Phibion Gwatidzo N.O v Willdale Limited & 2 Ors

### Preamble
Judgment No. SC 119 /22
1
Civil Appeal No. SC 127 /21
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REPORTABLE	(104)

PHIBION      GWATIDZO     N.O

v

WILLDALE      LIMITED       (2)      TERRIERS – LAXTOP      BANK      (3)       MASTER       OF      THE      HIGH      COURT

SUPREME COURT OF ZIMBABWE

UCHENA JA, KUDYA JA & MWAYERA JA

HARARE: 28 OCTOBER 2021, 3 NOVEMBER 2021 & 11 NOVEMBER 2022

L. Madhuku, for the appellant

T. Zhuwarara, for the respondents

MWAYERA JA: This is an appeal against the whole judgment of the High Court wherein the court a quo granted an order for the removal of the appellant as a liquidator of Willdale Transport Services (Private) Limited (the Company). It also set aside the purported sale of the company assets.

FACTUAL BACKGROUND

The history of the matter has to be put into perspective. The appellant is cited in his official capacity as a liquidator of the first respondent. The first respondent is a 50 percent shareholder in the company, which is under final liquidation. The second respondent holds the other 50 percent share in the Company. The appellant was appointed interim liquidator of the company on 5 June 2019. On 7 August 2019, he was appointed the final liquidator.

The first respondent applied for liquidation of the company following an on-going dispute between the shareholders and directors, which dispute had reached a deadlock that could not be resolved as prescribed by s 5 (1) (b) of the Insolvency Act [Chapter 6:07] The second respondent was not opposed to the liquidation. The company was therefore placed in final liquidation. The company’s assets were primarily trucks and trailers with the main liabilities being shareholder loans. The first respondent and some members of the second respondent were interested in purchasing the Company as a going concern and discussions were held between the parties and the appellant in respect of the issue.

On 15 May 2020, the first respondent made an application before the court a quo for the removal of the appellant as a liquidator of the Company. In the application it also sought an order interdicting the appellant from holding a special meeting of creditors which was scheduled for 20 May 2020. This meeting was for the creditors to ratify the appellant’s decision to sell the assets of the Company. In the alternative, the first respondent sought an order setting aside any resolution which may have been passed authorising or ratifying the sale of the assets, and consequently the setting aside of the sale of assets which had been done unlawfully. Finally the first respondent sought a mandamus directing the appellant to disclose all information relating to the sale of the company’s assets. This was based on the premise that the appellant had sold the Company’s assets unlawfully, warranting his removal as its liquidator.

However, there were some issues that arose in respect of both the valuation of the business and the currency in which some of the liabilities would be repaid. Terriers Services (Private) Limited (Terriers) a company which was a member of the second respondent’s consortium, had entered into a loan agreement with the Company in respect of trucks it had purchased from South Africa. The first respondent was of the view that the loan agreement between it and Terriers was a domestic transaction that could be payable in Zimbabwean dollars as stipulated by law. This was contrary to the views of Terriers which believed that because the sale agreement was with a South African Company, the debt was  a foreign debt and should be payable  in foreign currency.

In addition to this, Terriers had recalled two trucks from the Company purportedly due to its failure to pay monthly instalments under the loan agreements. Consequently, the first respondent was of the view that the recalled trucks should be returned to them and ought to be included as assets of the company. The second respondent did not agree with that view.

Due to the differences between the parties, negotiations broke down and the appellant advised through his legal practitioners that he would be terminating the discussions for the sale of the Company’s business as a going concern and would thus proceed with the liquidation of the company in accordance with the law.

Thereafter, the appellant called for a creditors’ meeting. The first respondent’s legal practitioner attended the meeting on its behalf.  The appellant advised the meeting that he had disposed of the Company’s assets and that Terriers had withdrawn its claim against the company. The first respondent, through its legal practitioners sought clarification on what assets had been sold, at which price and to which party or parties.  It was concerned that the appellant had not sought the approval of the creditors for the sale of assets particularly in light of the withdrawal of Terriers’ claim.

Despite the first respondent’s request for information, the appellant refused to provide the information, pointing out that once he realised the assets he would prepare the distribution account. The first respondent’s legal practitioners also enquired into the appellant’s authority to dispose of the company’s assets. On 28 February 2020, one of the first respondent’s directors was advised that its assets had been sold to either the second respondent, or one of the members of the consortium, and that this had been done without the creditors’ authorisation. On 3 March 2020, some of the company’s trucks, including the two which had originally been recalled by Terriers were delivered to the premises of a shareholder and representative of the second respondent, who was also a creditor of the Company. This, coupled with the withdrawal of Terriers’ claim, led to the first respondent contending that the appellant, by choosing to sell to either the second respondent or to someone connected to it, had preferred one creditor over another. Further to this, the first respondent averred that the sale had been carried out without lawful authority and as such, was a nullity. The first respondent’s legal practitioner then wrote a letter to the appellant requesting the particulars of the sale and advising that the company was aware that not only had trucks been sold but that some had been delivered to one of the previous joint venture partners which was illegal at law as there was neither a creditors’ resolution nor authority from the Master of the High Court. In response the appellant’s legal practitioners stated that the creditors had been informed of the sale and had not objected to it. They further stated that the sale of the assets was also confirmed but did not disclose any particulars. In the same letter, notice was given that a special meeting would be called to resolve the matter.

The first respondent subsequently received a notice from the appellant for a special meeting to be held on 8 April 2020. According to the notice, the purpose of the meeting was for a resolution to be passed allowing the appellant, as the liquidator, to sell assets of the company so that all claims and expenses would be settled and the liquidation of the company finalised.

The meeting did not materialise due to the Covid 19 lockdown. The first respondent then filed an application for removal of the appellant as a liquidator which application was granted by the court a quo.

PROCEEDINGS IN THE COURT A QUO

The appellant and the second respondent both opposed the application for the removal of the appellant as a liquidator. The appellant submitted that the application by the first respondent did not meet the requirements of s 80 of the Insolvency Act [Chapter 6:04]. Secondly, the appellant contended that the conduct complained of by the first respondent was cured by its participation and attendance of the meeting held on 12 February 2020 wherein the appellant disclosed that he was going to dispose of the assets. Further, it was contended by the appellant that the first respondent also participated in the meeting of 20 May 2020. The appellant further argued that the relief sought by the first respondent had since been overtaken by events.

All the three preliminary points raised in opposition were dismissed by the court a quo. In respect of the first point the court found that s 80 of the Insolvency Act [Chapter 6:04], which both parties were relying on, did not provide for the removal of a liquidator from office by the court. This was because they had relied on the repealed Insolvency Act [Chapter 6:04] instead of the Insolvency Act [Chapter 6:07]. On the second issue, the court found that the first respondent did not attend the meeting with the motive of ratifying the sale of the assets but rather to oppose the ratification. It was the court’s finding that the participation of the first respondent in the meeting could not be construed as curing the first respondent’s concerns regarding the disposal of assets without authorisation.

Further, in its finding on the last issue, the court determined that the relief sought by the first respondent had not been overtaken by events. The first respondent had prayed that the special meeting that was scheduled for 20 May 2020 be cancelled or in the event that the meeting had already been held before the hearing, the decision of the meeting be declared a nullity. The court a quo found no merit in the contention that the relief sought had been overtaken by events and thus dismissed the point.

On the merits, the court a quo found that the appellant acted unlawfully in that he disposed of the assets of Willdale Transport without authorisation from the creditors or from the Master of the High Court. In addition the court a quo held that the appellant had colluded with the second respondent to sell the Company’s assets to them thereby preferring one creditor over others. It further held that despite several requests, the appellant had failed to disclose the assets which he had disposed of. He further failed to disclose the value realised from the same.

Accordingly, the court a quo held that the appellant was not a fit and proper person to remain in the position of a liquidator. It ordered that the appellant be removed from the position of liquidator. It further concluded that the appellant did not disclose the particulars of the sale of the company’s assets and declared the purported sale a nullity.

THE GROUNDS OF APPEAL

Aggrieved by the decision of the court a quo, the appellant filed the present appeal raising the following grounds of appeals:

The court a quo erred in law and misdirected itself in granting an order removing the appellant from the office of liquidator merely on the asking of the first respondent as the first respondent’s application for the removal of the appellant had stated neither a legal rule nor a recognised ground for removal.

The court a quo erred in law and misdirected itself in that its finding that the appellant was not “a proper and fit person” to remain a liquidator was a frolic of its own as the first respondent had not pleaded its case on the basis of the appellant not being “a proper and fit person.”

The court a quo erred in law and misdirected itself in that its finding that there was “collusion” between the appellant and the second respondent was a frolic of its own as the first respondent, in its founding affidavit had made it clear that it did not know the person to whom the assets had been sold.

The court a quo erred in law and misdirected itself in removing the appellant from the office of a liquidator without considering and applying its mind to the mandatory provisions of s 80 of the Insolvency Act [Chapter 6:07].

The court a quo erred in law and misdirected itself in not finding that in participating and voting at the special meeting of creditors on 20 May 2020, the first respondent waived its rights to challenge the conduct of the appellant in respect of the sale of the assets.

The court a quo erred in law and misdirected itself in not finding that the ratification of the sale of assets by creditors at a special meeting on 20 May 2020 gave legal validity to all actions and decisions of the appellant in respect of sale of assets.

The court a quo erred in law and misdirected itself in not setting aside the sale of assets of Willdale Transport Services (Private) Limited merely on the asking of the first respondent as the first respondent’s application had stated neither a legal rule nor a recognised legal ground  for the setting  aside of that sale.

The court a quo erred in law and misdirected itself in granting the order in para (d) of the operative part of its judgment in that the order is contradictory and meaningless as it purports to do two mutually exclusive things setting aside a meeting that had already taken place and declaring a nullity the decisions at that same meeting.

The court a quo erred in law and misdirected itself in granting orders in its operative part of the judgment that are contradictory thereby vitiating the whole judgment as the orders in paras (a) and (b) are inconsistent with orders in paras (c) and (d).

The order of the court a quo awarding costs in favour of the first respondent on a higher scale to be paid by the appellant in his personal capacity is so outrageous in its defiance of logic or common sense that no reasonable court applying its mind to the circumstances of his case could ever grant such an order.

SUBMISSIONS BEFORE THIS COURT

By consent, grounds of appeal 2, 4, 8 and 9 were struck out as they were repetitive. Mr Madhuku, for the appellant, argued that the court a quo misdirected itself when it relied on s 80 of the repealed Insolvency Act [Chapter 6:04] instead of s 80 of the Insolvency Act [Chapter 6:07]. He submitted that the court a quo by relating to the repealed Act failed to make a determination on the applicable law. He further argued that the question of whether or not it was in the best interests of Willdale Transport to remove the appellant from the office of liquidator was not answered. He contended that costs on a higher scale awarded against the appellant in his personal capacity were not called for and were not justified.

Per contra, Mr Zhuwarara, for the first respondent, submitted that the appellant acted unlawfully when he sold the assets of Willdale Transport hence such conduct warranted his removal from office. He further, contended that the court a quo was correct in ordering costs against the appellant since the appellant, as fiduciary had acted unlawfully.

ISSUES FOR DETERMINATION

Whether or not the court a quo erred in ordering the removal of the appellant from the office of liquidator.

Whether or not the court a quo erred in granting costs on a higher scale against the appellant in his personal capacity.

THE LAW

The question of the removal of a liquidator is governed by the Insolvency Act [Chapter 6: 07] (the act). Section 80 thereof is instructive:

“80 Court may declare liquidator disqualified or remove liquidator

If it is in the interests of the proper administration of an insolvent estate, the Court may, on the application of the Master or any other interested party-

declare any person disqualified from being  a liquidator of an estate; and

remove from office any person who has been appointed as liquidator; and

declare such a person disqualified from being elected or appointed as a liquidator under this Act during his or her lifetime or for such other period as it determines.”

Further outlined in the Insolvency Act are the duties of a liquidator.

Section 49 (4) of the Insolvency Act is apposite.

“49  General duties and powers of liquidator

(4) The liquidator may, if authorised thereto by the Master or by resolution of a meeting of creditors of the estate

(a)-

(b)-

(c)-

(d)-

(e)  carry on the business or part of the business of the debtor in accordance with the directions of the Master or the creditors of the estate.

(f)-

(g)  sell or alienate property of the insolvent estate, subject to the directions of the Master or the creditors of the estate:

“provided that -

if such property or a portion thereof is subject to rights of a secured creditor, the secured creditor puts his or her consent in writing.”

The general duties of a liquidator include, but are not limited to the following:

to proceed without delay to recover and take possession of all the assets and property of the company,

to apply such assets and property in satisfaction of the costs of the winding-up and the claims of creditors and, to distribute the balance among those who are entitled therein.

The grounds upon which a liquidator can be removed from office were clearly spelt out in the case of Kawa v Muzenda N.O HB 10/14 where it was held that:

“The first respondent referred the court to the case of MaAfrika Creoplienge Pty vs Milliman & Powel NNO 1997 (1) SA 547.

The above case is authority for the proposition that the act of removal of a liquidator is a drastic process which should only be resorted to where the court is satisfied that a proper case has been made for the removal of such liquidator. I must hasten to underline the fact that this general rule should be applied after examining each case on its own merits. The principle in the cited case takes into account a situation where the liquidation process is nearing completion and where the liquidator has already done considerable work in the winding up exercise. In casu, the situation is an entirely different one. The first respondent has failed to demonstrate that he has exercised his duties for the benefit of the second respondent and the shareholders. He has not conducted his activities in a transparent manner. He has not properly accounted for the assets of the second respondent. In the four years he has held the position of provisional liquidator he has sold or allegedly disposed the assets belonging to the second respondent without lawful authority. He has failed to properly account for the proceeds thereof. He has not acted in the best interest of or for the benefit of the second respondent and shareholder. He has however been spirited in his efforts to remain in the position of provisional liquidator without showing any interest for the shareholder. It seems evident that the first respondent is benefiting from current position and is quite comfortable for the status quo to be maintained.”

APPLICATION OF THE LAW TO THE FACTS AND ANALYSIS

In this case the appellant sold the assets of Willdale Transport without authorisation contrary to s 49 (4) of the Act. Despite enquiries he was not quick to disclose how much he realised and to whom he had sold the assets thus evincing lack of transparency. The appellant acted without authority and sought to sanitise his actions by calling for a meeting in a bid to secure ratification of his actions. Calling for a meeting and securing attendance thereat would not amount to assent to his disposal of assets without authorisation.

The sale was in the circumstances, not only unauthorised but also not transparent. These actions by the appellant were contrary to the duties of a liquidator as stipulated by the law.

The appellant’s challenge of the court a quo’s decision to remove him from the office of the liquidator is mainly centred on the fact that the first respondent cited the repealed Insolvency Act whose s 80 had no bearing on the matter before the court. It is common cause the court a quo made an error in relating to the repealed Act but the error did not detract from the issue that was before it. The material facts giving rise to the claim pleaded remained intact. The court a quo in concluding that the appellant be removed from the office of liquidator based its finding on facts placed before it. The undisputed evidence that the appellant sold assets of the first respondent without authorisation was central to the court a quo’s finding that the appellant acted unlawfully when he disposed of the assets by sale without authorisation. By seeking to ratify the unauthorised sale the appellant’s position of having acted unlawfully was not sanitised.

The fact that there was no specific mention of the current Insolvency Act does not mean that s 80 of the Insolvency Act [Chapter 6:07] is not the applicable law. The respondent’s cause of action was properly pleaded in that all material facts to be proved were laid bare. In the case of Mukahlera v Clerk of Parliament & Ors 2005 (2) ZLR 365 (SC), this Court stated the following:

“The “cause of action” in relation to a claim is the entire set of facts which gives rise to an enforceable claim and includes every act which is material to be proved to entitle a plaintiff to succeed in his claim …”

In this case, the respondent pleaded all material facts required to be proved in order to succeed in the cause of action. The respondent sought removal of the appellant as a liquidator on the basis of misconduct, namely, the disposal of the respondent‘s assets without authorisation. The court a quo was referred to a repealed Act whose s 80 was not relevant to the enquiry on removal or otherwise of a liquidator. The court however related to the facts relating to the acts carried out by the liquidator (the appellant) an officer of the court. The court a quo made a finding that the action of selling assets without authorisation was misconduct warranting the exercise of its discretion to order removal of the liquidator. The court a quo made findings of fact which related to the appellant not performing the duties of a liquidator in accordance with the law. These findings are based on facts placed before the court. The law applicable is s 80 of the current Insolvency Act [Chapter 6:07] even though it was not related to by the parties and the court. It remains the applicable and relevant law.

The court is empowered to remove and declare a liquidator disqualified where the latter acts contrary to his duties.

The findings of fact by the court a quo in this case cannot be said to be grossly unreasonable to warrant interference by the appellate court.

See Barrows & Anor v Chimponda 1999 (1) ZLR 58 (S) and also Reserve Bank v Mufudzi & Ors SC 29/18 and Hama v NRZ 1996 (1) ZLR 664.

All these cases make it clear that an appellate court will not readily interfere with decisions of the lower court involving the exercise of discretion unless there is a finding, inter alia, that the decision was not based on reasonable grounds or that the decision was based on a wrong principle.

In casu, the appellant’s grounds of appeal challenge the factual findings made a quo but do not show that there was an error by the court which resulted in a misdirection on the law. The mere fact that the court a quo was referred to an inapplicable s 80 of the repealed Insolvency Act [Chapter 6:04] did not yield an erroneous decision. As correctly observed by the court a quo the cited Act was a repealed Act and therefore inapplicable. The court a quo in relating to the cause of action, correctly assessed the facts and determined whether or not the appellant had acted lawfully in disposing of the company’s assets without authorisation. The court a quo correctly found that such unauthorised sale of assets was not in the interest of the company and thus ordered the removal of the liquidator. The factual finding accords with s 80 of the applicable Insolvency Act [Chapter 6:07].

Having found there was no error in the exercise of its discretion by the court a quo, I find no reason why this Court should interfere with the court a quo’s decision to remove the liquidator from office.

The appellant in ground 10 sought redress on costs which were awarded on a punitive scale. Ordinarily costs follow the cause and they are in the discretion of the court. The court a quo expressed displeasure in the conduct of the appellant and thus issued on order of costs on a higher scale.  I find no compelling reasons to interfere with the court a quo’s finding.

As regards costs of this appeal, as the appeal is devoid of merit, it should be dismissed. I find no reason why costs should not follow the cause.

DISPOSITION

The removal of the appellant from the office of liquidator was proper as his conduct of selling assets without authorisation was an affront to the fiduciary duties of a liquidator. In the premises the finding of the court a quo cannot be faulted.

Accordingly it is ordered that:

The appeal be and is hereby dismissed with costs.

UCHENA JA		:	I agree

KUDYA JA		:	I agree

L. Madhuku, appellant’s legal practitioners

T. Zhuwarara, respondent’s legal practitioners