National Social Security Authority v Capital Bank Corporation Limited and 22 Others

### Preamble
1
HH 56-21
HC 1293/18
---------


NATIONAL SOCIAL SECURITY AUTHORITY

versus

CAPITAL BANK CORPORATION LIMITED

and

RENNAISANCE FINANCIAL HOLDINGS (PVT) LTD

and

EDWIN CHAVORA

and

JENITIAS RODZE

and

MIRIAM MUZA

and

FORD THINDWA

and

RONALD MUDZIMBA

and

BERNARD MUSONZA

and

KUMBULANI MATHEMA

and

SIDMORE MATIKITI

and

ALBERT KABANDE

and

MARLONE MATAVIRE

and

OSWARD JONGWE

and

LUCKSON MUTIWEKUZIVA

and

MUCHINERIPI CHIGWENDERE

and

ANDERSON MURONGERWI

and

STEPHEN MASHOZHERA

and

WASHINGTON VAMBE

and

LAWRENCE MUSENDEKWA

and

NGONIDZASHE CHIKOWORE

and

SHINGIRAI MAZAMBANI

and

JOSEPH MEDZANO

and

MILLICENT NYATHI

HIGH COURT OF ZIMBABWE

CHAREWA J

HARARE, 29 October, 12 November & 17 February 2021

Opposed Application – Winding up

Mr T Zhuwarara, for applicant

Mr TL Mapuranga, for second respondent

Ms D E Kawenda, for third to 23rd Respondents

CHAREWA J: These are confirmatory proceedings for a provisional order for winding up of the first respondent granted by judgment of TAGU J on 30 January 2019. The provisional order is couched in these terms:

“It is hereby ordered that:

The first respondent, Capital Bank Corporation Limited be and is hereby provisionally wound up, pending the granting of an order in terms of paragraph 3 hereof or the discharge of this order.

Mr John Mafungei Chikura of Deposit Protection Corporation Evelyn House 26 Fife Ave/Corner Blackistone Street, Harare, be and is hereby appointed as the first respondent’s Provisional Liquidator with the powers set out in paragraph (a) to (h) of subsection 2 of section 221 of the Companies Act [Chapter 24:03].

Any interested party may appear before this Honourable Court sitting at Harare on 13th March 2019 to show cause why an order should not be made placing the first respondent company in liquidation and why an order should not be made that the costs of these proceedings shall be the cost of the liquidation.”

The respondents oppose the confirmation of the provisional winding up order.

Background

The facts of the matter are aptly summarised in the judgment of muremba J, HH564-19 as follows:

“The applicant National Social Security Authority (NSSA) is a statutory body 	established in terms of the National Social Security Authority Act [Chapter 	17:04]. The first respondent Capital Bank Corporation limited is a former 	merchant bank having relinquished its banking licence to the Reserve Bank of 	Zimbabwe. The third respondent, Renaissance financial Holdings (Pvt) Ltd is 	the 	holding company of the first respondent. The 3rd to the 23rd respondent are 	employees of the first respondent.

The first respondent was incorporated as a merchant bank around 2001. Around 	2009 its performance began to dwindle. On 2 June 2011 it was placed under 	curatorship by the Governor of the Reserve Bank/Central Bank. After hearing of 	the 	much publicized ailing of the first respondent, the applicant engaged the relevant 	authorities who included the Central Bank and the Ministry of Finance to get 	clearance to rescue the first respondent. The relevant clearance was obtained. The 	applicant and the third respondent, the holding company agreed that the applicant 	injects capital in the sum of USD24 million. That was done. Accordingly, the 	first 	respondent was removed from curatorship around March 2012. However, despite 	the capital injection the first respondent’s performance did not improve. 	Shareholders were advised. Consequently extra ordinary shareholders’ and Board 	meetings were held. The majority shareholders passed a resolution that the first 	respondent be wound up. Pursuant to that, the applicant as a contributory brought 	the present application for the winding up of the first respondent in terms of s 206 	and 207 of the Companies Act [Chapter 24:03] on 12 February 2018.”

In limine

As has become standard practice with legal practitioners, several points in limine have been raised by the respondents, no doubt for the purpose of averting the substantive resolution of the matter. It is pertinent to note that some of the preliminary points being raised here were already before the court when muremba J ordered that the confirmation proceedings be heard on the merits. I will address them seriatim.

The court has no jurisdiction

First respondent submits that the court has no jurisdiction as there was non-compliance with s 57 (2) of the Banking Act, [Chapter 24:20].  As a consequence there is no consent of the Reserve Bank of Zimbabwe (the Reserve Bank) to the winding up, which must be granted in writing upon a focused application being made to the central bank.

I note that no authority is cited for the proposition that there must be a focused application to the Reserve Bank for its consent to be granted in writing that a banking institution must be wound up. S57 (2) provides as follows:

“(2) Notwithstanding anything to the contrary in the Insolvency Act [Chapter 6:04] or the Companies Act [Chapter 24:03]—

(a) no person shall apply to a court for the winding up of a banking institution; or

(b) no banking institution shall pass a resolution for its voluntary winding up or dissolution;

without the consent of the Reserve Bank and in accordance with any conditions the Reserve Bank may specify:”

On 4 June 2014, the Reserve Bank published a public notice that first respondent’s banking license and consequently, its registration as such, had been cancelled. This was consequent upon first respondent surrendering its license on the basis that it had no capacity or ability to trade as a bank. Obviously, the fact that the Reserve Bank accepted first respondent’s surrender of its license and proceeded to cancel it as well as to deregister first respondent can only be interpreted as the Reserve Bank’s acquiescence to any consequential winding up process, which, incidentally, was the only option left as attempts to resuscitate first respondent had failed.

It therefore seems to me obvious that if an institution’s banking license is cancelled and it is deregistered as a bank, it can no longer hold itself out to be a bank as it can no longer trade as such. For the avoidance of doubt, the public notice in fact went on to point out that consequential fact, and the regulator confirmed that first respondent only remained registered as a company in terms of the Companies Act [Chapter 24:03]. I cannot fault that position, and do not agree with the interpretation of s 57 (2) that respondent urges upon me. In any event, no application to review that determination of the regulator has been made before this court.

The application before this court is thus an application for the winding up of a company in terms of the Companies Act, and not the winding up of a bank in terms of the Banking Act. Therefore this court certainly has jurisdiction.

Only the Deposit Protection Authority can be a liquidator

The first respondent argues that the applicant must, upon consent being given by the Reserve Bank, appoint the Deposit Protection Authority as liquidator and not any individual, and most certainly, not an individual who is not of the Deposit Protection Authority. This is because, first respondent submits, Capital Bank remains a banking institution in terms of s 57 (1) (b) of the Banking Act, despite the surrender of its license and it’s de-registration by the central bank as it continues to hold deposits. Third to twenty-third respondents support this argument by submitting that in fact, it is only the institution of the Deposit Protection Authority which can be a liquidator and certainly not it’s Mr John Mafungei Chikura.

Having found that first respondent is not a banking institution anymore and that these are in fact proceedings for the winding up of a company, this point in limine falls by the wayside and need not detain me further.  Any person can thus be appointed liquidator as long as they meet the necessary requirements. I have not heard the respondents to argue that Mr Chikura or Mr Militala lack the necessary qualifications to be liquidators.

The applicant has no locus standi

I do not see any merit at all in respondents’ resort to s 57 (1) (b). Clearly, respondents impute into the provision a prescriptive approach which is not apparent on the face of the provision. It is not mandatory that the winding up of a bank can only be done by the Reserve Bank. S57 (1) (b) provides as follows:

“57 Winding up of banking institutions

(1) The Reserve Bank may (my emphasis) in accordance with this section order the winding up of a banking institution—

(a)………………………; or

(b) following cancellation of the institution’s registration in terms of this Act; or

(c) ……………………..; or

(d) ……………………..;

where the Reserve Bank considers such an order to be in the interests of the creditors, depositors or shareholders of the banking institution concerned, or necessary to preserve the integrity of the financial system of Zimbabwe.”

This provision clearly gives the Reserve Bank the discretion, following the cancellation of an institution’s registration, to order it’s winding up. There is no suggestion anywhere in this application that the Reserve Bank made the decision to exercise such discretion. Rather, the winding up of the first respondent was initiated by a contributor in terms of the Companies Act, and in compliance with s 57 (2) (a), given the acquiescence of the Reserve Bank to the proceedings.

There is no provisional order for the court to confirm

Third to twenty-third respondents submit that the provisional order lapsed and can no longer be confirmed as it is not valid any more.

This is a puerile argument which I dismiss out of hand. This issue has already been determined by muremba J in HH 564-19 and, as far as I have been able to ascertain, there has been no appeal against her decision. This court is not at liberty to review its own decision therein. The cases cited by the respondents are thus not helpful in the circumstances of this case.

The applicant does not have authority to institute these proceedings

Further, third to twenty-third respondents submit that applicant does not have the requisite authority to institute these proceedings as there is no board resolution to that effect.

It is evident that there is no resolution by the applicant’s board authorising these proceedings. However, it is not in dispute that on 17 October 2013, the shareholders, who included applicant, held a meeting at which they resolved that first respondent be wound up. The first respondent’s own board subsequently, and on 23 October 2013, ratified the shareholders’ resolution. Both resolutions were filed with the Reserve Bank on 24 October 2013. As a consequence of subsequent meetings between the first respondent’s directors and the Permanent Secretary of the Ministry of Labour and Social Welfare, the first respondent’s board surrendered first respondent’s banking license to the Reserve Bank to expedite the winding up.

It seems to me that while the letter of the law may not have been strictly complied with, the spirit of the law was. I am thus loath to rely on a technicality in circumstances where there is no dispute that:

First respondent does not have a banking license and is not capable of trading as a merchant bank

Its head office has been closed since 2014

First respondent has no functional board

It has been unable to pay its debts

There is no prospect of capital injection to resuscitate the first respondent; and

Resolutions for its winding up are still extant

I am of the view that this is a matter, given the substantial compliance with the law and the rules, I can reasonably exercise my discretion in terms of r4C and allow that this application is properly before the court.

Invalid provisional order

By the same token, the fact that the provisional order is defective in that it does not specify the time within which opposition must be made is also a matter within my discretion to rectify, more so given that any order, is by the court. Therefore any error in the order is an error by the court subject to rectification by that court. In fact, this error has already been rectified by order of this court dated 9 October 2019, per MUREMBA J.

In addition, given that respondents do not allege to have suffered any prejudice arising from that defect, and did in fact manage to file their opposing papers and heads of argument, I am not inclined to dismiss these proceedings but rather condone the procedural infractions by the applicant.

I am fortified in this decision by the fact that this court was seized with this matter on 14 June 2019 and rendered a judgment on 22 August 2019 that this matter be resolved on the merits. While I note that the judgment of the court did not particularly deal with each point in limine raised herein, those points were already within the notice of the court when it ordered that the matter be resolved on the merits. That order is extant and has not been appealed against. The present proceedings do not, and in fact, cannot seek a review of that order, but are intended to fulfil it.

Merits

It is indisputable that the shareholders resolved to wind up the first respondent. That decision was ratified and confirmed by first respondent. The applicant is the main contributor to the first respondent. It used public funds to try and shore up first respondent. Clearly, these circumstances take the matter beyond the normal requirements that a shareholder cannot seek the winding up of a company to which it is a shareholder as public policy interests dictate that there be no unmitigated prejudice to the public.

This is more so given that second respondent has not offered any modalities to aid the first respondent’s resuscitation and survival in circumstances where third to twenty-third respondents are managerial employees who are obviously seeking to secure their employment rather than to contribute any capital injection to first respondent. Since 2014, second respondent has made no effort to put forward a restructuring plan or offer to take over the first respondent. Nothing on the record shows that second respondent even attempted to secure external investors. The options put forward are therefore pie in the sky, particularly since applicant cannot continue to pour public funds into a bottomless pit.

In addition, second respondent is a minority shareholder with only 13 % of the shareholding. Clearly its exposure to first respondent is minimal in comparison to applicant’s 87%. Sight must also not be lost that first respondent’s winding up is in fact voluntary, in circumstances where the company no longer has a functional board or management (its head office having closed) and is thus incapable of filing for its own winding up.

The Master’s report is comprehensive and his recommendations unequivocal. First respondent no longer holds a banking license, it was deregistered as a bank, it has no functional board, its head office was closed, it is unable to pay its debts, it has not traded since February 2014, and its liabilities exceed its assets. Clearly first respondent is defunct. The application thus satisfies the primary requirement for a final winding up order: that first respondent is commercially insolvent in that it has no liquid or readily available assets to meet its liabilities as they fall due,

It cannot have been the intention of the legislature to put in strictures that keep a dead horse in the mortuary ad infinitum. Nor should the courts, particularly courts of original jurisdiction, be fettered, in the administration of justice by technicalities that do not serve the cause of justice. I am not convinced that the authorities cited by the respondents are applicable in light of our laws as opposed to the South African Companies Act. Respondents have not suggested that the relevant provisions in the South African Law are on all fours with our provisions. This is more pertinent, in the particular circumstances of first respondent that its directors, before it became moribund, resolved that it be wound up. This is in line with the reasonable interpretation of s 206 (g) of the Companies Act, which provides as follows:

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

A company may be wound up by the court—

(a) 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 its business within a year from its incorporation or suspends its  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.”(My emphasis)

It is obvious that the status of first respondent is such that almost all the boxes in s 206 must be ticked. Clearly there is one broad and inescapable conclusion of law, justice and equity, taking into account the competing interests of all concerned, that first respondent must be finally wound up.

In the circumstances of this case, where the company no longer has directors or operating officers, to, on behalf of the moribund company, file for liquidation, the technicality as to whether the shareholders can validly do that, must give way to sound common sense. In my view, this is a situation where the only just and equitable conclusion is that first respondent be finally wound up, albeit at the instance of a shareholder.

Disposition

In the premises it is hereby ordered that the provisional order is confirmed:

A final winding up order in respect of the first respondent, Capital Bank Corporation be and is hereby granted.

Mr Winsley Evans Militala of Petwin Executor & Trust Co. (Private) Limited, 24 Caithness Road, Eastlea, Harare, be and is hereby appointed as the final liquidator of the first respondent, Capital Bank Corporation Limited, with powers set out in section 221 of the Companies Act [Chapter 24:03].

Costs of this application shall be costs of the winding up.

GNMlotshwa & Maguwudze, applicant’s legal practitioners

Muza & Nyapadi, second respondent’s legal practitioners

Tendai Biti Law, third to twenty-third respondent’s legal practitioners