ECONET WIRELESS (PRIVATE) LIMITED

versus

RENAISSANCE FINANCIAL HOLDINGS LIMITED

and

RENAISSANCE MERCHANT BANK CORPORATION

HIGH COURT OF ZIMBABWE

MAVANGIRA J

HARARE6 AND 8 JUNE 2011

Urgent chamber application

H. Nkomo,for the applicant

A.B.C. Chinake, for the respondents

MAVANGIRA J: The applicant seeks a Provisional Order in the following terms as amended:

“TERMS OF INTERIM RELIEF SOUGHT

IT IS ORDERED:

1. That the first respondent’s share certificates in Africa First Renaissance Corporation Limited be deposited with the registrar, High Court, Harare pending the final determination of this application.
2. That the first respondent be and is hereby interdicted from transferring, disposing of or encumbering in any other way, their shareholding in Africa First Renaissance Corporation Limited pending the final determination of this application.
3. That the Respondents pay the costs of this application, the one paying the other to be absolved.

TERMS OF THE FINAL ORDER SOUGHT

             IT IS ORDERED:

1. That in the event of the respondents failing to discharge all of their obligations towards the Applicant, including the payment of all capital amounts due and owing to the Applicant together with all interest accrued, by 30 October 2011, the first respondent’s shareholding in Africa First Renaissance Corporation Limited, be transferred to the Applicant.
2. That the Respondents pay the costs of this Application jointly and severally, the one paying the other to be absolved.”

The facts presented to the court by the applicant are as follows. Sometime in or around July 2009, the Reserve Bank of Zimbabwe issued to the applicant Zimbabwe Foreign Currency Bonds with a face value of US$2,392,044,93 with a tenure of six months. At the first respondent’s specific request and instance, the applicant ceded the Bonds to the first respondent on the terms and conditions set out in an agreement signed on 22 September 2009. in terms of the agreement the first respondent was obliged to pay the sums of US$957,070,26 on or before 12 January 2010 and the sum of US$1,434,974,67 on or before 2 February 2001. The cession was secured by the first respondent’s listed investments whose face value at the time was in the region of US$5,700,000. Although it was not specified, it was at all times understood that the listed securities related to the first respondent’s shareholding of about 30% in Africa First Renaissance Corporation (AFRE), an insurance company.

Between 15 February 2009 and 18 May 2011 the applicant deposited with the second respondent a cumulative total of US$3,100,000 specifically for the settlement of the applicant’s unnamed external creditors who also included its unnamed suppliers. It is alleged that the second respondent failed to settle the applicant’s indebtedness to the external creditors and that it instead it converted the amount to its own use. At various intervals the applicant also gave the second respondent instructions to invest its money. The following are the directives which were given. On 3 March 2010 an instruction was given by the applicant to the second respondent to invest US$500 000 for one year. On 2 March 2011 an instruction was given by the applicant to the second respondent to invest US$2 000 000 000 for 30 (thirty) days. It is alleged that in both instances the second respondent failed to repay the invested monies, including interest, into the applicant’s account. The amounts were converted to the second respondent’s own use.

Upon demand being made of the second respondent to settle these amounts, the first respondent acknowledged its indebtedness in the sums of US$3,1 million and US$2,6 million. It did so by way of a letter dated 25 April 2011. The letter which was authored by the executive director and majority shareholder in the first respondent, one P.Timba, is headed:

“RE: SECURITY FOR ECONET FUNDS HELD BY RENAISSANCE FINANCIAL HOLDINGS GROUP (RFHL)”

The letter reads:

“Econet Wireless (Private) Limited deposited funds amounting to US$3,1 million with Renaissance Merchant Bank Corporation (“RMB”) and US$2,6 million with Renaissance Financial Holdings Limited (excluding interest). As security for the said amounts plus interest thereon, Renaissance Financial Holdings Limited, the holding company of RMB hereby cedes, transfers and makes over its 30% shareholding in Africa First Renaissance Corporation Limited (“AFRE”) to Econet Wireless (Private) Limited.

This letter shall constitute the instrument of transfer required in terms of the Companies Act in the event that the amount hereby secured or any part thereof is not paid in full by the 30^thof October 2011. RFHL hereby nominates and appoints Sheila Mugugu as its lawful attorney on its behalf to do everything necessary to ensure that registration of ownership of the shares is transferred into the name of Econet Wireless (Private) Limited in the event that payment is not effected as aforesaid.

If payment of the outstanding amount or any part thereof is not effected on the due date, the entire 30% shareholding of AFRE hereby ceded shall be transferred to Econet Wireless (Private) Limited and held by Econet Wireless (Private) Limited, provided that should a valuation be conducted by Deloitte & Touche as an expert and not as an arbitrator, at the instance of either party, determines that the 30% shareholding in AFRE has a value that exceeds the outstanding amount. In that event, the excess shall be returned to RFHL. In the event that the valuation shows that the outstanding amount is more than the value of the shares, RFHL will pay the balance.” (sic)

The applicant understands that the 30% shareholding in AFRE by whose cession the first respondent secured its indebtedness to it, constitutes the first respondent’s major asset. The applicant also states that although the cession was effected on 25 April 2011, the first respondent was given up to 30 October 2011 to settle its indebtedness to the applicant. It states that the respondents’ indebtedness is still to be settled.

In the applicant’s founding affidavit reference is made to media reports to the effect that the respondents may be facing liquidity problems and that after some investigations by the Reserve Bank of Zimbabwe it was reported in the Financial Gazette of 19 to 25 May 2011 that the National Social Security Authority (NSSA) was “considering a ‘bailout’ of the respondents.” It was also reported that NSSA would be particularly interested in an investment in the first respondent because such an investment would give the institution access to the huge property portfolio held by AFRE in which RFHL holds a 30% stake. It is further stated that as this is the same 30% stake ceded by the first respondent to the applicant in the letter of 25 April 2011, the applicant’s legal practitioners immediately wrote to the respondents on 20 May 2011 seeking clarification of the contents of the newspaper article. A specific request was made in the letter that the shares be not disposed of before the applicant’s indebtedness is settled. The letter was copied to the Reserve Bank of Zimbabwe, NSSA and the Ministry of Finance.

The founding affidavit also makes reference to the Financial Gazette of 2 to 8 June 2011 in which was reported that the same shareholding might be sold by one Jayesh Shah in respect of monies owed to him by the second respondent. The applicant states that the 30% shareholding in AFRE and the shareholding in that newspaper report is the same 30% ceded to the applicant by the first respondent. The applicant states that it has become extremely concerned that the security which the first respondent ceded to it might be the basis through which third parties take over the affairs of the respondents without making any arrangements to settle the amounts admittedly owed to the applicant. It is for this reason, the applicant states, that it has approached this court on an urgent basis; to secure the first respondent’s shareholding in AFRE pending a resolution of its indebtedness to the applicant.

            At the onset of the hearing in chambers Mr. Chinake, the respondents’ legal practitioner raised a number of preliminary points for the court’s determination. He submitted that the broad contextual backdrop is that in essence the court is dealing with an insolvency situation. Consequently, the court’s duty is to protect the interests of all creditors, depositors and shareholders and not merely one creditor as would happen were the court to grant the relief sought by the applicant. He submitted that the first respondent is the holding company which wholly owns the second respondent, the bank. He submitted that both respondents are regulated entities and that on 2 June 2011, a day before this urgent chamber application was filed, the second respondent was placed under curatorship by the Reserve Bank of Zimbabwe. The relevant “Direction in Terms of the Provisions of Section 53 (1)” of the Banking Act, [Cap 24:20] was placed before and produced as evidence of that fact. The Direction reads:

“1. The Reserve Bank of Zimbabwe (“Reserve Bank”) hereby orders and directs

that Renaissance Merchant Bank Limited (“Renaissance Merchant Bank”), be placed, forthwith, upon service of this direction upon the Chairman of its Board of directors, under the management of a curator for six months.

1. After a thorough investigation by the Reserve Bank it was determined that:

     i. Renaissance Merchant Bank is in an unsound financial position in that -

 (a) the bank is technically insolvent with negative capital adequacy ratios;   (b) there is a high level of non-performing insider and related party exposures;

(c) the bank has been experiencing chronic liquidity and income generation    

      challenges; and

(d) there have been poor corporate governance practices and violations of

     banking laws and regulations.

1. It is most unlikely that Renaissance Merchant Bank will be restored to a

healthy position unless it is placed under curatorship.

1. The Reserve Bank considers that immediate action is necessary to prevent  

irreparable harm to the banking institution and its depositors, creditors and shareholders and to the banking sector in general.

1. The Reserve Bank hereby appoints Mr. Reggie Saruchera to be the curator of

Renaissance Merchant Bank. In that capacity he will exercise all and any of the powers set out in subsection (2) of the Banking Act until such time as the financial situation of Renaissance Merchant Bank is resolved.

1. In order to preserve the current financial resources of Renaissance Merchant

Bank and to prevent the uncontrolled withdrawal of funds and assets Renaissance Merchant Bank, the Reserve Bank hereby orders and directs that all deposits with Renaissance Merchant Bank and all assets invested in it are hereby frozen for a period of six months from the date of this direction. This means that there will be no dealing with deposits except to the extent that the curator may permit.

1. Renaissance Merchant Bank will however, remain open to the banking public

as the institution will continue to provide limited financial services at the discretion of the curator. The curator will take over and assume the management of Renaissance Merchant Bank in such a manner as he considers prudent and most likely to promote the interests of the institution, its depositors and creditors.

1. The curator will, in due course, recommend to the Reserve Bank how the

financial situation of Renaissance Merchant Bank should be resolved.”

            Mr. Chinake referred the court to ss 53 to 56 of the Banking Act being the applicable provisions in situations concerning curatorship. He further submitted that the business of the second respondent has been suspended for two weeks with effect from Friday and that this has been done for the reasons stated in paragraphs 4, 5 and 6 of the “Direction”; the protection of all depositors, creditors and shareholders of the institution. He submitted that it is the duty of the curator to consider all claims including the applicant’s claim. The curator must thus be afforded the opportunity to conduct his business. He submitted that it is for this reason that the law requires that the leave of the court be obtained first before proceedings such as these are instituted.

            The court was also referred to ss 260 and 310 of the Companies Act, [Cap 24:03]. Section 260, it was submitted, provides that where a company enters into an arrangement with its creditors just before it becomes insolvent or in circumstances where its insolvency is imminent, that arrangement must be sanctioned by a special resolution of the company. Such arrangement must also be brought before the court within a month for review, or amendment, or being set aside or confirmed. The provisions are strict and do not allow for unilateral acts. Section 310, it was submitted, prohibits undue preferences in circumstances where a company is insolvent. It was submitted that in casu although the depositor banker relationship goes back more than a year, it was only in April 2011 when it was common cause that the Renaissance group was in trouble, that this additional assurance or security was sought. In such circumstances therefore, the cession of the 30% shareholding in April 2011 is undue preference of a creditor and the entertainment of this application by this court would be tantamount to allowing the applicant to circumvent the laws of the country which provide for and require the protection of every creditor. In insolvency matters only secured creditors enjoy a preference over other creditors.

            The second preliminary point raised by Mr. Chinake is that the matter is not urgent because although the application was signed on 16 May 2011, it was only filed on 3 June 2011. Furthermore, from the narration of events in the founding affidavit, the applicant has known about the problems at the Renaissance group for quite some time and chose not to do anything about it until after the second respondent was placed under curatorship. In addition, the front page of the Herald of Friday 3 June 2011 reported on the placing of the second respondent under curatorship, yet the application was still filed, it was submitted, without the court being advised that circumstances had changed. He pointed out that in return for the cession the first respondent was given until 30 October 2011 to settle the debt. The debt is thus not due and the applicant ought not to have approached the court at this stage. The court is in effect being asked to grant relief on a debt that is not due, on an urgent basis yet the relief sought would have significant??? consequences. The applicant must wait until 30 October 2011. It was further submitted that the order being sought by the applicant is thus incompetent. As the second respondent is now under a curator, there is no reason for this court to oust the curator’s jurisdiction, and that, on an urgent basis.

            In support of the contention that the matter is not urgent, Mr. Chinake referred the court to Makamure v Devon Engineering (Pvt) Limited, 2008 (2) ZLR 319;HH106/08 and Nyika Investments (Pvt) Limited v Zimasco Holdings & Others 2001 (1) ZLR 212.

            The next submission made was that even on its own papers the applicant accepts that there are other competing claims against the same security which they are claiming, yet the said parties have not been brought before the court. Specific reference was made to one Mr. Jayesh Shah and possibly NSSA.

            In his response to these issues raised, Mr. Nkomo for the respondents submitted that in as far as the issue of joinder of the other claimants was concerned, the respondents’ legal practitioners’ letter of 20 May was also sent to them. He submitted that Mr. Shah also has the same shareholding yet the respondents have not    advised the court as to who they owe and how much they owe. He submitted that the applicant has had to come to court before 30 October 2011 because there already are competing claims by other people to the same shareholding which was ceded to it. Furthermore, its letter to the respondents requesting an undertaking that the same shareholding would not be disposed of has gone unanswered. He submitted that had there been a response to its letter, it would not have come to court. The applicant is now asking for security because the Renaissance group is in financial problems. He submitted that the issue of non joinder is inconsequential and must be dismissed with costs.

            On the issue of urgency, Mr. Nkomo submitted that when the applicant realised that the respondents were in financial problems, it had to write the letter of 20 May 2011 because the 30% shareholding or US$8 million does not belong to an individual but to a company and a response to that letter would have enabled it to answer to its shareholders who are the owners of the money. By 3 June 2011, ten working days later, there being no response to the letter, the applicant had to bring the matter to court. He submitted that the urgency must be calculated or deemed to have been set in motion on 20 May when the letter was written and that the need to act arose when the letter went unanswered by the respondents.

            Mr. Nkomo also submitted that while Mr. Chinake had reached the correct conclusions regarding the law as to curatorship, he had however, missed the point that the respondents are two separate entities with separate boards and that they operated separately. The cession in issue was made to the applicant by the first respondent which has a shareholding I AFRE; the second respondent does not. He submitted that the letter of 25 April 2011 advised the applicant to deal with the first respondent only and not with the second and that the debt was thus restructured on 25 April 2011. Furthermore, the first respondent is not under curatorship. The curator who has been appointed has no mandate and is not empowered to go into the affairs of the first respondent. He submitted that the issue of curatorship is therefore irrelevant in this matter. He submitted that the applicant is not seeking any relief against the second respondent and that there is a typographical error on paragraph 2 of the interim relief sought. He thus sought an amendment of the Provisional Order and the effect of that amendment is such that relief is now being sought only against the first respondent. He submitted that should the applicant seek to recover its money now, it does not go to or look to the second respondent but to the 1^stbecause the 1^strespondent is now the debtor as confirmed by the letter of 25 April 2011 in terms of which it took up the debt and ceded its 30% shareholding in AFRE to the applicant. At the close of his submissions on this aspect the asked Mr. Nkomo what the role of the second respondent was in these proceedings. He responded by indicating that he wished to withdraw the application as against the second respondent and that he was tendering costs. The formal notice of withdrawal was filed with the Registrar on the morning of 8 June 2011.

It was also Mr. Nkomo’s submission that this application is also meant to stop the possible use of s 26 of the Insurance Act by the Minister of Finance in view of his indication to the House of Assembly that that was a possibility. He submitted that the preliminary points raised have no merit and must be dismissed with costs.

            In response to the withdrawal against the second respondent, Mr. Chinake submitted that the withdrawal is inconsequential. The statutory position is that the curator must be given an opportunity to investigate the second respondent and deal with creditors and debtors alike. He submitted that it was because the applicant was aware of this requirement that it cited the second respondent; because the money was paid into the bank, the second respondent. The second respondent is thus a real, substantial and interested party. He submitted that the court must determine the case that was placed before it. Mr. Chinake submitted that the first respondent, an entirely different corporate entity, seeks by way of the letter of 25 April 2011 to compromise a creditor debtor relationship between the applicant and the second respondent. Whether or not the second respondent is aware of this is anyone’s guess. In any event, the curator of the second respondent in carrying out his duties or conducting his business will also be dealing with deposits made by the applicant into the second respondent.

            The applicant has now withdrawn the application as against the second respondent. The second respondent is thus no longer of any relevance to this application. It is trite that the first and the second respondents are legally two separate corporate entities. It is also common cause that it is the second respondent which has been placed under curatorship, and not the first respondent. The placement of the second respondent under curatorship and any submissions made in relation thereto are thus of no consequence in this matter. It also a fact established on the papers that by its letter of 25 April 2011, the first respondent took over and assumed the second respondent’s indebtedness to the applicant. In terms of the contents of that letter the applicant gave the first respondent up to 30 October 2011 to settle its indebtedness. However, there appear to be competing claims which subsequently became known to the applicant, for the same 30% shareholding which the first respondent ceded to the applicant as already stated above. Hence the applicant’s letter of 20 May 2011 requesting an undertaking to the effect that the shares would not be disposed of before its indebtedness is settled. The applicant waited about ten or so days after writing the letter before it filed this application. In the circumstances of this case a period of about ten days cannot, in my view, be said to be inordinate.

            It is also my view that the withdrawal against the second respondent cannot be said to be inconsequential particularly if consideration is taken of the nature of the relief sought in conjunction with the fact that the first respondent is a separate legal entity to the second respondent. The withdrawal against the second  respondent taken in conjunction with the fact that the first respondent is not is not under curatorship seems in my view, to render  redundant Mr. Chinake’s submissions regarding what he referred to as the broad contextual backdrop which the court must consider in determining this matter.

            For the above reasons it appears to me that the applicant has established justification for the hearing of this matter on an urgent basis. I therefore dismiss the first respondent’s preliminary issue relating to urgency with costs.

Mtetwa & Nyambirai, applicant’s legal practitioners’

Kantor & Immerman, first respondent’s legal practitioners.