CHIPAMBA & ANOR v MILITALA NO & ANOR

HIGH COURT, HARARE

[Opposed Application HH 824-16]

November 18 and December 7, 2016

PHIRI J

Company – Judicial management and liquidation – Judicial manager – Liquidator – Duties – Officer of court – Duty to act in interests of all interested parties – Judicial manager failing to answer serious allegations about his conduct – Grounds for removal.

The applicants sought the removal of the first respondent as provisional liquidator of two companies. They alleged, inter alia, that he had failed to take any steps to recover debts owed to the companies; in addition, they alleged that he dismissed experienced employees and hired his relations. He did not answer any of the allegations, nor did he explain what he was paying himself.

Held, that a liquidator is answerable to the Master who, in turn, is answerable to the court. Both the liquidator and the Master are officers of the court. They are, as such, enjoined to be always clear and transport in the manner that they deal with cases which parties bring before them for determination. Anything which they do without transparency and/or accountability does, at the end of the day, impact negatively on the country’s system of justice delivery. Liquidators occupy a position of trust, not only towards creditors but also to the companies in liquidation whose assets vest in them. Liquidators are, therefore, required to act in the best interests of all interested parties. A liquidator should be wholly independent, should regard equally the interests of all creditors and should carry out his or her duties without fear or favour or prejudice.

Held, further, that irreparable harm was likely to ensue if the first respondent were not removed from the post of provisional liquidator. The interests of justice would be best served if the first respondent were removed from office and substituted and replaced by a person who would be in a position to manage the companies, in issue, honestly, dispassionately and professionally for the benefit of the creditors.

Case cited:

KS Trust v Afrasia Bank Zimbabwe Ltd & Anor HH 572-16 (unreported), followed

Legislation considered:

Companies Act [Chapter 24:03], s 273 (1)(b)(iii), (v)

N Chamisa, for the applicants

Ms F Mahere, for the first respondent

PHIRI J:

Applicant’s case

This is an application in terms of s 273 (1)(b)(iii) of the Companies Act [Chapter 24:03] in which the applicants apply for file removal of Winsley Militala as provisional liquidator for McDowells International (Pvt) Ltd (under provisional liquidation) (“McDowells”) and Lee’s Inn Hotel (Pvt) Ltd (“Lee’s”). The relevant provision of the Act which the applicants sought to rely on reads as follows:

“273 Power of court to declare person disqualified from being liquidator or to remove liquidator

(1) The court, on the application of the Master or person having an interest in the winding up—

(a) may declare that any person proposed or appointed as liquidator is disqualified under section 272 from holding the office and, if he has been appointed, may remove him therefrom;

(b) may remove any liquidator from his office upon any of the following grounds—

(i) absence from Zimbabwe, ill-health or any other factor tending to interfere with the performance of his duties as liquidator;

(ii) that he has accepted or offered or agreed to accept or has solicited from any auctioneer, agent or other person employed on behalf of the company any share of the commission or remuneration or of any other benefit whatever accruing to such auctioneer, agent or other person;

(iii) misconduct, including any failure to satisfy a lawful demand of the Master or of a commissioner appointed by the court;

(iv) failure to perform any of the duties imposed on him by this Act;

(v) any other good cause…”

The basis upon which this application is made is found in the applicant’s founding affidavit.

The applicants allege that:

(a) the first respondent has abdicated his responsibility in either capacity;

(b) he has lost the confidence of both creditors and the members;

(c) he is unfit to continue in office as provisional liquidator;

(d) in all the circumstances it is desirable that he be removed from his position of trust.

(e) there are debtors who owe McDowells plus or minus US$ 1.2 million and most of these debtors are civil servants whose salaries can be garnished and the provisional liquidator has not embarked on any recovery process; such failure impacts heavily on resuscitating McDowells.

The applicants also allege that the first respondent turned against the shareholders and the company and decided to liquidate the companies. His attraction, “so far as he was concerned”, was to sell the hotel. They also allege that the first respondent never did anything to revive the fortunes of the company.

In the alternative, the applicants allege that the provisional liquidator deliberately understates the income of Lee’s in order to justify his proposition for liquidation.

The applicants gave, in their founding papers, the historical background to this matter part of which related to court challenges in respect of the Lee’s case which was heard before Munangati-Manongwa J in Case No HH 134/16 and the McDowells case which was heard before Tsanga J in Case No HH 349/16.

The challenge in the matter before Munangati-Manongwa J, was successful but the challenge in the matter before Tsanga J did not succeed and there is an appeal pending in that subsequent matter.

The applicants further allege that there is impropriety in the manner in which the first respondent has carried out his functions. The applicants aver that there is a duplication of claims between the two companies “which gives a false impression that the creditor’s claims are huge.” In addition, the applicants allege that the first respondent placed reliance on some non-existent
claims.

The applicants also allege that the first respondent dismissed all experienced employees and hired people related to him. The applicants stated that they would be in a position to provide details thereof should the first respondent challenge the production of further details.

The applicants further alleged that the first respondent was not managing a proper financial system. The money made by the hotel is not booked and the applicants allege that a discovery has been made that

“He runs a system which operated on two receipt books …”

First respondent’s case

The first respondent filed a notice of opposition and opposing affidavit.

He submitted that he had not abdicated his responsibility as provisional liquidator of McDowells and Lee’s and stipulated that other creditors had not lost confidence in him.

He submitted, in his opposing affidavit, that the companies in issue ran into serious permanent difficulties owing to the cancellation of McDowells’ operating licence.

He also submitted that, at the time he assumed office as provisional judicial manager, Lee’s was also unable to pay its debts in excess of US$ 500 000. He also submitted that the “temporary moratorium” as stated by the applicants would not have resuscitated the business to make them profitable.

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