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.
{mprestriction ids="1,2,3"}The first respondent disputed that the companies were profitable entities and submitted that the financial records submitted by the applicants were misleading and should be disregarded. He also submitted that "bank statements are not indicative of the actual financial status of a business" and they do not comprehensively indicate the status of the company's expenses, profit liabilities and assets. He also averred that:
"Even if it were to be accepted that the company received significant income during that time, the fact remains that it was and still is unable to pay its debts".
The respondent also submitted that upon his assumption of office an evaluation of the company's assets and liabilities was conducted by Hammer and Tongues and the statement of the financial position was attached as Annexure N.
The respondent gave his overview of the contrasts in the figures presented by the applicants in 2013 versus the figures indicating the company's position in 2014. The respondent also denied running down the business and impropriety on his part.
Applicant's answering affidavit
In the answering affidavit filed for and on behalf of the applicants, the applicants aver that the first respondent has chosen not to respond to some very serious issues that have been raised against him and these are as follows:
(a) why he has not, to date, recovered the significant sums owed McDowells by its debtors;
(b) what it is that he is paying himself, particularly given that the creditors are not being paid;
(c) why he has continued to involve himself in a conflict situation in so far as his representation is concerned;
(d) why he has completely ignored the views of the creditors who have spoken loud and clear about the undesirability of the processes he has undertaken;
(e) why he has employed his relatives;
(f) why he has duplicated claims;
(g) why he runs a fraudulent duplicate accounting system.
The applicants also allege in the answering affidavit misrepresentation of figures of the amounts owed to creditors. They aver that the first respondent "cannot continue to allude to 'provisionally accepted claims'" when he should file finally accepted claims of the advertised US$ 4 700 000.
The applicants allege that first respondent is exaggerating the figures in order to justify liquidation.
The second respondent's case
The second respondent chose not to appear before the court but submitted a report.
In his report the second respondent submits that "litigation had the effect of delaying the liquidation process". The Master also observes that it is rather unfair for the applicants to "point a finger" at the liquidator for failure to pursue debtors. He also raises the fact that the main reason cited for removal of the provisional liquidator is that they have not been paid their dues.
Court's analysis of the application
The legal basis of this application is the aforesaid s 273 (1)(b)(iii) of the Companies Act and the provisions are as already stipulated or outlined in this ruling.
This Court also accepts the position outlined in the first respondent's heads of argument as an accurate reflection of what the law is in applications of this nature.
This Court is also guided by what was recently espoused in the case of KS Trust v Afrasia Bank Zimbabwe Ltd & Anor HH 572-16 (unreported) in which MANGOTA J stated, at page 9 of the judgment as follows:
"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 transparent 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".
This Court also accepts the position outlined in the applicant's heads of argument that:
"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. See in this regard, E Bertelsmann et al Mars: The Law of Insolvency in South Africa 9 ed (2008) pp 293-294." (my emphasis)
Having considered submissions made for and on behalf of both parties, in their heads of argument, and submissions made when this matter was argued by counsel, this Court is of the view that the balance of convenience favours the applicants, in that good cause has been established for the removal of the first respondent in terms of s 273 (1)(b)(v) of the Companies Act.
This Court is concerned that the provisional liquidator in this matter chose to address some and not all the issues raised by the applicants.
The applicants raised concern that there are debtors who owe McDowells approximately US$ 1.2 million and that the first respondent failed to embark on any recovery process. There was no substantial response given by the first respondent to this allegation. The applicants also raised concern that the first respondent did not disclose the fees charged in undertaking his duties. There similarly was no substantive response by the first respondent to this issue.
The applicants further alleged that the first respondent was running a fraudulent duplicate accounting system. The first respondent chose not to substantively answer this allegation.
This Court is of the view that the first respondent's "deafening silence" in respect of these and other serious matters demonstrated that the first respondent evinces unacceptable conduct for a person so placed in a position of trust.
The first respondent has, in the court's view, failed to place his own independent correct figures justifying the sale of the companies given, for instance, the averment that one of these companies is a fully-fledged hotel which is able to run smoothly, provide revenue, pay off creditors and provide employment.
This Court is persuaded by submissions made for and on behalf of the applicants in the applicant's heads of argument and that irreparable harm is likely to ensue if the first respondent is not removed from the post of provisional liquidator.
The court is also not satisfied with the position taken by the second respondent, who clearly did not directly and independently address each and every allegation raised by the applicants. The duty of the Master was to clearly thoroughly investigate each and every allegation raised by the applicants and not, with respect, regurgitate the position taken by the first respondent. Clearly, the Master took a very uninterested role in allegations raised against the first respondent. This was compounded by the non-appearance of the second respondent to these proceedings who took what this Court referred to as the "business as usual approach" during argument of this matter, in simply providing a report which did not really assist this Court in terms of each and every allegation raised against the first respondent.
Accordingly, this Court is of the firm view that the interests of justice will be best served if the first respondent is removed from office and replaced by a person who will be in a position to manage the companies in issue, honestly, dispassionately and professionally for the benefit of the creditors.
This Court therefore grants the order prayed for in terms of the draft filed of record.
Muzenda & Partners, applicants' legal practitioners
GN Mlotshwa Legal Practitioners, first respondent's legal practitioners