David Pyung Il Kim and Jane Ju Hyung Park v Sensationnel (Zimbabwe) (Private) Limited

### Preamble
1
HH 760-18
HC 9933/17
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DAVID PYUNG IL KIM

and

JANE JU HYUNG PARK

versus

SENSATIONNEL (ZIMBABWE) (PRIVATE) LIMITED

HIGH COURT OF ZIMBABWE

MATHONSI J

HARARE, 6 November 2018 and 21 November 2018

Opposed Application

T. Zhuwarara, for the applicants

C. Venturas, for the respondent

MATHONSI J: The 2 applicants are husband and wife of Chinese extraction. They jointly own a 50% shareholding in the respondent, a company registered in Zimbabwe and is involved in the business of manufacturing and wholesaling weaves, a hot favourite of the female gender at the moment. The 2 applicants are also directors of the respondent along with Jeong Hyun Park and his loving wife Jung Ja Choi who completed the cast of a formidable four member board of directors of the respondent company. The other 2 directors are also of Chinese persuasion. Its not just their common interest in the company which brings the 4 together but family ties have also had a role to play. The second applicant, who is the first applicant’s wife, is a cousin sister of Jeong Hyun Park who has deposed to the opposing affidavit on behalf of the respondent in this application for a provisional winding up order and the appointment of a provisional liquidator.

The couple has joined forces in bringing this application for winding up of the company in terms of s 206 (g) of the Companies Act [Chapter 24:03] on the basis that it is just and equitable that it be wound up. In his founding affidavit the first applicant states that the company was established by a small group of relatives for the purpose of running a family enterprise, namely to manufacture and distribute synthetic hair products in Zimbabwe, what is generally known in the world of beauty as weaves. It is a company built on family trust as signified by the fact that no shareholders agreement was signed by the parties who related on common understanding.

It was in pursuance of that trust and common understanding that the applicants, who are not resident in Zimbabwe but in Abidjan in the southern Atlantic coast of Cote d’ivoire and are therefore not directly involved in the company, entrusted Park and his wife with the day to day management of the affairs of the company. The trust bestowed on Park was later betrayed as he failed to comply with the provisions of the company’s regulations and breached his fiduciary duties by failing to act in the best interests of the company. He placed himself in a position where he became conflicted given that his personal interests clashed with those of the company. Park is accused of failing to provide the applicants with proper accounts of the company and withholding vital information on the finances of the company. In fact the accounts showing the current status of the company were only given in response to the present application as Park, through his erstwhile legal practitioners, resorted to obfuscation and a game of cat and mouse, upon being requested to avail financial records of the company.

The applicants further accuse Park of frustrating the effort of the applicants to learn more about the company by failing to convene meetings while continuing to make arbitrary decisions without seeking board approval. When the applicants finally succeeded in having an extra ordinary general meeting held in order to make certain resolutions of the company, a deadlock occurred because the 2 families hold equal shareholding and invariably do not agree on issues. When a vote is called they align themselves along family lines thereby achieving only to deadlock. In fact so divided and unable to agree on anything are they that even in this application they are not even able to agree that they have family ties. While the applicants claim Park as family he has flatly disputed this down playing that relationship by asserting that the second applicant is not his sister but merely his “cousin who is married to the first applicant.”

Park has also been accused of dissipating the estate of the company and bringing about a state of insolvency to such an extent that the company has accumulated debts, including unexplained “shareholder loans” running into more than 2 million dollars. He has concluded lease agreements in the name of the company but for the benefit of his own company or business not connected to the respondent. As a result the company has been sued by these creditors. Park has set up retail outlets in the name of Outre which retails synthetic products manufactured by the respondent for the sole benefit of Park and not the respondent which is not in the retail business but manufacturing. In setting up these country wide retail shops, he has used the name of the respondent as the tenant without board approval and indeed without consulting the applicants. In fact Park last sought board approval for anything in 2012 and since then he has been operating on his own and as he pleased.

More importantly, Park is accused by having utilised company funds to purchase a property in Borrowdale, Harare which he registered in his name, a fact he is said to have admitted in another suit. It is for these reasons that the applicants maintain that all the trust and confidence that existed between the parties when the company was promoted have been lost and the company cannot continue to operate in that environment. What is more, any other solution as may be prescribed in the Act cannot work because of the deadlock.

The respondent opposed the application. It is in fact a misnomer to say that the respondent opposed it given that it can only act through its members being a fictitious person, which members are embroiled in debilitating shareholder disputes over ownership and control of the same respondent company. In fact Mr Zhuwawo, who appeared for the applicant, had picked up a point in limine that Park could not lawfully depose to an opposing affidavit on behalf of the respondent without proper board approval.

Two of the 4 board members are the applicants who did not authorise such representation by Park. After Mr Zhuwawo and myself had engaged each other mainly on the applicants’ failure to cite Park and his wife in the application well aware of their interest in the matter, he relented and allowed the opposition to stand.

In his opposing affidavit, Park placed a lot of emphasis on the judgment of this court in HC7913/15 which is HH 484-16 in which Chigumba J heard and dismissed a similar application brought by the first applicant alone, without the second applicant, against the respondent. He took the view that most of the issues raised have already been determined by the court and that they cannot be reincarnated in a fresh application. Therefore the present application must be restricted to events which occurred after 6 November 2017. It is not clear why that date is relevant given that Chigumba J’s judgment was delivered on 17 August 2016, the application having been argued on 10 May 2016.

I do not intend to be detained by that issue. Let it suffice to say that if indeed this matter had been determined by a court of competent jurisdiction, the proper defence to raise would have been that of res judicata. The respondent cannot, as Mr Venturas did, rely on the doctrine of estoppel to deprive the applicants of a remedy provided for by the law. Simply put, a party who contends that the other party is estopped from enforcing a right must establish that he or she has altered position to his or her prejudice in reliance on words, actions or inaction of the party suing which gave that party reasonably to understand that the other party had waived the right. The facts of this matter, and indeed the respondent’s averments, do not even begin to make a case for the application of estoppel.

In any event the application before Chigumba J did not include the second applicant. The Honourable Judge expressed the view, inter alia, that the first applicant, who was the only applicant in that matter, could not rely on an affidavit irregularly submitted by his wife as an answering affidavit when she was not a party to the application and expunged that affidavit. She also took the view that the first applicant was a 30% shareholder in the company, and therefore a minority seeking a winding up which was opposed by the majority shareholder, Park. The facts before Chigumba J were fundamentally different from those placed before me. As such the submission that the matter had previously been determined is of no moment.

On the merits, Park admitted that the respondent’s main business is the manufacture of artificial hair extensions (weaves) but maintained that it also trades under the name Outre, a retail business selling finished products to the public. He admitted further that lease agreements in respect of the retail outlets have been signed with third parties throughout the country. The respondent now employs 500 employees throughout the country whose livehood would be affected by winding up. He admitted that the applicants made a request for the books of account but stated that instead of availing them, he had, through his legal practitioners, directed the applicants to comply with s 140 of the Act, entitling them to inspect the accounts at the company’s registered office, a claim refuted by the applicants, saying they could not access the accounts at that office.

According to Park, at the extra-ordinary meeting some of the resolutions were passed but not all of them. In respect of what was not passed he expressed willingness to meet the applicants to resolve it. Regarding the Borrowdale property he allegedly purchased using company funds, Park did not expressly deny the allegation. He simply stated that he wanted to understand the basis for the applicants’ claim that it belongs to the respondent, a statement which is completely unhelpful.

While taking the view that the application is based on out-dated financial statements Park admitted that there are shareholders loans of $2 270 037-00 because he injected his own money into the business, of course without the knowledge of other directors, the applicants. Referring to the 2016 financial statements, Park stated that the respondent’s current assets are valued at $4 014 037-00 against liabilities of $514 455-00 and therefore are greater than the liabilities. It is therefore not insolvent, and is able to pay its debts by selling its trading assets.

In Park’s view it is not just and equitable that the company be wound up because it is running a solvent successful business and the market is depressed owing to the volatile economic environment. For that reason the assets will not realise their true market value. As to why the company made a huge loss according to the last financial statement, Park did not say. He however had time to make the point that the applicants should pursue other remedies available to them other than winding up. As they simply want to be paid the value of their shareholding they should proceed in terms of ss 196 and 198 of the Act. Alternatively, the company may be placed under judicial management for the purposes of allowing the judicial manager to resolve the dispute between them.

From these facts there can be no doubt that the respondent is a small company owned and controlled by 2 couples who know each other well. Whether Park is right in denying close relationship with the second applicant, with whom he shares a surname, may not really be important as it does not take away their proximity to each other even by virtue of the business relationship that they cultivated in the past. There is also no doubt that at the present moment they have been trading accusations ranging from abuse of company finances to intransigence and impropriety in the management of the affairs of the company. Park and his wife have enjoyed the benefit of direct control and management of the company to an extent that they may be believing that they hold better rights than the other couple. Intransigence and sheer arrogance have defined the manner in which they have, at arms length, related to the applicants. Otherwise how else would one interpret their refusal, on request, to avail financial records to the applicants. The fact that they referred the request to their lawyers who, like the legendary farmer’s wife with 3 blind mice running to her, cut off their tails with a curving knife, referred them to sections of the Companies Act and the procedure for inspection of books of accounts only succeeded in denying the applicants access, goes to show the “Berlin Wall” standing in between the 2 groups.

That, taken together with serious allegations of the use of company finances to feather the nest of only one couple, means that this is a small company comprised of people who can no longer work together properly. They were brought together under one umbrella, the respondent, by a common objective to invest in a business for their common good and on equal footing. Although it does not appear in the affidavits, Mr Zhuwawo added that Park has not even seen the need to declare a dividend for quite a long time, content to run the company for his own personal aggrandisement.

The application has been made in terms of s 206 (g) on the ground that it is just and equitable to wind up the company. The section provides:

“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;

(b)  if default is made in lodging the statutory report or in holding the statutory meeting;

(c)  if the company does not commence business 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 the opinion that it is just and equitable that the company should be

wound  up.” (The underlining is mine)

An application for a winding up order made in terms of s 206 (g) is clearly down to the opinion of the court which it arrives at upon a close examination of the facts prevailing at the company. It is an exercise of judicial discretion having regard to the justice and equity of the matter. It has been stated that the discretion of the court conferred by s 206 (g) is very wide and is only limited to the extent that it must be exercised judicially having due regard to the justice and equity of the competing interests of those involved. See Moosa N O v Manjee Bhawan (Pty) Ltd and Anor 1967 (3) SA 131 (T) at 136 H.

The use of the word “may” in the section is the one which brings about the discretion conferred to the court, together with the inherent jurisdiction of the court to prevent abuse of its process. The court also has the discretion to withhold the grant of a winding up order even where the grounds for winding up have technically been proved, which discretion has however been described as narrow. In the words of Gillespie J in Croc Ostrich Breeders of Zimbabwe (Pvt) Ltd v Best of Zimbabwe (Pvt) Ltd 1999 (2) ZLR 410 (H) at 414 G – 415 A

“The discretion (to withhold a winding up order where the grounds are established) is regarded as a narrow one. Narrow in the sense that a creditor is entitled to a winding up exdebito justiae save in exceptional circumstances. The essence of the discretion is a decision as to whether to withhold relief, objective grounds for the granting of which have been established. The factors to be considered in any case do not differ depending on the grounds advanced for winding up. The discretion is a judicial value judgment to be made on all the relevant factors”

See also Service Trade Supplies (Pvt) Ltd v Dasco & Sons (Pvt) Ltd 1962 (3) SA 424 (T) at 428; Dominion Trading FZ-LLC v Victoria Foods (Pvt) Ltd 2013 (2) ZLR 332 (H) at 339 D-F

The just and equitable principle as a ground for winding up a company recognizes that a party assumes certain obligations upon entering a company which must be respected and the court will not excuse that party from the performance of those obligations. Because it involves the application of equitable considerations, it enables the court to subject the exercise of legal rights to those equitable considerations. Therefore the issue of the relationship between individuals in the company may make it completely unjust or inequitable to perpetuate the existence of the company or vice versa. See the landmark judgment of the House of Lords in Ebrahimi v Westbourne Galleries Ltd [1992] 2 ALL ER 492 (HL) (quoted with approval in Sultan v Fryfern Enterprises (Pvt) Ltd & Anor 2000 (1) ZLR 188 (H)).

In the latter case Chatikobo J discussed at great lengths the guidelines that have emerged on how the court should exercise the broad discretionary power conferred to it by s 206 in the context of the just and equitable ground for winding up. I associate myself fully with his remarks at 103 A – C:

“What emerges from these guidelines is that if there is justifiable lack of confidence in the conduct and management of the company’s affairs which stems from the conduct of the directors with regard to the company’s business or if there exists a deadlock between the members of the 	company, then a company can be wound up on the ‘just and equitable’ principle. The ‘deadlock’ principle is founded on the analogy of a partnership and is confined to small, domestic companies. If in such a small domestic company, the personal relationship of confidence and trust 	similar to that which must prevail between partners is eroded and the members cease to act 	towards one another honestly and reasonably and with friendly co-operation in managing the affairs of the company, then those members who are not responsible for the destruction of that 	relationship will be entitled to claim that it is just and equitable for the company to be would up on that ground.”[Emphasis added]

I must add that the just and equitable principle can only be relied upon to wind up a company where there is no alternative and satisfactory remedy available to the party seeking winding up. However the alternative remedy which is available must not only be available it must be realistic, sufficient and reasonable in the circumstances and must commend itself much better than the order of winding up. It would be extremely affair and unjust to a party that has satisfied the requirements for winding up on that ground to be tied down to alternative remedies which, by their nature, are convoluted, difficult and more involved or which will subject the applicant for winding up to more expense, bickering and protracted negotiations.

As l have said there has been a complete breakdown of trust between the members of the company brought about by Park’s big brother mentality or holier-than-thou attitude of continuously frustrating the applicants while at the same time refusing to disclose vital company information. He has not even adequately dealt with accusations of financial misconduct and fleecing the resources of the company. If anything he has fuelled the mistrust by being bookish each time he is asked to produce accounts. For that reason and having regard to the small size of the company being run, as it is, by 2 couples it is just and equitable that disengagement should now occur. It is the rules of that disengagement that have to be considered.

Mr Venturas for the respondent submitted that the applicants have remedies in terms of s 196 and s 198 which are available to them. Section 196 allows a member of a company to apply to the court in terms of s 198 on the ground that the company’s affairs are being or have been conducted in an oppressive or unfairly prejudicial manner to such a member. In terms of s 198 the court has the power to regulate the conduct of the company’s affairs in the future including directing the purchase and sale of the shares of any member. Therein lies the catch. Clearly the parties seem to realise that they cannot continue working together under the company. The solution pursued by the applicants is to wind up the company.

On the other hand Park would want the applicants to sell their shareholding, presumably to himself and his wife, so that he can get rid of them. This may explain his obstructive and extremely uncooperative conduct which has bordered on insolence. It appears designed to force the applicants to sell their shares in the company. It is a celebrated principle of our law, as expressed in the maxim: nemo ex suo delicto meliorem suam facere potest, which loosely translates to mean that no one can make his or hers better by his or her own misdeed. Park cannot be allowed to feather his nest by his own misdeed of wearing down the applicants in order to force them to sell their shareholding.

It is not just, neither is it equitable, for the applicants, who are innocent parties, to be made to sell their shareholding because Park has refused to abide by the dictates of corporate governance and what the parties signed for. This is a person accused of running competing businesses at the expense of the company thereby forcing it to operate at a loss. I have also considered the prospects of a judicial management order but the features of judicial management do not exist in this case. In terms of s 305 of the Act the court may grant such an order if it appears that the problems of the company are due to mismanagement. It is a special dispensation granted in exceptional circumstances and implies that there is a temporary reconciliation of conflicting interests. See Zimbabwe Textile Workers Union v David Whitehead Textiles Ltd & Ors 2014 (1) ZLR 319 (H); International Capital Corporation (Pvt) Ltd v Clairson (Pvt) Ltd 2002 (1) ZLR 565 (H) at 570B – F.

A director cannot behave like Park did, oppressing members, not co-operating with books of accounts and making unilateral decisions in the hope of hiding behind judicial management. In any event, such a course will not restore confidence among members. I conclude that a good case has been made for the relief sought.

In the result, it is ordered that;

The respondent be and is hereby provisionally would up in terms of the draft order filed of record, as amended.

The issue of costs of this application is reserved for determination at the hearing of the application for a final order for liquidation.

Gill, Godlonton & Gerrans, applicant’s legal practitioners

Venturas & Samukange, respondent’s legal practitioners