What Is A Company? – Corporate Literacy Masterclass: The Status of a Company, The Rule of Law and Principles of International Law on Dispute Settlement

Brian Kazungu, 03/02/2021

Being a businessperson and running the affairs of your own company can be the wish of so many people across the world but navigating the corporate world is an adventure that must be taken with some knowledge of business dynamics and an exposure to the accounts of those who have walked the path.

A critical understanding of what is a company and what it is not important in helping every entrepreneur to making informed decisions in the business world. Without such knowledge, as a businessperson, you are likely to labour under a mistake at your own expense and at the expense of your stakeholders.

More-so, it is equally important to have an understanding of international legal provisions when you do business in this global village because such an understanding helps you to make the right decisions when there is a dispute where your operations spans across two or more countries.

This is because many countries are governed by different legal provisions and thus when a dispute arises between companies in different countries, you must have an idea on how the laws of these countries will be applied in settling the dispute.

Another important element to consider in the corporate world is to understand what happens to the status of a company when there is a change of a law that governs it. Does the company still continue to exist or it becomes a new creature?

The following account or narration of what happened two companies in South Africa and a company in Zimbabwe is a befitting case study to the issues mentioned above.

It is a story told by Mutumwa Mawere as part of the Connections2Communities (C2C) initiative where corporate and civic issues are discussed so that people may learn from the experiences of others.

Mutumwa Mawere: “As background, three companies play a central role in the facts of the dispute. These companies are: 1. SMM Holdings Private Limited (SMM), 2. Petter Trading Pty Limited (Petter), and 3. Southern Asbestos Sales Pty Limited (SAS).

It is fact that Petter and SAS were incorporated and operated in terms of the laws of South Africa and as such they were South African corporate citizens.

SMM was a company incorporated and operated in terms of the laws of Zimbabwe making it a Zimbabwean corporate citizen.

SMM’s books and records as required by law were kept at the Registrar of Companies in Bulawayo.

Equally, Petter and SAS’ records were kept at CIPC.

It is a requirement that a company being a creature of law, should have its birth certificate and other records kept in a public place that is easily accessible to the general public.

To be a company, the entity must have a unique registration number. One can easily see what chaos can ensue if the birth certificates are messed up or duplicated.

No one can dispute that at the core of the dispute is the allegation that Petter obtained a judgment against SMM on 6 July 2004 permitting it to collect from export proceeds due to SMM from exports collected by SAS as its agent in the event that SMM was unable to make good on what it owed Petter in relation to goods sold and delivered by Petter to SMM.

It is not in dispute that at the material time, SMM owed Petter an amount of about R26 million. SMM could not remit the funds because of the interference by the RBZ that instructed SMM not to make any payment to any company associated with me.

SMM’s was forced to surrender its export proceeds to the RBZ at a fixed exchange rate resulting in the company getting the local currency equivalent.

As an example, if SMM received US$1 million, it would get Z$55 million at an exchange rate of US$1:Z$55, when the market rate was about US$1:Z$150.

This meant that if SMM wished to pay to Petter, it was impossible to get the US$1 million back from the market outside the directive by the RBZ.

This resulted in Petter not being to pay to its SA creditors in the ordinary course of business.

Dr Sanangura who was SAS’ Finance Manager at the material time explained to the Court that the cession agreement and the court order of 6 July 2004 were meant to protect Petter from its SA creidurors who were prejudiced by the actions of the RBZ.

Against this background, a plan was deviaed in Zimbabwe involving state and non-state actors to steal SMM by force of law.

In terms of the Companies Act, the control and management of a company is vested in its directors who are appointed by shareholders.

It was common cause that the three entries involved were under the ultimate control of me.

The Chairman of SAS and Petter when the court order of 6 July 2004 was Mr. Mariemuthu, who was only joined in the suit after its commencement.

The Chairman of SMM was Dr. William Mudekunye whose freedom and life was under threat in Zimbabwe as he was being accused of complicity in obtaining a fraudulent judgement to prevent export proceeds from being paid by SMM.

The claim was premised on the allegation that in relation to SMM, it was me who controlled the three companies and not their directors as per the prescripts of the law

The directors were regarded as puppets.

Without alienating me from the affairs of SMM, it was deemed that there was no way the alleged externalization or prevention of the flow of funds in lieu of the cession court order from SAS to SMM was to change the control and management of SMM in the first instance and then use the dismembered SMM to litigate against me in SA.

This is how the reconstruction decree was conceived and born.

As a consequence of the decree, an Administrator was appointed extrajudicially on 6 September 2004.

The question is what was the legal standing of SMM as at the time the directors of the company were dismissed by the operation of the decree?

In terms of the Companies Act, the right to appoint and remove directors is vested in the shareholders.

It is common that SMM’s directors were removed by the Minister without the involvement of the Court in Zimbabwe.

Public power was used to divest and deprive shareholders of SMM of the right to dismiss the directors of the company.

Absent consent, what follows is force and theft. The government acquired the right to choose to dismiss directors of a private company by virtue of the exercise of public power.

A law had to be created allowing the government to exercise jurisdiction over a private company in the case the company targeted was deemed at the sole discretion of the Minister of Justice to be not only state indebted but Insolvent.

Although the constitution of Zimbabwe provides for the equal treatment of creditors and debtors, this law violated this principle by purporting to make the state, an undefined creature, a party in the affairs of a company on the premise that a state controlled company like the electricity supplier, ZESA, was deemed to be the state for the purposes of giving life to the scheme.

In other words, it is law in Zimbabwe that if a company owes any funds in the ordinary course of business, this Reconstruction Act applies. It is significant that the law applies retrospectively.

The transfer of control from the directors of SMM to a creature of statute, the office of the Administrator, was done without the consent and knowledge of the rightful parties who were related to SMM.

The decision to strip the shareholders of the legal nexus to SMM was done in an open and brutish manner.

The question that arises is whether after the implementation of the reconstruction decree, what became the legal status of SMM?

In terms of the operation of the reconstruction decree, the company was referred to as a company under reconstruction akin to the nomenclature used in relation to a company under liquidation save to say that liquidation is provided for as a remedy following a company’s inability to pay its debts.

In relation to liquidation or judicial management, it is the court that has the discretion to order the placement of a company under a new regime.

This regime change has to be preceded by an independent and impartial determination of the existence of indebtedness and then the quantum of such Indebtedness which steps were not taken.

In fact, there is no provision in the decree for any involvement of the courts in determining the existence of Indebtedness prior to the issuance of an order.

It is also worth highlighting that the state is vested with the power to unilaterally and arbitrarily determine that a targeted company is indebted and proceed to issue an order that limits the constitutional rights of the affected parties.

Can a company whose shareholder are stripped of their inalienable rights be considered to remain a company?

In the same vein, can a human being stripped of his right to enjoy a relationship with his property and freedom to prevent draconian measures being applied to him be considered to be human in a constitutional democracy?

Al these events occurred in the territory of Zimbabwe.

Can Zimbabwean law have extra-territorial application? The answer is no.

In terms of international law, the Administrator’s powers was supposed to be limited in operation to the jurisdiction of Zimbabwe.

Absent authority, a company cannot act let alone institute legal proceedings.

It is not in dispute that the litigations in South Africa after the placement of the control and management of SMM under the control of the Administrator at the instigation of the Minister of Justice to whom the Administrator reported to.

This made SMM automatically an organ of the state of Zimbabwe.

However, the judgment sought and obtained in SA related to the affairs of a company called SMM.

The reality is that the SMM, the real claimant against the Defendants, was killed on 6 September 2004 by an act of state.

What followed is that it was the government of Zimbabwe using the company as a vehicle to directly claim on behalf of a company?

Against this backdrop, the decree clearly undermined public policy principles on which international law is premised.

In this case, the operation of the decree was exported to the territory of Zimbabwe with ease.

The SA Judiciary was used to recognize and enforce this draconian and satanic decree.

The question of judicial tolerance in the forum country comes to the fore.

Would you expect a forum country to recognize tolerate and give life to a law that offends its public policies? International law is clear on this issue.

Is the reconstruction law so iniquitous that it should be rejected as being law because it attacks doctrine of separation of powers and equality?

It is fact that before the judgment was granted, the Court a quo, the Judicial Services Commission, and the parties representing the government of Zimbabwe were fixed with the knowledge as to how the control and management of SMM was changed yet there was no judicial sanction.

On the contrary, the SA judiciary acquiesced and delivered the promise of injustice.

What are the facts that could have led the SA judiciary to be blind to the obligations placed upon it as the guardians of constitutionalism to end up being complicit in this travesty of justice.

It is law that a company’s authority can be recognized even if not supported by a resolution of directors appointed by shareholders.

It is now law that a foreign law that offends the constitution of SA can be recognized and enforced.

Ordinarily the Willis J judgment would be considered as falling outside the four corners of legality in that it awarded a monetary judgment to a party disguised as a corporate entity when in truth and fact, what was before the Court was an organ of state.

It would be absurd to imagine SMM suing its own shareholder and the fact that this matter was successfully prosecuted by SA courts must mean that something is fundamentally flawed in the administration of justice in SA.

How many other cases of similar nature have been processed with impunity in SA?

I would be grateful for any comments that may flow from the above. Learning has no limits.”