Shaka Hills Farm (Private) Limited v Zimbabwe Leaf Tobacco Company (Pvt) Ltd

### Preamble
1
HH 733-18
HC 11160/17
SHAKA HILLS FARM (PRIVATE) LIMITED
versus
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SHAKA HILLS FARM (PRIVATE) LIMITED
versus
ZIMBABWE LEAF TOBACCO COMPANY (PVT) LTD

HIGH COURT OF ZIMBABWE
TSANGA J
HARARE, 12 September & 7 November 2018

Opposed application

L Matapura for applicant
D Ndawana for Respondent

TSANGA J: These are confirmatory proceedings for the placing of applicant under final judicial management. Mr Antiock Kurauone is the current provisional judicial manager. What is disputed is not whether the company should be placed under final judicial management but whether this should be done whilst retaining Mr Kurauone as the judicial manager. The applicant argues that it is not for the respondent to decide on who is a fit and proper person since the Master did not raise any issue regarding Mr Kurauone’s suitability.

Applicant points out that it is only one creditor who is opposed to Mr Kurauone’s appointment and that moreover this is a creditor whose claim is said to be in violation of s 177 of the Companies Act [Chapter 24:03] which prohibits among other things, company loans to directors or guarantees of personal loans of directors which may have been given by any other person. The respondent is therefore said to be approaching the court with dirty hands. The provision relied on states as follows

“177 Prohibition of loans to directors
(1) It shall not be lawful for a company to make a loan to any person who is its director or a director of its holding company or to enter into any guarantee or provide any security in connection with a loan made to such a person as aforesaid by any other person.”

The respondent, on the other hand, alleges a lack of probity in dealing with the affairs of the company on the part of the judicial manager and thus argues that the Master should appoint a neutral and uncompromised person to be the judicial manager. The act of wrongdoing relied on in support of the contention for the removal of the judicial manager is said to consist of his failure to disclose that the company was previously under judicial management under his very stewardship. It is said that under a previous and since withdrawn application, namely HC 12123/16, a provisional order had been granted on 14th of December 2016. On the 17th of October 2017 when the order was to have been confirmed, a notice of withdrawal had instead been filed. Subsequent thereto, a new application for a provisional judicial management order had been obtained on the 18th of January 2018, again with Mr Kurauone as judicial manager. Furthermore, it is said a new deponent to the affidavit for judicial management, namely Victoria Mavis Tawengwa, had emerged in this latter application. She now distinctly blamed the previous deponent and director, Felicity Tawengwa, for the misfortunes of the company, including using the company to guarantee personal loans. In other words, the new deponent, also a director of the applicant, distanced the applicant from the loan guarantee, unlike Felicity Tawengwa the deponent in the previous application who had distinctly and categorically acknowledged the debt owing and had in fact averred to having taken agricultural inputs.

Respondent further argues that the company had been happy to issue a guarantee for the loan precisely because it was a company loan borrowed on its behalf by the director. Respondent therefore argues that s 177 should be read against the backdrop that this was a loan which the company itself had fully acknowledged. Respondent additionally points out that nothing is said to have been achieved by way of a turnaround under the stewardship of the current judicial manager during his earlier tenure. It is also argued that the judicial manager had did not hold any meetings and neither had he disclosed what he done for the company. Furthermore, respondent discloses that Flaintop Business Consultancy where the judicial manager used to be housed, have since said he is no longer operating from its premises. For the protection of creditors, it is therefore argued that it makes little sense to entrust a company to a judicial manager of no fixed abode and who has failed to be candid with the court on material issues relating to his management of the company.

In response to these assertions the applicant retorts that the loan to one of the directors was only discovered by the judicial manager and that there is no legal reason advanced why the court should regard the respondent as a creditor when the guarantee was in violation of the Act. Furthermore, the respondent is said not to have filed any claim with the Master and that its reason for objecting to Mr Kurauone’s appointment is because it knows that its loan to a director in her personal capacity will not be honoured.


An examination of the founding affidavit in the second application clearly reveals that in 2015 the respondent did sue Felicity Tawengwa in her personal capacity, to whom the loan was given. Upon execution of her property the respondent failed to find anything of value. It is averred that it was in an endeavour to avoid civil imprisonment that the said Felicity had then come up with the false deed of suretyship. In other words, the context under which the new application had come to be made does emerge from the affidavit. It is true that the affidavit did not disclose that Mr Kurauone who was proposed as judicial manager was the judicial manager under the withdrawn application filed by Felicity Tawengwa.

In resolving the dispute as to whether a new judicial manager should be appointed, it is of course instructive to look at the purpose of judicial management. The whole aim of judicial management is to put a company under experienced care and management with the goal of bringing it back to vitality. It goes without saying that the quality of a judicial manager should be beyond reproach. Whilst courts are indeed willing to leave issues of management in the hands of experts, accepting as they do that they are not best equipped to run affairs of a company or usurp the functions of its directors, it is nonetheless a fact that courts may be called upon to step in under the weight of the law to right improper conduct. With the value of judicial management being to instil confidence, the courts cannot simply rubber stamp the appointment of judicial manager where valid queries are raised.

It is the High Court which approves the judicial manager and considers the Masters report in this regard on the basis that the person that is being recommended is a seasoned professional. A demonstration of experience in turnaround is what is generally expected from a judicial manager. It is the responsibility of the judicial manager to unearth the reasons for the non-performance of the company and why it has been unsuccessful. It is the judicial manager who comes up with the resuscitation plan and which he puts at the creditors. It is true that there are no definitive time frames for a judicial manager to carry out these tasks but full and open communication and disclosure is expected.

Having said that, the decision to remove a judicial manager is not one to be lightly made and must be supported by the facts that it is indeed justified. The issue is whether this failure to disclose the judicial manager’s previous his role and the sequence of events in the turnaround endeavours of this company is of such serious a nature as to warrant the court’s intervention by ordering the appointment of a different juridical manager for the purposes of final judicial management. In other words, can it be said that the judicial manager cannot be trusted to run the affairs of the company fairly and in the interests of all its creditors.


As respondent points out the issue of lack of probity has been canvassed in *Deputy Sheriff Harare v Mahleza & Anor* 1997 (2) ZLR 425 (H). The need to make full disclosure is indeed required. See also *Nehanda Housing Cooperative Society and others v Moya and Ors* HB 469/15. As highlighted in that case, citing *R v Kensington Income Tax Commissioner* (1917) 1 KB 486:

“Where an *ex parte* application has been made to this court for a rule *nisi* or other process, if the court comes to the conclusion that the affidavit in support of the application was not candid and did not fairly state the facts, the court ought, for its own protection and to prevent an abuse of its process, to refuse to proceed any further with the examination of the merits. This is a power inherent in the court, but one which should only be used in cases which bring conviction to the mind of the court that it has been deceived……”

*In casu*, applicant argued that it was in fact in the diligent carrying out of his duties that the judicial manager unearthed the anomalies that led to the second application. It is true that the applicant made reference only to the application it filed on the 17th of January 2018 and that no reference whatsoever was made to a previous application or to Mr Kurauone having been appointed a judicial manager under HC 12123/16. If the court accepts the response by the applicant that the judicial manager unearthed the impropriety of the loan during his investigations, then surely the context of the second application makes sense. The context of the application was disclosed even if the fact that this was a second application was not categorically stated. Where a matter is withdrawn then that application ceases to be of effect. It must also be borne in mind that the application was a new one and therefore the procedures that had to be followed were those of a new application and this would explain why the nomination and appointment of Mr Kurauone followed the requirements of a new application.

Respondent argues that the issue is not about Mr Kurauone’s disqualification but that he is not a proper person to act. The omission to tell the court that Mr Kurauone had been previously appointed was in my view not catastrophic after all this was a new application with its own relevant procedures. The fact that the judicial manager is no longer with Flaintop Business Consultancy again misses the point that his appointment was in his personal capacity. The letter from Flaintop merely states that he was operating from their premises from some time and is no longer doing so.


It is also clear that the loan was made to Felicity Tawengwa in her personal capacity and that is why the respondent sued her in her personal capacity. The loan being a personal one could not have been guaranteed by the applicant on behalf of its director. In this respect applicant has a legitimate ground that the loan would not be honoured on the basis that the guarantee clearly falls foul of the Companies Act.

Additionally, in terms of s 305 of the Companies Act, in considering a confirmation order, among the factors to be considered are the following: a) The opinion and wishes of the creditors and members of the company
b) The report of the provisional judicial manager
c) The number of creditors who did not prove their claims at the first meeting of creditor and amounts and nature of their claims d) The report of the Master
e) The report of the Registrar of Companies.

The minutes of the creditors meeting held on 18 March 2018 by the judicial manager and the Master, were part of the record. Since these minutes by the Master did not disclose how the creditors voted, this court requested that this information be placed before it in order to make an informed decision. This was done.

The returns furnished by the Master reveal that NSSA, Telone, one Wellington Nhata, one Kennard Muranda and Shaka Hills farm employees voted for Antiock Kurauone. Four others, namely one C Chinyamutangira, Canesisas Chibangura, Paradzayi Machekera and Robson Jubenkanda opted for the Master to appoint. The Master used his discretion and clearly chose Antiock Kurauone to remain as the final judicial manager.

For all the above reasons canvassed herein, the application for the replacement of the judicial manager is not justified.

In the result it is ordered as follows:

a) The Applicant be and is hereby is placed under final judicial management.
b) Subject to the provisions of s 305 of the Companies Act [Cap 24:03] the Master shall appoint Antiock Kurauone as Final Judicial Manager with the powers and duties set out in s306 and 307 and subject to the supervision of this court.
c) From the date of that appointment and upon completion of the Bond of Security in accordance with s 274 of the companies Act [Cap 24:03], the Final Judicial Manager shall forthwith take over the management of the Applicant and shall prepare and submit reports in accordance with s 306 (i) of the Act.

d) The Final Judicial Manager shall have the powers set out in sub paragraph (a) to (m) of s 306 of the Companies Act [Cap 24:03], and, without the consent of the creditors or the shareholders, may raise money on the security of the Applicant’s assets, or with the consent of the shareholders dispose of part of the assets of the Applicant to raise working capital or enter into a scheme of arrangement to resuscitate the company.

e) All actions and application and execution of all writs, summons and process against the Applicant shall be stayed and not proceed without leave of this court.

f) The Final Judicial Manager shall, in terms of s 308 of the Companies Act [Cap 24:03] be entitled, from the assets of the Applicant, to the payment of remuneration at a rate to be determined by the Master of the High Court and to reimbursement for all out of pocket expenses incurred in the course of his duties.

g) The Final Judicial Manager shall pay both Applicant and Respondent’s costs of these proceedings out of the assets of the company.

Dondo and Partners: Applicants Legal Practitioners
Messrs Gill Godlonton and Gerrans: Respondents Legal Practitioners
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