Judgment No. HB 82/13
Case No. HC 2077/12
Xref No. 3647/12, 332/13
ELLINGBARN TRADING (PRIVATE) LIMITED
For an order for judicial management and
Appointment of a judicial manager
ASSISTANT MASTER OF THE HIGH COURT
PEOPLE’S OWN SAVINGS BANK
IN THE HIGH COURT OF ZIMBABWE
BULAWAYO 4 APRIL AND 25 APRIL 2013
S. Mgunifor the applicant
No appearance for the 1st respondent
C. Nunufor the 2nd respondent
MUTEMA J: In order for the avid reader to fully comprehend the outcome of this proceeding, I find it in order to start by briefly outlining, in its chronological order, the path which it has trodden.
The applicant was incorporated on 13 March, 2007. It is essentially a restaurant whose speciality is traditional food. In case number HC 3829/11, the 2nd respondent, as plaintiff, issued summons against the applicant and three other defendants on 20 April, 2011 for the recovery of money lent and advanced in the sum of $18761,68 plus interest and costs. The 2nd respondent also sought and obtained an order declaring the mortgaged property, namely stand 14475 Bulawayo Township of stand 150038 Bulawayo Township registered in the name of Samuel Ncube (the 4th defendant), specially executable. The 2nd respondent did obtain judgment against the applicant, its co-principal debtors and guarantors in their personal capacities on 25 November, 2011.
When the 2nd respondent sought to execute the writ of execution against movable and immovable property, the applicant and its co-defendants filed an application for the suspension of the sale of the dwelling in terms of Order 40 Rule 359 of the High Court Rules, 1971. This application was dismissed by this Court on 7 May, 2012. Realising that the sale in execution of the immovable property was to go ahead, the applicant was undaunted and it applied for provisional judicial management via an urgent chamber application on 22 June, 2012.
On 5 July, 2012 NDOU J (as he then was) granted the provisional order couched in the following terms:
“TERMS OF THE FINAL ORDER SOUGHT
That you show cause to this Honourable Court if any, why a final order should not be made in the following terms:
(1) That Applicant, Ellingbarn Trading (Private) Limited be and is hereby placed under judicial management until such time as this order may be discharged.
(2) Whilst the Judicial Management order is in force, all actions, executions of writs, summons and other proceedings against the Applicant and all its Directors and or guarantors or other legal persons and or legal persona who have underwritten Applicant’s debtors shall be stayed and not proceeded with without leave of this Honourable Court.
(3) That Michael Batandi Mpofu of Mimosa Income Tax Consultants, 27 Bon Accord Road Westondale, Bulawayo be and is hereby appointed the Judicial Manager of Applicant on such terms and conditions as to remuneration as may be approved by the Assistant Master of the High Court.
(4) That the Applicant’s Directors and other persons hitherto vested with powers of management of Applicant be and are hereby divested of such powers.
(5) That all powers as described in 4 above be and are hereby invested in the Judicial Manager in (3) above in terms of section 306 (a) to (m) of the Companies Act [Chapter 24:03].
(6) The costs of this Application shall be paid by the Applicant through the Judicial Manager.
INTERIM RELIEF GRANTED
Pending confirmation or discharge of this provisional order,
(i) Whilst the Judicial Management is in force, all actions, executions of writs, summons and other proceedings against the Applicant and all its directors and or guarantors or other legal persons and or other legal persona who have underwritten Applicant’s debtors shall be stayed and not proceeded with without leave of this Honourable Court.
(ii) The Assistant Master shall forthwith appoint a Provisional Judicial Manager in terms of Section 302 (1)(b) (i) of the Companies Act [Chapter 24:03].
(iii) All interested parties may appear before this Honourable Court on the 18th day of October 2012 at 10:00 am or so soon thereafter as they may be heard, should they wish to oppose the confirmation of this Provisional order.”
When the applicant finally sought confirmation of the provisional judicial management order – it having flouted procedures on several return dates, for instance by failing to publish the provisional order in the Chronicle newspaper and the Government Gazette and convening of creditors meeting by the provisional judicial manager (both of which have not been done to date)-the 2nd respondent opposed the confirmation sought.
At the hearing the 2nd respondent’s counsel took the point in limine that applicant was automatically barred on account of not having filed its heads of argument within the stipulated ten day period, see Order 32 Rule 238 (2a) as read with (2b) of the High Court Rules, 1971.
The point taken had substance in view of the fact that the applicant, not having initiated the filing and service of its heads of argument as is generally the norm, the 2nd respondent filed its heads of argument on 21 January, 2013 and served them upon the applicant on 22 January, 2013. The applicant did not file its heads of argument until 27 March, 2013 when the mater had been set down for hearing on 3 April, 2013.
Applicant’s counsel, despite the fact that no copy of applicant’s heads was filed of record though the Court should accept that its heads were filed as alleged by counsel for 2nd respondent, argued with a straight face that applicant is not barred for its heads were filed five days prior to the date of hearing as is required by Rule 238(2a) proviso (ii).
It would appear that some legal practitioners are not conversant with the correct interpretation of proviso (ii) to Rule 238 (2a). Rule 238 (2a) provides that:
“Heads of argument referred to in subrule (2) shall be filed by the respondent’s legal practitioner [or applicant’s legal practitioner as the case may be] not more than ten days after the heads of argument of the applicant or excipient [or respondent as the case may be] as the case may be, were delivered to the respondent in terms of Subrule (1);
(i) no period during which the court is on vacation shall be counted as part of the ten day period;
(ii) the respondent’s heads of argument shall be filed at least five days before the hearing.”
The correct interpretation of this provision was articulated by MAKARAU J (as she then was) in the case of Vera v Imperial Asset Management Co. 2006 (1) ZLR 436 (H). At page 437 paragraph F-G the learned judge held as follows:
“The operative part of the rule is not to be found in the proviso. It is in the main provision and is to the effect that the respondent is to file his or her heads of argument within 10 days of being served with applicant’s heads. That is the immutable rule. However, in the event that the respondent has been served with the applicant’s heads close to the set down date, he or she shall not have the benefit of the full 10 day period within which to file and serve heads stipulated in the main provision but shall have to do so five clear days before the set down date. This is the import of the proviso to the main provision of the rule.”
While in that case the Court considered it in the interests of justice so as to avoid further costs and delays and exercised its discretion in terms of Rule 4C and granted applicant a default judgment, in the instant case, despite Mr Mguni’s attempt to cajole me to invoke that Rule 4C, I have not been persuaded that doing so will be in the interests of justice. I say so because no reasons were proferred for filing the applicant’s heads out of time and more importantly, as already shown above, the matter has already been delayed more than what is necessary. Surely a further delay will not be in the interests of justice. It is for that reason that I directed that the matter be heard on the merits with the applicant having been barred.
On the merits, MissNunu submitted that the applicant in fact, used a wrong procedure in bringing the application for provisional judicial management. As already stated above, application to place the applicant under provisional judicial management order was made by way of an urgent chamber application. There is nowhere in the Companies Act, [Chapter 24:03] is it provided that an application of this nature can be made via the chamber book. Sections 299 and 300 of the Companies Act are apposite. They are clear in their wording that the application for judicial management shall be a court application. The sections provide:
“Judicial Management Instead of Winding up
299 Circumstances in which provisional judicial management may be obtained
(1) Subject to section three hundred, the court may
(a) on an application being made to it for such an order by any person who would be entitled to apply for the winding up of the company, grant a provisional judicial management order; or
(b) on an application being made to it for the winding up of the company, grant instead a provisional judicial management order.
300 Requirements for provisional judicial management order.
The court may grant a provisional judicial management order in respect of a company
(a) on an application referred to in paragraph (a) of subsection (1) of section two hundred and ninety nine, if it appears to the court
(i) that by reason of mismanagement or for any other cause the company is unable to pay its debts or is probably unable to pay its debts and has not become or is prevented from becoming a successful concern; and
(ii) that there is a reasonable probability that if the company is placed under judicial management it will be enabled to pay its debts or meet its obligations and become a successful concern; and
(iii) that it would be just and equitable to do so; or
In view of the foregoing statutory provisions which admit of no other canon of statutory interpretation except their ordinary grammatical meaning it is clear that the correct procedure of obtaining a provisional judicial management order is not by way of a chamber application to a judge but by way of a court application. The provisions of Order 32 Rule 226 (2) (a) which allow a chamber application where the matter is urgent and cannot wait to be resolved through a court application are not applicable in casu for the following reasons:
1. the application was made ex parte yet in HC 3829/11 the other four interested parties therein were not served with it; and
2. the matter was, with respect, clearly not urgent since it is clear that the application was designed to shield Samuel Dube’s immovable property from being sold in execution and nothing else; and
3. the application was also clearly designed to frustrate 2nd respondent who had obtained a judgment against applicant and its fellow defendants as far back as November, 2011 and a writ of execution in February, 2012.
Summons was issued in April, 2011 when applicant had failed to pay its debt to 2nd
respondent. Surely if the need for judicial management became apparent at that time,
applicant would not have waited until 22 June, 2012 to file the purported urgent ex parte
chamber application for its placement under provisional judicial management.
Also, the fact that applicant instituted a chamber application instead of a court
application is fatal and Rule 229C (b) or 4 C cannot come to applicant’s rescue because 2nd
respondent was clearly prejudiced by applicant’s mala fides and is still being prejudiced. It is
therefore not in the interests of justice to condone such non-compliance.
Another issue I am constrained to advert to at this juncture which is closely connected
with the above issue relates to the incompetence of the order sought by the applicant, viz to
exonerate its directors and guarantors from their personal liabilities. In its founding affidavit
the applicant never stated the basis upon which liability against its directors and guarantors
was founded and why action against them should be stayed. Those directors and guarantors
did not file any supporting affidavits to the application but applicant simply threw in a
paragraph in the provisional judicial management order seeking to have the court grant them
immunity from legal action yet in casu they are liable in their personal capacities.
Utmost good faith must be observed by litigants making ex parte applications in placing
material facts before the court, so much so that if an order has been made upon an ex parte
application and it appears that material facts have been kept back, whether wilfully and mala
fideor negligently, which might have influenced the decision of the court whether to make an order or not, the court has a discretion to set the order aside with costs on the ground of non-disclosure: The Civil Practice of the Supreme Court of South Africa 4th ed. by Van Winsen, Cilliers and Loots page 367.
Had the material facts stated supra been disclosed to the court in the ex parte application, the court would, I believe, not have been hoodwinked into granting an order that has no legal basis, namely that of granting immunity against legal action to directors and guarantors who had been found liable in their personal capacities. This court is therefore constrained to exercise its discrection and set aside the provisional order on that basis.
The other relevant issue to consider is whether there is a reasonable probability that applicant will be a successful concern. The requirements for confirmation of a provisional order for judicial management are provided for in Section 305 of the Companies Act as follows:
“305 Return day of provisional judicial management order
(1) On the return day fixed in the provisional judicial management order, or on the day to which the court or a judge may have extended it, the court, after considering
(a) the opinion and wishes of the creditors and members of the company; and
(b) the report of the provisional judicial manager prepared in terms of Section three
hundred and three; and
(c) the number of creditors who did not prove claims at the first meeting of
creditors and the amounts and nature of their claims; and
(d) the report of the Master; and
(e) the report of the Registrar; may grant a final judicial management order if it
appears to the court that there is a reasonable probability that the company concerned, if placed under judicial management, will be enabled to become a successful concern and that it is just and equitable to grant such an order, or it may discharge the provisional judicial management order or make any other order that it thinks just.”
In Feigenbaum and Another v Germanis and others 1998 (1) ZLR 286 (HC) it was held that judicial management is an extraordinary procedure available to a company in special circumstances and for statutorily prescribed purposes and is only adopted when the court is satisfied that there is a reasonable possibility that, if placed under judicial management, a company which is unable to pay its debts will be able to do so in full, meet its obligations and became a successful concern.
In Tenowitz v Tenny Investments (Pty) Ltd 1979 (2) SA 680 SMALLBERGER J, clearly underscored the position at 685 F – G when he said:
“Judicial management is clearly not an experiment to determine whether a company can extricate itself from financial difficulties --- and the fact that it would have to continue for at least a number of years before [it] could hope to pay its debts suggests that it is not capable of becoming a successful concern within a reasonable time.”
The concept of judicial management is premised on the pedestal that a company has failed to be viable due to mismanagement which can be corrected by a judicial manager. In the instant case the applicant has not alleged mismanagement in its application. It alleged lack of capital, the liquidity crunch and competition. These are problems no judicial manager can arrest. The onus is on the applicant to show that the company’s misfortunes can be turned around by a judicial manager. This onus can only be discharged inter alia through the factors to be considered by the court which are listed in paragraphs (a) – (e) in section 305 (1) supra. In the instant case none of all those factors was filed in this application and consequently the court is hamstrung to determine whether there is a reasonable probability that the applicant, if placed under judicial management, will be able to become a successful concern and that it is just and equitable to grant an order for judicial management.
The above immediate finding brings me to the exercise of discretion reposed in the court by section 305 (1) of the Companies Act supra that the court, on the return day “may discharge the provisional judicial management order or make any other order that it thinks just.” (emphasis supplied).
Such other order includes a winding up order. Section 206 of the Companies Act empowers a court to wind up a company where inter alia the company is unable to pay its debts or if the court is of the opinion that it is just and equitable that the company be wound up. In Rag (Pvt) Ltd v Huizenga NO 1986 (2) ZLR 203 (SC) the Supreme Court held that where a company is commercially insolvent, its winding up would be justified on the additional ground that it is just and equitable if that is the only means by which a creditor can obtain payment. The discretion being dealt with here was also exercised in the Tenowitz case supra where the court inter alia discharged a provisional judicial management order and substituted it with an order for provisional liquidation.
In casu the applicant has clearly been unable to pay its debt owed to 2nd respondent as far back as 2011. It has abused court process by employing several delaying tactics in an endeavour to avoid payment. It cannot be conscionable for the court to make a creditor wait so long before being paid by a dilly dallying debtor. Where a company is unable to pay its debts, as is the position in the present case, an unpaid creditor has a right ex debito justitiae to have it placed in liquidation. It is just and equitable that the applicant be wound up.
In the result, I make the following order;
The provisional judicial management order granted by this Court on 5 July, 2012 and the order staying execution in respect of applicant’s directors and guarantors be and are hereby discharged and be substituted with an order for the applicant’s winding up.
Messrs Hwalima, Moyo and Associates, applicant’s legal practitioners
Mawere & Sibabnda,2nd respondent’s legal practitioners C/o Calderwood,
Bryce Hendrie and partners.