The Liquidator of Afrasia Bank Zimbabwe Limited v Crustmoon Investments (Private) Limited and Nigel Chanakira

### Preamble
1
HH 598-23
HC 10824/17
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THE LIQUIDATOR OF AFRASIA BANK ZIMBABWE LIMITED

versus

CRUSTMOON INVESTMENTS (PRIVATE) LIMITED

and

NIGEL CHANAKIRA

HIGH COURT OF ZIMBABWE

CHINAMORA J

HARARE, 11 October 2021 & 3 November 2023

Opposed application

Adv F Girach, for the applicants

Mr Z T Zvobgo, for the respondent

CHINAMORA J:    The Deposit Protection Corporation filed the present application in its capacity as the liquidator of Afrasia Bank Zimbabwe Limited. The liquidator sought an order for the impeachment of first respondent’s share repurchase scheme codified under a Binding Memorandum of Agreement executed on 5 September 2013. This agreement was signed by Kingdom Bank Limited, Afrasia Kingdom Zimbabwe Limited, Crustmoon Investments (Pvt) Ltd, Afrasia Kingdom Holdings Limited, Nigel Muranganwa Kudzai Chanakira, Afrasia Holdings Limited and Charles Wawn.

Let me give a bit of detail on what transpired. The agreement in question involved the disposal of first respondent’s indirect interest in Afrasia Kingdom Zimbabwe Limited. The transaction involved a Share Repurchase Scheme for consideration of the sum of twelve million five hundred thousand United States Dollars (US$ 12 500 000). The first respondent’s ‘indirect interest’ in Afrasia Kingdom Zimbabwe Limited translated to 289 689 352 ordinary shares. The ordinary shares constituted forty-eight percent of the total issued share capital of Afrasia Kingdom Holdings Limited. In return, the first respondent would be paid the sum of two million five hundred thousand United States dollars (US$ 2 500 000), get rights to Kingdom Trademarks, get hundred percent shareholding in a company known as Berleo Enterprises (Pvt) Ltd. In addition, the first respondent would get hundred percent shareholding in two Special Purpose vehicles, the first of which was Turity Business (Pvt) Ltd (an entity housing non-performing loans amounting to ten million seven hundred and ten thousand eight hundred and eighty-two thousand United States Dollars), which had been fully provided for and or written off in the bank’s financial statements. The second one was Gowide Investments (Pvt) Ltd (an entity housing non-performing loans amounting to twenty-three million four thousand and sixty-one seven hundred and seventy-four United States Dollars), which had been fully provided for/or written off in the bank’s financial statements.

The parties further agreed that, pending the fulfillment conditions precedent, the first respondent’s forty-eight percent shareholding in Afrasia Kingdom Holding Limited was to be placed under the custody of one Charles Wawn. If Afrasia Kingdom Holding Limited failed to fulfill the conditions precedent, the said shares would be returned to the first respondent. Being part of the subject agreement, Afrasia Kingdom Zimbabwe Limited would settle the following obligations on behalf of the first respondent:

the sum of five hundred thousand United States Dollars that had been previously advanced by Kingdom Bank Limited to the first respondent together with interest at the rate of five percent per annum from the date of the advance to the date of full payment.

the sum of nine million and seventy thousand United States Dollars attributable to the value of assets transferred to the first respondent by Kingdom Bank Limited, and

the tax obligations arising out of the Share Repurchase Scheme.

The difference between the purchase consideration of twelve million five hundred thousand United States Dollars and the total of the settlements mentioned in the foregoing would be made into a bank account to be nominated by the first respondent. The share buy-back transaction was finalized on 18 February 2015 after the satisfaction of all the conditions precedent. It is the applicant’s case that the Share Repurchase Scheme under scrutiny is impeachable in terms of section 45 of the repealed Insolvency Act [Chapter 6:04]. In particular, the disposition in favor of the first respondent was approved and concluded by Afrasia Kingdom Holdings Limited within six months immediately preceding the placement of Afrasia Bank Zimbabwe Limited into liquidation. The applicant argues that the Share Repurchase Scheme had the effect of preferring the first and second respondents ahead of all creditors at a time when the liabilities of Afrasia Kingdom Holding Limited exceeded its assets.

Additionally, the applicant submits that the intention of the parties to the Binding Memorandum of Agreement was to protect the interests of the respondents through the preferential treatment of the first and second respondents above other creditors. The preference that was extended to the respondents resulted in significant prejudice to Afrasia Bank Zimbabwe Limited as well as to other creditors of the company. The disposition through the Share Repurchase Scheme had characteristics of a collusive dealing, and disposition of the first respondent’s shares by Afrasia Bank Limited (before placement into liquidation) was made outside the ordinary course of business.

The first and second respondents opposed the application, and began by raising preliminary points. The first was that there was no cause of action. Secondly, they argued that the Insolvency Act does not apply. Finally, they contended that the Reserve Bank of Zimbabwe approved the transaction as Afrasia Bank’s asset base was sound. On the merits, the respondents note that the transaction was primarily for the disposal of the first respondent’s shares in Afrasia Kingdom Zimbabwe Limited. In fact, it involved a sale of the shares to the parent company Afrasia Kingdom Zimbabwe Limited and not to Afrasia Kingdom Bank Limited, which was eventually placed under liquidation in April 2015. According to the respondents, the transaction could not have gone through without the approval of the Reserve Bank of Zimbabwe. They averred that the transaction was signed off and approved by the Reserve Bank of Zimbabwe, and was considered as one meant to give liquidity to the bank to help creditors and depositors.

There was no payment to the respondents in actual money. Instead, the sum of two million five hundred thousand United States Dollars was paid to creditors as loan repayments. In effect, it was the transfer of a non-performing loan book and equipment, which is now with an innocent third party. In any event, there was no value retained. The respondents argue that the transaction was above board, and that it benefitted the bank, its creditors and depositors. The agreement meant that Afrasia Kingdom Zimbabwe Limited was to pay the bank the outstanding obligations of its debtors to give liquidity to the bank. In essence, Afrasia Kingdom Zimbabwe Limited would pay:

the bank the sum of five hundred thousand United States Dollars plus interest in settlement of the first respondent’s obligation towards the bank;

the sum of nine hundred and thirty thousand United States Dollars owing on loan account to the bank; and

the sum of nine million and seventy thousand United States Dollars in settlement of the obligations under the Asset Sale Agreement to the bank.

On the basis of the above factual scenario, the respondents argue that there is no legal basis for the purported impeachment of the agreement entered into in 2013 as sought by the applicant. The respondents deny that the buy-back transaction was finalized on 18 February 2015. On the contrary, they state that the agreement was signed in 2013, which remained the date of settlement of the transaction. The respondents also deny that the transaction was meant to prefer them above other creditors to their prejudice. The applicant did not adduce any evidence in this regard.

The respondents further raised the preliminary point that the applicant cannot institute the present application. It is common cause that a liquidator has the authority to bring a claim of this nature on behalf of a company in liquidation. In this respect, s 45(1) of the repealed Insolvency Act empowered the trustee to bring proceedings to set aside any dispositions referred to in ss 40, 42, 43 or 44 of that Act. It is important to briefly state what each of the above sections provides. Disposition without value (made within or before two years of the liquidation application) is dealt with in s 40. Section 42 deals with voidable preferences, i.e, dispositions of property within six months immediately before the date of liquidation of the company. Then section 43 addresses the issue of an undue preference, being a disposition made by a debtor at a time when his liabilities exceeded his assets, with the intention of preferring one creditor over others. Lastly, s 44 refers to collusive dealings, which are transactions by a debtor before liquidation in collusion with another person. The respondents pointedly argued that there is no specific cause of action arising from the papers, as the applicant did not state whether the cause of action arose from ss 40, 42, 43 or 44. This appears in the para 5.5 of the opposing affidavit which is on p 70 of the record.  I note that

s 45(1) of the old Act does not require the trustee to first seek leave to do so.

Additionally, the respondents challenged the locus standi of the applicants to bring this application. Reliance was placed on s 221(2) of the repealed Companies Act [Chapter 24:03], which provides as follows:

“The liquidator shall have power, with the leave of the court or with the authority mentioned in subsection (4) or in paragraph (a) of subsection (4) of section two hundred and eighteen –

bring or defend in the name of the company any action or other legal proceedings of a civil nature and, subject to any law relating to criminal procedure, any criminal proceedings”.

[My own emphasis]

Just by way of clarification, subsection (4) of s 221 mentioned above, provides that the liquidator may, with the authority of a resolution of creditors and contributories, duly by this Act expressly to obtain leave of the court. Therefore, it is clear that s 221 of the repealed Companies Act [Chapter 24:03] required the liquidator who institutes or defends proceedings in the name of the company to meet certain conditions. Such a liquidator had, inter alia, to obtain the leave of the court or authority of a resolution of creditors and contributories. Before I conclude, it is necessary to examine the final preliminary point, namely, that the Insolvency Act does not apply to this case. The respondents contend that the Act would not apply because the bank was not wound up on account of its inability to pay its debts. Firstly, they relied on s 270 of the Companies Act

[Chapter 24:03], which stipulates that, in the case of a company being wound up for failure to pay its debts, the law governing insolvent estates shall apply with appropriate modifications. Secondly, the respondents argued that, in casu, the bank was liquidated in terms of s 206(a) of the Companies Act [Chapter 24:03], by way of surrendering its bank licence to the Reserve Bank of Zimbabwe. In this connection, the respondents relied on Afrasia Bank Bank Zimbabwe Limited SC 39-18, where the Supreme Court held that, if there was no evidence that the bank was unable to pay its debts, the provisions of the Insolvency Act are inapplicable.

On a consideration of the three points in limine, I am prepared to be generous to the applicant and find that the objection based on lack of cause of action has no merit. The applicant has alleged that the agreement signed by the respondents was meant to give preference to them over other creditors. Consequently, I will dismiss this preliminary point. Turning to the second objection, it is important to point out that the repealed Insolvency Act did not stipulate the powers of a liquidator, as did the repealed Companies Act. In casu. in the absence of leave of the court or authority from a resolution of creditors and or contributories, the applicant is improperly before this court.  I am inclined to agree that there is merit in the respondents’ preliminary point that the applicant cannot bring the present application. As I have decided this application on the basis of the point in limine on locus standi, I find it unnecessary to rule on the last objection that the Insolvency Act does not apply in the circumstances in casu.

Accordingly, I make the following order:

The point in limine on absence of a cause of action be and is hereby dismissed.

The point in limine on lack of locus standi be and is hereby upheld.

This application be and is hereby struck off the roll.

The applicant shall bear the respondents’ costs on the ordinary scale

Athrstone & Cook, the applicant’s legal practitioners

Dube, Manikai & Hwacha, the respondents’ legal practitioners