in limine relates to the procedure laid down is s 25A (5) (c) of the Labour Act, [Cap 28:01]. The respondent submitted that it is mandatory that an employer should consult the works council about proposals relating to plant closures. That the works council was not consulted before the application was filed with the court for a provisional order. The second challenge relates to the existence of material disputes of fact which Counsel for the respondent argued existed on the papers filed and he submitted that the disputes required the calling of oral evidence. He urged the court to dismiss the petition for the winding up of the company with costs.

The respondent refutes that the business has struggled as a result of just hyperinflation and dollarization but that the business is being mismanaged by its director. He contended that there is sufficient work for the employees to engage in but that the applicant is subcontracting the work to another company. The respondent insists that the applicant company has good prospects of recovery if properly managed. The respondent suggested that the appropriate remedy required is one of judicial management rather than winding up the company.

The court will deal first with the point in limine related to consultation of the workers committee. The point related to the existence of disputes of fact will be dealt with when the merits of the matter are considered.

It is common cause that the works council was not consulted regarding this process of winding up.

Section 25A (5) and (6) of the Labour Act [Cap 28:01] provides as follows,

(5)  “Without prejudice to the provisions of any collective bargaining agreement that

may be applicable  to the establishment concerned, a works council shall be

entitled to be consulted by the employer about proposals relating to any of the

following matters-

(a) …..

(b)…..

(c) partial or total plant closures and mergers and transfers of ownership;

(d) ……..

(e) ……..

(6) Before an employer may implement a proposal relating to any matter referred to in

subsection (5), the employer shall-

afford the members of the works council representing the workers committee a reasonable opportunity to make representations and to advance alternative proposals;

consider and respond to the representations and alternative proposals, if

any, made under paragraph (a) and, if the employer does not agree with them, state the reasons for disagreeing;

generally, attempt to reach consensus with the members of the works

council representing the workers committee on any matter referred to in subsection (5).’’

Winding up may either be voluntary or by court. Voluntary winding up is carried out in terms of s 242 and s 243 of, the Companies Act, [Cap 24:03], (thereinafter referred to as the act.) This application came as an application for winding up by way of petition to the court. The circumstances under which a company may be wound up by court are listed under s(s) 206 and 207. The sections provide as follows;

“206 Circumstances in which company may be wound up by court

A company may be wound up by the court—

if the company has by special resolution resolved that the company be

wound up by the court;

if default is made in lodging the statutory report or in holding the statutory

meeting;

if the company does not commence its business within a year from its

incorporation or suspends its business for a whole year;

(d) if the company ceases to have any members;

(e) if seventy-five per centum of the paid-up share capital of the company has

been lost or has become useless for the business of the company;

(f) if the company is unable to pay its debts;

(g) if the court is of opinion that it is just and equitable that the company

should be wound up.

207 Petition for winding up company

An application to the court for the winding up of a company shall be by petition presented, subject to this section, by the company or by any creditor or creditors, including any contingent or prospective creditor or creditors, contributory or contributories or by all or any of those parties together or separately or, in a case falling within subsection (2) of section one hundred and sixty-two, by the Minister accompanied, save in the case of a petition by the Minister, by a certificate of the Master, Assistant Master or a magistrate that due security has been found for payment of all fees and charges necessary for the prosecution of all proceedings until the appointment of a liquidator

Provided that—….”

The company resolved that it be wound up by court in terms of a special resolution of the shareholders and directors passed on 19 May 2011.The company relies on the following circumstances for the petition;

The company’s liabilities exceed its assets;

The company is unable to pay its debts;

The company has resolved, by special resolution, to wind up its affairs;

That it is just and equitable that the company be wound up, so that the assets of the company can be liquidated to provide for some equitable distribution to creditors.

A company undergoing voluntary winding up is required in terms of s 243 to give notice of the winding up in particular to “the company’s workers’ committee or, where the company has no workers’ committee, to the company’s Employees”. There is no similar provision requiring the company to give notice of winding up or consultation where the winding up is by court.

The issue is whether s 25A applies to a situation of winding up by court.

Section 25A (5)(c) and 6  of the Labour Act imposes a duty on an employer to consult the works council about proposals relating to any partial or total plant closures before the employer may  implement a proposal relating to such closure and allow the works council to make representations and to advance alternative proposals This requirement is echoed in s 243 of the Act which provides as follows;

“243 Notice of Resolution for voluntary winding up

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A resolution for the voluntary winding up of a company shall not be deemed to have been passed unless the company has given not less than four weeks notice of the resolution-

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To the company’s workers committee or, where the company has no workers’s committee, to the company’s employees-----”

There is some inconsistency in the Act as the requirement to give notice is only in respect of a voluntary winding up in terms of s 243 and not a winding up by court in terms of s(s) 206 and 207. Section 2 A (3) of the Labour Act provides that the act shall prevail over any other enactment inconsistent with it. Even if the companies Act does not provide in s 206 and 207 for such consultation in cases of winding up by court, the Labour Act prevails over the Companies Act. This means that s 25 imposes the requirement to consult the works council and afford them a reasonable opportunity to make representations and to advance alternative proposals in a winding up by court. Section 25 is of general application and the intention of the legislature in enacting this provision is clearly to ensure that workers are advised and consulted about proposals relating to partial or total plant closures carried out at the establishment. I am not persuaded by the applicant’s argument that an application to this court for a provisional winding up order does not amount to the implementation of such a proposal and that therefore the need to consult the works council had not arisen. The duty placed on the employer in terms of s 25A (5) is to consult about proposals relating to any partial or total plant closures. This in my view covers all steps taken in relation to the proposed closure. There are two stages involved. The first is to consult them in terms of s 5 concerning proposals relating to the closure. This would be at the resolution stage and during preparatory stages. One would expect the company to consult about the proposed winding up.  It is expected that consultation would take place before a resolutions is passed.  When the resolution is passed the winding up process would have commenced.  The stage at which the process is at now is way past the stage at which the works council should have been consulted about these developments as the winding up has already commenced. Subsection 6 deals with the need to afford the works council a reasonable opportunity to make representations so that they may advance alternative proposals. Subsection 6 seems to covers the implementation stage. Section 210 provides that winding up commences with the passing of the resolution. The section provides as follows,

“210 Commencement of winding up by court

(1) Where, before the presentation of a petition for the winding up of a company by

the court, a resolution has been passed by the company for voluntary winding up,

the winding up of the company shall be deemed to have commenced at the time of

the passing of the resolution.

(2) In any other case, the winding up of a company by the court shall be deemed to

commence at the time of the presentation of the petition for the winding up.

In my view the implementation stage starts with the passing of the resolution-----”

The failure by the applicant to comply with the requirements of s(s) 5 and 6 of s 25 of the Labour Court Act is fatal to its case.

In the result, it is ordered as follows;

The provisional order granted on 22 June 2011 is discharged.

The costs of this application shall be borne by the applicant.

Dhlakama B, applicants’ legal practitioners

Guni and Guni, respondent’s legal practitioners