Zimbabwe: No Reconstruction Order for Hwange - High Court

19 February 2020

THE High Court has blocked the Government from placing Hwange Colliery Company Limited (HCCL)under reconstruction and appointing an administrator to run it.

In a judgment, the High Court disapproved Justice, Legal and Parliamentary Affairs Minister Ziyambi Ziyambi's decision to create a "potentially unwholesome situation for Hwange".

The judgment came after the minister had applied for High Court confirmation of his reconstruction order issued under the Reconstruction of State Indebted Insolvent Companies Act in October 2018.

However, the motion was contested by the expelled Hwange board, trustees and shareholders that had agreed on a viable scheme of arrangement.

They argued that Minister Ziyambi abused his powers in issuing out the order and could not unfasten a court-sanctioned scheme of arrangement, which Hwange concluded with its creditors, including the State.

Dismissing Minister Ziyambi's application, Justice David Mangota ruled that the order which the minister issued 17 months into the scheme of arrangement, clearly violated Section 2 (a) of the Act.

The section is peremptory as it does not allow the minister to use his discretion. Justice Mangota said it was trite that an order which is issued in direct violation of the law "stands on no leg".

"It is by parity of reasoning, evident that the application which the Minister made to confirm a nullity cannot stand," he said.

"It will simply collapse. It will do so on the basis that the foundation upon which it is predicated does not exist. The court in other words cannot confirm nothing."

The judge said the scheme of arrangement which Hwange concluded with its creditors, Government included, has the object of preventing Hwange from falling into liquidation.

"It offers a breathing space to Hwange to produce a long term hope to its creditors to receive payment from it when that become due," said Justice Mangota.

Government, he said, devised the scheme of arrangement and it was sanctioned by court under HC5012/16.

The judge also noted the fact that Hwange's creditors refrained from applying to set the case Number HC5012/16 aside constituted sufficient evidence that all of them, Government excepted, were happy with the scheme of arrangement.

"I remain satisfied, therefore, that the court-sanctioned scheme has not been abandoned as the minister alleges," he said.

"It is, if anything, well in place. Those who hatched it, in my view, have every belief of its long term efficacy."

To this end, Justice Mangota said the scheme of arrangement, which Hwange entered into with its creditors should in his view be afforded an opportunity to bear fruit.

The Government, he said as claimed, was at the forefront of its inception, hence it must, therefore, satisfy the court with concrete evidence that the scheme of arrangement has outlived its usefulness.

It was the court's view that Minister Ziyambi failed to prove his case on a balance of probabilities resulting in his case losing its legal footing.

He argued that Hwange was indebted to the state to the tune of US$220 million and the company was unlikely to repay the debt, owing to gross mismanagement, which was inhibiting the company from becoming a successful concern.

However, during the hearing, the minister failed to provide the court with report on the advice which he claimed he received from Mines and Mining Development Minister Winston Chitando, upon which he acted to place Hwange under reconstruction.

Hwange's directors argued that the reconstruction order was a tool which Minister Chitando had planned to remove them from the Hwange board.

Minister Chitando, the directors claimed, had targeted them for ordering a forensic audit of the company, covering the period from May 2016 to December 2017 when the minister was the company's board chairman.

Advocate Thabani Mpofu represented Messina Investments Limited who own 16,76 percent of the issued share capital in Hwange, Adv Thembinkosi Magwaliba acted for Minister Ziyambi, while Adv Lewis Uriri represented other listed respondents.

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