Judgment No SC. 124/04
Appeal No. 185/04
ZIMBABWE FINANCIAL HOLDINGS LIMITED
ZIMBABWE BANKING CORPORATION LIMITED v
SERVICES (PRIVATE) LIMITED
COURT OF ZIMBABWE
CJ, SANDURA JA & GWAUNZA JA
OCTOBER 28, 2004 & JANUARY 14, 2005
Fitches, for the appellants
E W W
Morris, for the respondent
SANDURA JA: This is an appeal against a judgment of the High
Court which set aside the purported cancellation of the sale of
sixteen million shares in the second appellant to the respondent, and
the purported cancellation of those shares.
background facts in this matter may be tabulated conveniently as
1. At the relevant time the second appellant (Zimbank) was a
wholly owned subsidiary of the first appellant (Finhold).
respondent (Finserve) was initially incorporated by Finhold for
Finholds workers and management. However, at the
the board of directors of Finserve consisted of Finholds workers,
after the resignation of the previous board, consisting
representatives of Finholds management.
2. Before December 1996 Finhold and its subsidiaries sold certain
debts to Climax Investments (Private) Limited (Climax) for
billion dollars. Climax paid that sum by means of two loans, which
were a loan of six hundred million dollars arranged by the
Bank of Zimbabwe (the RBZ) from a third party, and a loan of
four hundred million dollars from Finance Trust of Zimbabwe
Limited (Fintrust), a wholly owned subsidiary of the RBZ. In
respect of both loans, Finhold guaranteed the due
Climax of the terms of the loan agreements.
3. On 19 December 1996 a special resolution and an ordinary
resolution were passed at an extraordinary general meeting of
shareholders, which was attended by Mr E N Mushayakarara
(Mushayakarara), the Finhold group chief executive, and
S T Biyam (Biyam), Zimbanks managing director.
Finhold was represented by a proxy, Mr A L A Pichanick
(Pichanick), Zimbanks deputy chairman.
4. The special resolution increased the authorised share capital of
Zimbank from twenty million shares to thirty-six million shares
in relevant part, read as follows:
that the authorised share capital of the company be and (is)
hereby increased from twenty million dollars divided into
million ordinary shares of one dollar each to thirty-six
million dollars divided into twenty million ordinary
of one dollar each and sixteen million convertible preference
shares of one dollar each, by the creation of sixteen
convertible preference shares of one dollar each, entitling
holders of each convertible preference share to a dividend
comma five (3,5) times that of each ordinary share for a period of
five (5) years commencing on the 1st January, 1997,
and terminating on the 31st day of December, 2001, on
which date the convertible preference shares shall revert to ordinary
5. The ordinary resolution authorised the board of directors of
Zimbank to issue sixteen million convertible preference shares to
Fintrust, which, as already stated, had advanced the loan of four
hundred million dollars to Climax.
6. On 31 December 1996, following the passing of the ordinary
and special resolutions already mentioned on 19 December
written agreement was concluded between Finhold and Zimbank on the
one hand and the RBZ, Fintrust and Climax on the other
RBZ agreement). Finhold and Zimbank were represented by
Mushayakarara. The most important clauses of the agreement
clauses 2, 4, 6 and 8.
7. In terms of clause 2, as read with the preamble to the
agreement, it was agreed that Finholds guarantee in respect of
two loans advanced to Climax would be cancelled and would be replaced
by the creation by Zimbank of sixteen million convertible
shares of one dollar each which would be issued to Fintrust.
8. Clause 4 provided as follows:
Each new preference share will be vested with a dividend right of
three comma five times the dividend declared on each ordinary
These rights will apply until the payment of the final dividend for
the 2001 financial year only. Thereafter, the shares
to ordinary shares of $1 each on the day after the last date to
register for the 2001 final dividend (the conversion
9. In terms of clause 6, Finhold was granted the option to
purchase the preference shares at a price that would reimburse
the outstanding amount of its loan to Climax at any time
prior to the conversion of the preference shares into ordinary
And clause 8 provided that if Finhold did not exercise
its option by the conversion date, Fintrust could either request
to exchange the shares in Finhold for Fintrusts shares in
Zimbank, or dispose of the ordinary shares arising from the
to a third party on terms decided by Fintrust.
10. Following the conclusion of the RBZ agreement the sixteen million
convertible preference shares were duly created and issued
11. On 23 January 1997 the RBZ agreement was tabled before the
Finhold board of directors for ratification, and was duly ratified.
12. On 28 February 1997, the ordinary and special resolutions
passed at the extraordinary general meeting of Zimbank shareholders
on 19 December 1996 were tabled at the 8th annual
general meeting of Finhold shareholders for confirmation and were
confirmed. Mushayakarara and Biyam attended that meeting.
13. Thereafter, Fintrust held the convertible preference shares in
Zimbank until it resolved to sell them. Accordingly, on 2 October
2001 the RBZ wrote to Zimbank as follows:
This serves to confirm Fintrusts intention to dispose of its
sixteen million preference shares in Zimbabwe Banking Corporation
Limited, now converted to ordinary shares.
As per our
telephone conversation, we would greatly appreciate your
identification of a buyer on our behalf, whose identity and the
should be made known to us before any commitments are made.
14. On 5 October 2001 Zimbank responded to the RBZ letter dated
2 October 2001, and indicated that Finserve was offering
purchase the shares for two hundred million dollars. That offer was
accepted by the RBZ on 8 October 2001.
15. On 10 October 2001 Intermarket Discount House Limited
granted a loan of two hundred million dollars to Finserve to enable
it to purchase the shares, which it did on that date.
16. On 20 November 2001 an extraordinary general meeting of
Zimbanks shareholders, which was attended by Mushayakarara and
Biyam, was held. Part of the minutes of that meeting reads as
He (the chairman of Zimbank) highlighted that in line with the
(RBZ agreement), the Board (of Zimbank) was recommending that the
(preference) shares be converted to ordinary shares of the nominal
value of one dollar each and that they be exchanged for Finhold
shares following their acquisition by Finserve from Fintrust on
10 October 2001.
minutes indicated that the following resolutions were then passed:
a) That the sixteen million convertible preference shares of
the nominal value of one dollar each, issued and allotted to
(Fintrust), be and they are hereby cancelled, and that in place
thereof sixteen million ordinary shares of the nominal value
one dollar each be issued; and
the sixteen million ordinary shares of the nominal value of one
dollar each so issued be allotted to (Finserve) .
20 November 2001, following the allotment of the sixteen million
ordinary shares to Finserve, a share certificate was
Finserve in respect of those shares. One of the signatures on that
certificate was that of Mushayakarara.
18. A dispute concerning the shares subsequently arose between the
parties to this appeal, and on 4 December 2002 a joint meeting
of the Finhold and Finserve boards was held where it was alleged that
the acquisition of the shares by Finserve had been fraudulent.
19. On 9 May 2003 Mushayakarara wrote to Finserve demanding the
signing by all the directors of Finserve of a resolution transferring
the sixteen million shares in Zimbank to Finhold. The demand was
20. On 12 May 2003 the Finhold and Zimbank boards purported to
nullify the sale of the sixteen million Zimbank shares to Finserve,
and to cancel the shares. As Finserve could not accept that, it
instituted a court application in the High Court on 12 June
2003, seeking an order setting aside the purported nullification of
the sale and the cancellation of the shares. The learned judge
heard the application granted the order sought.
Aggrieved by that decision, Finhold and Zimbank appealed to this
hearing of this appeal the appellants applied for leave to adduce
further evidence. The evidence sought to be adduced was
in the form
of an affidavit deposed to by Regis Taruvinga (Taruvinga),
Finholds group company secretary and Zimbanks
secretary. The allegation was that the affidavit would assist this
Court in ascertaining the conversion date, which had
been assumed by
all the parties in the court a quo to be common cause and
to be a date in October 2001.
application was opposed and, after hearing the parties, we reserved
our decision on the matter.
Leopard Rock Hotel Co (Pvt) Ltd and Anor v Walenn Construction
(Pvt) Ltd 1994 (1) ZLR 255 (S), at 260 C-H, this Court set
out the principles which would guide it in determining whether an
for leave to adduce further evidence on appeal should be
first principle is that it must be shown that the evidence tendered
could not have been obtained with reasonable diligence for
use at the
trial. The second is that the evidence must be such as is
presumably to be believed or apparently credible. The third
the evidence must be such that its effect would be determinative of
the issue. And the fourth is that the conditions since
must not have so changed that the fresh evidence would prejudice the
application before us, no attempt was made to justify the leading of
fresh evidence on the basis of the above principles.
In fact, there
can be no doubt that the said principles have not been satisfied.
The application is, therefore, dismissed with
wish to deal with the appeal. The real issue in the appeal is
whether the boards of Finhold and Zimbank had any legal basis
nullifying the sale and transfer of the shares from Fintrust to
Finserve in October 2001, or for the cancellation of the shares
question. In my view, the answer to that question is in the
first place, as far as the cancellation of the shares was concerned,
the learned judge in the court a quo found that the
cancellation constituted a reduction of Zimbanks share capital,
and that as it did not comply with the provisions
of s 92(1) of
the Companies Act [Chapter 24:03] (the Act) the
cancellation was of no force and effect.
of the Act, in relevant part, reads as follows:
Subject to confirmation by the court, a company may, if
authorised by its articles, by special resolution reduce its share
in any way and may, if and so far as is necessary, alter
its memorandum by reducing the amount of its share capital and of its
evidence was placed before the learned judge to show that the
provisions of this section had been complied with. The conclusion
reached by the learned judge was, therefore, correct.
the submission by counsel for the appellants in his heads of argument
that the creation of the shares by Zimbank was irregular,
with respect, have any merit. The creation of the shares was
authorised by a special resolution passed at an extraordinary
meeting of Zimbanks shareholders which was attended by
Mushayakarara and Biyam.
it was common cause in the court a quo that there was
nothing irregular about the creation of the shares. As a result,
the learned judge said the following at p 3
of the cyclostyled
It is common cause that there was nothing irregular concerning the
creation of the sixteen million shares. If anything, the
and issuance of the shares was meticulously done, with the requisite
resolutions passed at board and at shareholder level.
was done according to the book.
addition, the allegation that the creation of the shares was
irregular was not supported by Mushayakarara who deposed to the
opposing affidavit on behalf of Finhold and Zimbank.
Mushayakararas complaint, as set out in the affidavit, was as
15. Prior to the exchange of correspondence in October 2001, the
issue of the option exercisable in terms of clause 6 of
agreement had not been brought to the Finhold Board for its
the Finhold Board did not engage itself as to the economic
consequences of the buy-back of the preference shares on shareholders
at the various stages covered in clause 6 or 8(a) of the RBZ
With respect, that is not a valid argument because neither Fintrust
nor Finserve could be blamed for Finholds failure to exercise
option. The fault lies with Finhold itself.
was fully aware of the provisions of the RBZ agreement, having been
represented in that agreement by Mushayakarara. As
indicated, the agreement was ratified by the Finhold board on
23 January 1997. In addition, on 28 February 1997,
ordinary and special resolutions passed at the extraordinary general
meeting of Zimbank shareholders on 19 December 1996
confirmed at the 8th annual general meeting of Finhold
counsel for the appellants made submissions in respect of the
conversion date. In this regard, it is pertinent to note
conversion date was common cause in the court a quo.
The parties assumed that it was a date in October 2001. Thus, the
deponent to the founding affidavit in the application for
adduce further evidence said:
The issue of the conversion date had been assumed to be common
cause by all the parties. It had been assumed that the conversion
date was a date in October 2001 when the preference shares were
purportedly converted to ordinary shares.
it must be borne in mind that at an extraordinary general meeting of
Zimbank held on 20 November 2001 a resolution
sixteen million preference shares to ordinary shares was passed. It
follows, therefore, that by agreement of the
shareholders at an
extraordinary general meeting the conversion date became 20 November
addition, it is pertinent to note that in terms of the special
resolution passed at the extraordinary general meeting of Zimbanks
shareholders on 19 December 1996, the conversion date was
31 December 2001.
in my view, the conversion date is not of much significance. That
is so because whether that date was 10 October
2001, when the
shares were sold to Finserve, or 20 November 2001, when Zimbank
resolved at an extraordinary general meeting
to convert the
preference shares to ordinary shares, or 31 December 2001, the
date of conversion in terms of the special resolution
19 December 1996, the fact is that Finhold was aware that it had
the option to purchase the shares in terms of the
RBZ agreement and
chose not to exercise its rights.
late as 20 November 2001, when an extraordinary general meeting
of Zimbank shareholders was held, and the chairman
indicated that the Zimbank board was recommending that the preference
shares be converted to ordinary shares following
their acquisition by
Finserve from Fintrust on 10 October 2001, Mushayakarara, who
attended that meeting, and who was very familiar
with the terms of
the RBZ agreement, raised no objection on behalf of Finhold. In
fact, on that date he signed the share certificate
which stated that
Finserve was the proprietor of sixteen million ordinary fully paid
is, therefore, no legal basis for the nullification of the sale of
the shares to Finserve or the cancellation of those shares.
circumstances, the following order is made
1. The application by the appellants for leave to adduce further
evidence is dismissed. The costs of that application shall be
by the appellants jointly and severally, the one paying the other to
2. The appeal is dismissed, with costs to be paid by the appellants
jointly and severally, the one paying the other to be absolved.
CJ: I agree.
JA: I agree.
Manikai & Hwacha, appellants' legal practitioners
Madzonga, respondent's legal practitioners