Citizen Insurance Company Limited v Financial Services Act 2010 (Ruling) (Commercial Case No. 55 of 2011) [2012] MWCommC 5 (30 April 2012);

CORAM:       The Hon. Mr. Justice L.P. Chikopa
T Nyirenda, L Sheriff, and L Chilinkhwambe of Counsel for the Petitioner/Registrar
Chidzonde of Counsel for Citizen Insurance Company Limited
C Gondwe of Counsel for Employees of Citizen Insurance Company Limited
M Chilenga, Z Mitole, Nsanja, Ndende, Namasala, Kalawa of Counsel for various Creditors
Alide & Co, Chisanga & Tomoka appeared via Briefs
D Banda Court Clerk
Mtambalika (Mrs.), Court Reporter
Place and Date of Hearing:        Lilongwe, 16th December 2012
Date of Ruling:                                    25th April, 2012
Citizen Insurance Company Limited [hereinafter called the Company] was incorporated in 1994. It has its registered office at CIL House Kamuzu Procession Road Lilongwe.  It was duly licensed on April 1, 1995 by the Minister of Finance to carry on general insurance business.
The Petitioner [also referred to as Registrar herein] is the Regulator of inter alia the insurance industry under the Financial Services Act 2010 [the Act]. Acting in terms of section 72(4) of the Act the Registrar brings this petition seeking to wind up the Company. The petition is opposed by the Company. Its employees also expressed some views on the petition. We will get to that later in this opinion.
It is brought under section 72(4) of the Act. It is supported by an affidavit sworn by Mr. Patrick Mhango who is a Director in the Registrar’s Pension and Insurance Supervision Department. Going by the petition itself the basis on which the winding up is sought is given in paragraph 6 of the petition. For avoidance of doubt we quote it in full.
‘That the Company is insolvent and will not be restored to solvency within a reasonable time’ [Sic]
Going through Mr. Mhango’s affidavit it is clear that he has a particular understanding of ‘solvency’. In paragraph 33 of thereof Mr. Mhango depones:
‘That it is sufficiently clear from the foregoing factual background that the Company has never been able to meet its capital and solvency requirements since 2005. It is therefore unlikely that the Company will be restored to solvency within reasonable time considering its failure to inject more capital and lack of interest by potential investors to invest in the Company’. [Sic]
We would however be doing no injustice to Mr. Mhango if we said that the allegations of insolvency are not only concluded from the Company’s alleged failure to meet its capital and solvency requirements. We will get to the specifics later herein. Suffice it to say for now that the Petitioner also thinks the Company insolvent because it owes money to inter alia NICO Life Assurance Company and Malawi Revenue Authority, has had its Mzuzu office closed for allegedly failing to pay damages and also because there have prior to this petition been other petitions for its winding up. We should also put it on record that this particular petition is supported by various persons. Nico General Insurance Company Limited does so in respect of a sum of K644,475.00 which they claim has been outstanding since March 10, 2010. They were represented by Messrs TF & Partners. National Bank of Malawi also supports the petition. Its notice did not however specify why they support the petition. They were represented by Ms Z Mitole. Messrs Chisanga & Tomoka were acting in respect of sums owing to Southern Region Water Board [K1,712,977.50], S Namathanga [K441,011.18], Kasinthula Cane Growers [K337,338.00], Gaffar Ali [K255,811.00], Training Support for Partners [K633,411.00], Blantyre City Assembly [K78,600.00], Andikhuza Makhumula [K150,000.00], Yona Mvula [K167,400.00] and Chemicals and Marketing Limited [K105,685.00]. Miss Jane Mabaso and thirteen others acting via Messrs Destone & Co support the petition in relation to a judgment debt of K2,500,000.00. Loveness Maida and Elizabeth Black represented by Hanniford & Associates also supported the petition in respect of the sum of K5,000,000.00. Messrs Alide & Co represented a total of thirty two creditors who were supporting the petition in respect of an estimated sum of K12,377,835.52. Estimated because there was one creditor whose claim was not quantified.  
The Company opposes the petition. In its view the petition is inter alia premature, unreasonable and not justifiable.  The Company thus prayed for:
a.  a dismissal of the petition;
b.  a renewal of its license;
c.  damages for loss of business;
d.  damages for defamation;
e.  reimbursement of all payments made from Citizen Insurance Company Limited assets; and
f.   Any other relief as the court may deem fit.
There were preliminary issues raised by the Employees who were represented by Counsel Chancy Gondwe. In the documentation before us they raised three issues on which they sought this Court’s directions:
‘1. whether in the light of section 34 of the Employment Act the Employees  are entitled to their benefits before and prior to all creditors of Citizen Insurance Company Limited;
2. whether in the light of section 34 of the Employment Act the employees were entitled to one month notice pay in lieu of the liquidation process and whether the decision of the Statutory Manager suspending the salaries for the month of November on 30th of the same month could be held to be fair labour practice;
3. whether the employees are entitled to be repatriated to their original homes now since they are no longer being paid and they are unable to pay for their accommodation with this process of liquidation in place’. [Sic]
If truth be told it did not, to the Employees, matter one way or the other whether the Company was wound up. Their major concerns were on the one hand that they should, before the small matter of the winding up is sorted out, be paid their salaries up to and until November 30, 2011 and on the other that
the twin matters of their repatriation and benefits are clarified.
First we should remind ourselves that when all is said and done this is a civil matter. The burden therefore is on he who alleges to prove their case on a balance of probabilities. In the instant case we should be asking ourselves whether or not the Petitioner has proved on a balance of probabilities not just that the Company is insolvent as understood and alleged by Mr. Mhango but also that it will not return to solvency within a reasonable time from the date the Petitioner formed such opinion.
We also think it prudent that we quote the following statutory provisions.
Section 72(1) Of the Financial Services Act
(1) A resolution demand or other step to wind up a prudentially regulated financial institution shall be of no effect unless approved by the Registrar;
(2) an application to the Court for an order to wind up a prudentially regulated financial institution whether under the Companies Act or under another law shall not be made except where it is  made by the Registrar or with the Registrar’s approval;
(3) the Registrar shall not give approval under subsection (2) unless the prudentially regulated institution’s license has been or is to be revoked and that the winding up shall be on such terms and conditions as the Registrar may determine;
(4) the Registrar may apply to the Court for an order that a prudentially regulated financial institution be wound-up if the Registrar is satisfied that the institution is insolvent and will not be restored to solvency  within a reasonable period’.
Section 213 of the Companies Act
(1) The court may order the winding up of a company if -
(d) The company is unable to pay its debts-
(3) A company shall be deemed to be unable to pay its debts if-
a)  a creditor by assignment or otherwise to whom the company is indented in a sum exceeding one hundred Kwacha then due has served on the company a written demand under his hand requiring the company to pay the sum so due, and the company has for twenty-one days thereafter neglected to pay the sum or to secure or compound it to the reasonable satisfaction of the creditor.
b)  Execution or other process issued on a judgment, degree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
c)  It is proved to the satisfaction of the court that the company is unable to pay its debts the court shall take into account the contingent and prospective liabilities of the company.
Section 34 of the Employment Act
1)  The insolvency or winding-up of the employer’s business shall cause the contract of employment of any employee to terminate one month after the date of insolvency or winding-up, unless it is otherwise terminated in accordance with section 57 (1) within that period.
2)  This section shall not apply where, notwithstanding the insolvency or winding-up, the undertaking continues to operate or has been transferred.
3)  On the insolvency or winding-up of an employer’s business, the claim of an employee or those claiming on his behalf to wages and other payments to which he is entitled under this Act or any contract shall have priority over all other creditors, including the State and social security system, for the following amounts-
a)  Wages, overtime pay, commissions and other forms of remuneration relating to work performed during the twelve weeks preceding the date of declaration of insolvency or winding-up;
b)  Holiday pay due as a result of work performed during the two years preceding the date of the declaration of insolvency or winding-up;
c)  Amounts due in respect of other types of paid absence accrued during the three months preceding the date of the declaration of insolvency or winding-up and
d)  Severance pay, compensation for unfair dismissal and other payment due to employees upon termination of their employment.
Section 115 of the Financial Services Act
‘Wherever the provisions of the Act are inconsistence with the provisions of the Companies Act the provision of this Act shall prevail to the extent of the inconsistency’. [Sic]
It is important that we emphasize two points here. Firstly we note that the procedure for the winding up of companies under section 213 above-mentioned applies with equal force to prudentially regulated financial institutions. Having thus provided however the legislature went on to provide for a winding up scheme that caters specifically for prudentially regulated financial institutions. Such scheme is that which is provided for under section 72(4). It is in our judgment for a Petitioner to choose whether to proceed under the Act or the Companies Act or indeed both.
Secondly it should also be borne in mind that cases in this jurisdiction are decided on the basis of pleadings. This was made clear by no less a court than the Malawi Supreme Court of Appeal itself in Saukila v National Insurance Company 1999 MLR 362.
The Employees of the Company raised three issues on which they sought this Court’s directions. We have quoted them in full hereinabove. Listening to their Counsel in court it soon became clear that the Employees were concerned with their welfare and wanted it sorted out before the completion of the winding up /liquidation process. The Petitioner on the other hand objected to the preliminary issues. And not just in principle but even to us granting the Employees a hearing in respect thereof. In his view the matters raised by the Employees are premature. The winding up process is far from over. No Liquidator has as yet been appointed. The issues raised by the Employees should therefore wait until the matter of this petition is out of the way and a Liquidator appointed. We on our part deal with the preliminary issues as follows:
a.  On Whether the Employees Should Be Heard or Not
We thought it rather incongruous that the Petitioner should seek to deny the Employees the right to be heard even after they had complied with a notice to all and sundry put out by the Petitioner himself to the effect that all that was necessary for one to be heard in respect of the intended winding up of the Company was the filing of a notice to that effect. Further we thought a denial of a hearing apart from going against the fundamentals of our justice system would amount to a dismissal of the Employees’ case in the absence a hearing. Even Adam and Eve who some might think were caught red-handed were given a hearing by the Almighty. We treated the Employees similarly and threw out the Petitioner’s objections to the Employees having their day in court in respect of the preliminary issues.
b.  Whether In The Light Of Section 34 of the Employment Act the Employees Are Entitled To Their Benefits Before and Prior To All the Creditors of the Company
In our judgment this and other questions before us should be looked at in the specific context of this case. Further we think it obvious that in dealing or interpreting legislation the courts should adopt a purposive approach. One that seeks to make sense of than to promote conflict between any engaged legislation. That is the approach espoused by the Malawi Supreme Court of Appeal in Fred Nseula v Attorney General & Another 1999 MLR 313. Coming back to section 34 above quoted we have no doubt that it envisages a situation where an employer’s business, in this case the Company, is as a matter of fact insolvent or has been wound up. What the Employees are therefore raising are issues to do with how the liquidation and/or the insolvency should be proceeded with. That with the greatest respect does not seem to be the case herein. The issue in this our case is whether the Company is insolvent and should therefore be wound up? Whether or not the Employees’ benefits will after the determination of such question take precedence to all other creditors of the Company will only be decided after the primary questions of insolvency and a winding up have been determined. The issue raised by the Employees is thus for now academic and of no practical use. More than that let us repeat the Constitutional Court’s sentiments in Maziko Sauti Phiri v Privatization Commission to the effect that it is not for the courts to give legal opinions to Counsel to pass on to their clients. The courts should be left to deal and decide on real disputes. But whatever the dispute between the Employees and the Petitioner may be and whenever it arises it should be obvious that the tribunal appointed to adjudicate thereon shall take into consideration the relevant provisions of the Insurance Act 2010, the Financial Services Act 2010 and the Employment Act 2000 while at the same time having the wise sentiments of the Supreme Court in Nseula’s case in mind.
c.  Whether In The Light Of Section 34 Of The Employment Act The Employees Were Entitled To One Month Pay In Lieu Of Notice Of The Liquidation Process And Further Whether The Statutory Manager’s Decision To Suspend The Payment Of November 2011 Salaries On November 30 Amounts To Fair Labour Practices 
This sounds more like a matter for the labour courts than for the commercial ones. Suffice it for now that it is a fact that on putting the Company into statutory management the Petitioner sent the Company’s Employees on paid leave. On 30th November 2011 the Petitioner wrote the Employees that:
‘You are further advised that a petition for the winding up of Citizen Insurance Company Limited has been filed in the High Court. According to law, the winding up process starts once the legal documents are filed in court. Consequently all assets of Citizen Insurance Company Limited including bank accounts are frozen by operation of law. As such we cannot continue to pay your salaries. When the High Court has granted the winding up order the assets and liabilities of Citizen Insurance Company Limited shall be handled in accordance with the law. This will include any payments that may be due to you.
Furthermore take note that in accordance with the law your employment with Citizen Insurance was terminated by operation of law one month from 28th October 2011 i.e. the date of filing of the winding up petition of the company. Please be guided accordingly’. [Sic]
The Employees’ argument is in two parts in so far as we understand it. On the one part they think that they are entitled to one month notice pay in lieu of the liquidation process. On the other they think that the Statutory Manager’s suspension of the November 2011 salaries did not accord with fair labour practices.
The Petitioner on the other hand while not disputing that the Employees are entitled to their November 2011 salary contends that the Statutory Manager’s hands are tied courtesy of section 71(1)(b) of the Financial Services Act. If we may the section provides that:
‘if a statutory manager is appointed to a prudentially regulated financial institution the Registrar shall ensure that that such a statutory manager remains appointed until the earlier of the times when –
(b) an application is made by or with the approval of the Registrar for the institution to be wound up on the basis that it considers that the institution is insolvent and is unlikely to return to solvency within a reasonable time’. [Sic]
The Petitioner thinks that any powers the Statutory Manager had in relation to the Company expired when this petition was filed in its view on November 2, 2011. That seeing as the salaries were due on November 30 the Statutory Manager could not on that date have had the mandate to make any withdrawal of funds from the Company’s coffers to pay salaries to the Employees.
We look at this matter from various angles. First is to say that the one month notice mentioned in section 34 abovementioned is with respect to a business that has been wound up or is insolvent. Not one in our view in respect of which an application has been made for a winding up on grounds of insolvency.  In so far as the Employees are talking of notices maybe they are jumping the gun a wee bit. But having said so it appears to us that the situation was clouded by the fact that the Petitioner did not state under which law he was proceeding [except to make vague references to ‘operation of law’] when dealing with the Employees’ matter. The Petitioner then allowed the Employees to continue being in employment up to and until November 30, 2011 when he wrote informing them that their employment had terminated by operation of law one month after the filing of this petition. The same letter let it be known that the Employees would not be paid their November 2011 salaries by reason of the statutory management coming to an end on the date this petition was filed. Was that, as the Employees ask, fair labor practice? The answer can only be in the negative. The Petitioner knew that he would soon, certainly before November 30, 2011 be filing a petition for the winding up of the Company. He knew or should have known that he would that thereupon cease to be in control of the Company’s assets including its bank accounts. He knew that he would thereafter not be able to pay the Employees from the Company’s coffers. With respect we have no doubt that any prudent and well advised Statutory Manager would have made advance arrangements for the payment of staff salaries up to and including November 30, 2011. And because according to the Petitioner’s understanding of the law the November 2011 salary was actually a salary in lieu of notice the salary could have been drawn and paid before the petition was filed seeing as it was due on November 1, 2011 the date the notice of termination of employment should have commenced. The third angle is legislative. The Petitioner contends that the Statutory Manager cannot pay the November 2011 salaries because it has no power to draw from the Company’s finances now that the statutory management has ceased to be. The question we ask is did the law intend that employees should, after with the encouragement of the employer discharging their duties in good faith wait until the process of liquidation/winding up is finalized before they could get their salaries? The answer in our judgment cannot be in the positive. As we have shown above the Statutory Manager could have handled the matter differently, better and fairly labor practices wise. The current situation would then not have arisen. But having allowed the Employees to work up to November 30, 2011 should the Statutory Manager be allowed not to pay them by hiding behind section 71(1) abovementioned? No. That would be to allow the law to be used as an instrument for breaching labor’s constitutionally guaranteed right to fair labor practices which includes the right to remuneration. The Employees should in our judgment be paid their November 2011 salary. That is the only conclusion to be had from a purposive and just interpretation of section 71(1). This Court will later herein make a specific order allowing access to the finances of the Company for purposes of paying the November 2011 salaries. That in our view is the effective remedy in the circumstances. In making this order we are aware of the contents of section 72(8) of the Act regarding the ranking of claims in relation to prudentially regulated financial institutions in liquidation. But like we have said several times above that provision is for a company actually in liquidation which the Company is not, at least for the time being.   The foregoing notwithstanding let us also say that we thought the Statutory Manager [the Petitioner herein] dealt with the matter of the November 2011 salaries in a lazy fashion. Section 69(8) of the Act allows a Statutory Manager to approach the Courts for directions regarding statutory administration. If he was in doubt as to how [there was no whether] to effect payment of such salaries he could have sought the Court’s directions and proceeded accordingly just like the Employees have done. Folding his hands was in our judgment not an option.
d.  Whether the Employees Are Entitled To Be Repatriated To Their Original Homes Now Since They Are No Longer Being Paid and They Are Unable To Pay For Their Accommodation While the Process of Liquidation Moves On
The language could have been bettered. Nevertheless repatriation should in our view await the winding up/liquidation process. And having said so we respectfully hope that the Employees will firstly have section 72(8) of the Act in mind if and when the matter of repatriation arises.  Secondly, and if the Employees think that they are out of employment there is nothing to stop them looking for and securing other employment while the wheels of justice grind on. Or indeed to get themselves to their respective original homes while they await the winding up/liquidation process. But if we might say so [and only as helpful obiter] we find it bizarre that Employees should be asking to be repatriated to their original homes. We thought they should be asking to be repatriated to where they were recruited from which is not necessarily one’s original home.
The first question in this case is whether the Company is insolvent. The second is whether the Company is unlikely to be solvent within a reasonable time from the date the Petitioner concluded that the Company is insolvent. If the answers to those two questions be on a balance of probabilities in the positive we will order that the Company be wound up. If however the answer to any one or both of the questions be on a balance of probabilities in the negative it will not be wound up. We will in that case then have to deal with the matters raised by the Company namely that the petition be dismissed, that its license be renewed, that it be awarded damages for loss of business and defamation, that it be reimbursed all sums expended by the Petitioner during statutory management and costs.
The petitioner’s case is based on evidence to be had from the affidavit sworn by Mr. Patrick Mhango abovementioned.  It is clear from the said affidavit that the Petitioner thinks that the Company has not met its solvency and capital ratios as demanded by statute and that such state of affairs will not be retrieved within a reasonable time from the date on which the Petitioner formed such opinion.
The Company on the other hand disputes the petitioner’s position. We will not now get into the specifics of such disputation. Suffice it for now for us to say that we find it necessary that we, while having our eyes on THE questions herein, put forward, as best as we can, the parties’ respective positions in this matter.
The Petitioner’s Case
The Petitioner’s prayer that the Company is wound up is premised on the one hand on the fact that the Company is insolvent and on the other that it will not be restored to solvency within a reasonable time. See paragraph 6 of the petition.  Mr. P Mhango’s affidavit is thirty three [33] pages long complete with thirty exhibits. It is clear that when the Petitioner talks of solvency or a lack thereof in respect of the Company he refers to the Company’s inability to meet the capital and solvency requirements as set out by law. See paragraph 33 of the said affidavit. Using as many of his words as possible we set out the Petitioner’s issues as follows:
1.  Whether the petition was filed prematurely namely before the Company was put under statutory management;
2.  Whether the Company is insolvent and whether it cannot be restored to solvency within a reasonable time;
3.  Whether the petitioner erred in determining the extent of the company’s liabilities;
4.  Whether the period of twenty one days was sufficient for the Company to raise K164million;
5.  Whether potential investors failed to invest in the Company  because of the winding up petition;
6.  The propriety of the Registrar’s approval to wind up the Company; whether the decision to wind up the Company was premature, unprocedural, unreasonable, a violation of the right to economic activity, absurd and mala fide and therefore illegal;
7.  Whether it is just and equitable to wind up the Company; and
8.  Whether the Company can be granted a license or permission to trade by the court.
The Company’s Case
It objects to the petition. The basis of such objection are the affidavits sworn by Kennanson Nyirenda Managing Director and shareholder of the Company and Alec Mulalo General Manager respectively. The Company thinks the petition was premature, malicious, unreasonable, a violation of the right to economic activity, absurd, mala fide and illegal. The Company therefore prays that the petition be dismissed, the Company allowed to trade and accordingly compensated. The Company in our judgment raised the following issues:
1.  Whether the petition was premature;
2.  Whether the decision to put the Company under statutory management was reasonable;
3.  Whether the Company was insolvent by negative 19% margin;
4.  Whether the Company was liable to the extent of K522.1million;
5.  Whether the petition should be dismissed;
6.  Whether the Company’s license should be renewed; and
7.  Whether the Company would be entitled to damages for loss of business, defamation and costs.
The questions are firstly whether the Company is insolvent as understood under the Act and secondly whether the Company might be restored to solvency within a reasonable time. We should in our opinion be able to answer those two questions by addressing the issues of prematurity, solvency ratios, core capital, the extent of the company’s liability, corporate governance/conflict of interest and whether it is just and equitable that the Company be wound up. If we answer the questions on a balance or probabilities in the positive we will order that the Company be wound up and make further orders necessary for its liquidation. If we fail to do so we will dismiss the petition and delve into the rest of the Company’s case which is firstly whether the statutory management and the decision to wind up the Company was unreasonable, mala fide, illegal, absurd, a breach of the Company’s right to economic activity secondly whether the Company should be compensated in respect thereof and lastly whether in the same vein the Company should have their license renewed. At this juncture we think it important to reiterate that it was at law possible for the Petitioner to have brought this petition under the Companies Act of 1984 indeed under both the Act and the Companies Act 1984. The grounds for the latter would then have been any of those set out in section 213 thereof. The Petitioner decided not to do so. He instead opted to bring the petition under section 72(4) the Act above cited. We bring up this point not to say or suggest that the provisions of the Companies Act are of no significance in matters relating to the winding up of prudentially regulated financial institutions indeed in this matter but to emphasize the point that our first port of call in determining this matter will be the Act if only because that is the legislation the Petitioner chose to engage in resolving the challenges arising out of the Company’s operations.  Lastly but by no means least we are aware from our above discussion of the issues raised by the parties that the Petitioner spoke about whether twenty one days was sufficient for the Company to raise K164million and also whether potential investors in the Company were scared off by this petition. We doubt whether these questions have any bearing on the questions herein i.e. the Company’s solvency. We will therefore let them be.
The Company’s argument is premised on section 72(1), (2) and (3) of the Act. In subsection 1 the law provides that a resolution, demand or step to wind up a prudentially regulated financial institution shall be of no effect unless approved by the Registrar [our emphasis]. Subsection 2 provides that no application for an order to wind up a prudentially regulated financial institution whether under the Companies Act or under the Act shall be made before a court except with the Registrar’s approval. Unless of course the application is made by the Registrar. The Company contends that no approval was granted for this petition dated August 24, 2011 in so far as it is a step made under section 72(1) towards winding up the Company. The decision to wind up, according to the Company, could only have been made after exhibit PM30 dated September 2011 whose paragraph 1 on page 30 recommended the winding up of the Company. Much the same can be said about the decision to apply under section 72(2). The Company contends that by that date however a step, namely preparation of the petition dated August 24, 2011 and the accompanying skeleton arguments had already been taken towards winding up the company. That step, the company thinks, was without the Registrar’s sanction, therefore in breach of section 72(1) and [to use the words of section 72(2)] made this application premature.
The Petitioner disputes that the petition is premature. It was not filed on August 24, 2011 but on November 2 2011[our emphasis]. The Petitioner also contends that the matter of the petition being dated August 24, 2011 and thus predating exhibit PM 30 and/or any decision by the Registrar to wind up the Company is a curable irregularity. Further that the date August 24 was an accidental slip that was in his view brought to the attention of the court and corrected. The petitioner cited the case of The Registrar, Malawi College of Health Sciences ex parte Emmanuel Gondwe Miscellaneous Civil Cause No 16 of 2008 [unreported] which cited with approval the case of The State v Registrar ex parte Mulungu & Others [2010] MWHC where this very court opined that not much stock should be put on procedure and forms at the expense of substance and/or merit. Thirdly the Petitioner contends that the question of approval does not in the instant case even arise seeing as the step(s) [and therefore application] in issue were taken or brought by the Registrar in respect of whom permission under section 72 of the Act is implicit.
In our judgment the issue of prematurity needs to be understood in some context. The totality of section 72(1) is that one, including the Registrar, can demand, make a resolution or take a step to wind up a prudentially regulated financial institution. Provided that where such person is not the Registrar such resolution, demand or step shall have no effect unless it is sanctioned by the said Registrar. Under subsection two one is also allowed to apply to court to have   a prudentially regulated financial institution wound up. Such application is also ineffectual unless sanctioned by the Registrar or if it is by the Registrar himself. Meaning, and in this we agree with the Petitioner, that in both under subsections one and two there is no need for approval where the Registrar is involved. Approval is implicit. Having said so however it is in our judgment trite that any inter alia step or application that does not have the Registrar’s sanction is against the law for being premature. Further and more importantly in our view it is equally trite that the Registrar cannot apply for an order to wind up or take some step towards winding up a prudentially regulated financial institution unless he/she first makes the decision to either wind up or make such an application. It would thus appear to us that where either a step is taken to wind up or an application made under section 72(1) and (2) abovementioned before the Registrar has made or taken a decision in that regard such step or, as the case maybe, application will in our judgment be ineffectual and against the law for being premature. The question being ‘is the application before us ineffectual and/or premature in view of our above discussion?’
If we make reference to the chronology of events before us it is clear that the petition and the accompanying skeleton arguments are dated August 24, 2011. It is also clear that following a meeting between the Petitioner and the Company on August 24, 2011 a further meeting was called between the parties for August 26, 2011. At that meeting the Registrar decided to put the Company on statutory management during which time he would decide whether the Company should be wound up. See the last paragraph of exhibit PM 29. He appointed himself a Statutory Manager and produced a report dated September 30, 2011 [exhibit PM 30] which inter alia recommended that the Company be wound up. On November 2, 2011 this application was filed with this Court. The further question being whether in the circumstances of this case the petition [and the accompanying skeletal] dated August 24 2011 is, in so far as they were prepared for and on behalf of the Registrar [as they on their face say] inter aliaa step to wind up a prudentially regulated financial institution …… approved by the Registrar’.  The Registrar it must be remembered does not require any approvals under section 72(1) and (2). He must according to our above analysis however have made a decision in that regard before section 72(1) and (2) can be said to have been complied with. The above question thus becomes ‘did on or before August 24, 2011 the Registrar make a decision to wind up the Company as a consequence of which a petition could be drafted and skeleton arguments prepared’? The answer is of course in the negative. The chronology of events clearly shows that the Registrar had not indeed could not have made the decision to wind up the Company on or before August 24, 2011. If he ever did make such a decision the same could only have been between September 30, 2011 the date of the Statutory Manager’s report recommending a winding up i.e. exhibit PM 30 and November 2, 2011 the date this petition was filed. The petition could not therefore have flowed from the Registrar’s decision to wind up the Company. It could neither therefore have been approved by the Registrar nor have complied with section 72(1) of the Act. As a step taken under section 72(1) it is ineffectual and a breach of the law on grounds of prematurity. What we technically and in effect have before us is an application minus the actual petition.
The Petitioner argued, properly some might say, that the relevant date herein is November 2, 2011 the date on which this petition was filed with the Court. That as long as there was on that date compliance with section 72(2) in the sense that this application was made by the Registrar and therefore required no formal approval then the fact that the petition itself had been prepared by or on August 24, 2011 without the Registrar’s sanction should be of no consequence. That in our view is to trivialize the law, the scheme provided for under section 72 of the Act and miss the issues relevant for the resolution of this matter. The scheme envisaged in section 72 abovementioned was in our view that where the winding up of a prudentially regulated financial institution was contemplated no action towards achieving such objective would be taken unless with the approval of the Registrar. Such action is what is styled ‘resolution, demand or other step’ in section 72(1) of the Act. And for it to become effectual it must be approved by the Registrar. To found otherwise would be to countenance an illegality. The date on which the petition was filed is only relevant to approvals and decisions by the Registrar under section 72(2). It has nothing not do with section 72(1) which is clearly for steps out of court. Whichever way one goes it is clear that the Registrar had not by August 24, 2011 made the decision to wind up the Company. That decision was by the Petitioner’s own admission made between September 30 and November 2, 2011. The application before us is thus premature for not being compliant with section 72(1) . It was also argued on behalf of the Petitioner that we should not be unduly concerned with the fact that there might not have been compliance with section 72(1) of the Act. That the Registrar having clearly approved the application’s filing the same must be taken to cover the petition itself as well. It cannot be. That there should be an approval is a requirement of the law. It is also a matter of law that there be two separate approvals one under subsection one and another under subsection 2 for a matter that ends up in court. Why because you need first a decision to wind up and secondly a decision to make the application. You cannot have the latter without the former in our view. We should add though that it seems possible that you can have the former without having to engage the latter. We are here thinking of a resolution, demand or step that is not carried through. It is for the above reasons that we feel we cannot by ourselves take away the need to comply with section 72(1) just to accommodate a Registrar – industry regulator - who fails to live up to the requirements of the law. If we acceded to the Petitioner’s argument we would in effect be inventing an approval for the petition of August 24, 2011. We should not be doing that. Neither are we empowered to so do. More than that it is clear to our mind that it is not for nothing that the Legislature in its wisdom provided for the approvals in section 72(1) and (2). It is clearly to provide some vetting system that while weeding out the frivolous and vexatious inter alia step[s] and/or application[s] ensures that the meritorious ones proceed. We want to believe therefore that an involved financially regulated institution would be allowed a chance to put its case to the Registrar why it should not be wound up. That would prevent knaves from flighting malicious petitions while at the same time ensuring that the public, who would also be granted a like chance to show cause to the Registrar why steps should be taken towards winding up an institution or indeed should actually be wound up, are protected from fly by night insurance companies. Attaching the November 2, 2011 consent to the August 24, 2011 documentation would imply that there was such a consultation between the Registrar and the Company as was clearly had after August 24, 2011. That is also an inexactitude we will not countenance.
It was also suggested that the date August 24th, 2011 was a curable clerical error that was in fact corrected in court. We will not go so far as to accuse the petitioner’s lead Counsel of being economical with the truth. We can say categorically though that there was no application to correct in this Court. None was granted and there could therefore have been no such correction. True that the date of August 24, 2011 was put to Mr. Mhango in cross-examination. He, correctly in our view, told this Court that he had nothing to do with the preparation of the petition itself apart from swearing the affidavit. That he could not therefore say whether it was prepared on or before August 24th. In other words that he could not say whether the said date was a clerical error or not. If however Counsel Nyirenda thought the date a clerical error and correctable it is surprising that he only made reference to it in that regard in the final submissions. Had Counsel Nyirenda wanted the matter treated as a clerical error and corrected he should not only have made the necessary application he should also have led evidence to that effect. He could either have sworn an affidavit or gone into the witness box. As matters stand the fact remains that the petition was prepared on or before August 24, 2011 and never in compliance with section 72(2) of the Act. Then the Petitioner argued that the date was only a matter of procedure which should not hinder meritorious litigation. As a matter of principal this court will be the first to admit that procedure should not be used to hinder progress in litigation. We have said this in various cases some of which have been cited by the Petitioner herein. See Msenga Mulungu’s case and Sochera & 5 others v Council of the University of Mzuzu Criminal Case Number 135 of 2005[unreported]. In our judgment the matter of the date in the instant case cannot be about mere procedure. It is about substance. A step to wind up the Company under section 72(1) can only have been taken with the approval of the Registrar. A want of approval goes to the root of the matter because without it the step is ineffectual. A nonevent. That is not just procedure. Agreeing that it is just procedure would in effect allow a step to be taken to wind up a prudentially regulated financial institution without the Registrar’s approval which is the very evil the Legislature sought to proscribe. In the circumstances of this case concluding that the Registrar had by August 24, 2011 decided that the company be wound up would also have the sad effect of making the meeting of August 26th 2011 and the ensuing statutory management no more than cynical exercises calculated at giving the impression that the Company was being assessed for purposes of deciding whether or not to wind it up when such a decision had already been made. The instant is clearly different from that of Collins v Vestry of Paddington (1880) 5QBD 368 at 391 where Thesiger LJ said and we quote:
‘… each party has a right to have the dispute determined upon the merits, and the Courts should do everything to favour the fair trial of the questions between them …….’
The case of Re: Soche Tours and Travel Ltd and in the Matter of the Companies Act above cited does not also apply [therein the court dismissed an objection of prematurity the Petitioner having failed to give 21 days’ notice as required under 213(4)[Sic] of the Companies Act]. Firstly unless we have a wrong copy of the Companies Act there is nothing like section 213(4) in the Act. The reference to 21 days notice is in section 213(3). And if it is that which the Petitioner has in mind then the Petitioner has got the wrong end of the law. The scheme under the Companies Act and that under the Act are different. The Petitioner has also misapprehended the questions under consideration, the answers thereto and the effect thereof. Under section 213(3) the question is whether a debt is owing. In the instant case it is whether a step i.e. the crafting of the petition on August 24, 2011 was taken with or without the Registrar’s approval. In the former case if the answer for instance is in the negative the result is that an order to wind up may not be granted. In the latter if the answer is in the negative whether or not to grant an order winding up the company is secondary. It probably does not even arise as an issue. Instead the validity of the petition itself is called into question.  The Registrar’s approvals are therefore not just issues of procedure. They go to the validity of any action[s] taken by the Registrar or anyone acting on his behalf. And we are at the end of the day asking the question not whether procedure was followed but whether there is in law a petition before the court or whether the petition is validly before the court. In our view it is not for as long as it does not comply with section 72(1). With respect we also doubt whether the Petitioner read the Court’s opinions in the Soche Tours case properly on prematurity. The Court did not say that there was no prematurity. It found there was. It also never said that the prematurity was of no consequence generally. It only said that in that case it did not arise or was not an issue under section 213(3)(c) [the question of whether or not the debt was owing having otherwise been proved] which is quite different from saying that the Court said the 21 day timeline was not, as a general rule, of necessity and could therefore be dispensed with. This application is clearly is prematurely before us.
We have above set out how the Petitioner understands insolvency. If we may it is insolvency as understood under the Act namely that the Company has a core capital of less than K50,000,000.00 and a solvency ration of 20% of NWP. We have above said that there is a reference to insolvency in the winding up scheme provided for under the Companies Act 1984. The Petitioner was free to resort to that understanding of insolvency. He did not. He instead resorted to that which is provided for under the Act. Why are we saying all this? It is to emphasize what we might only have hinted at above namely that insolvency as understood under the Act is different from that provided for under the Companies Act. Under the Companies Act insolvency inter alia equals to being unable to pay one’s debts. That is clear from the cases cited by the Petitioner. In Re Cromington Clothing and Textile Co Ltd 2000 – 2001 MLR 157 Mwaungulu J thought and held that insolvency would arise if after taking into account all its liabilities [both contingent and prospective] the same exceeded the company’s asset. See also the sentiments of Dr Mtambo J in Re Soche Tours & Travel Ltd and In The Matter Of the Companies Act Commercial Case Number 3 of 2009 and Kapanda J in Re Cane Products Ltd and the Companies Act where he adopted the definition of insolvency in Black’s Law Dictionary 6th edition namely:
‘finally it is well to note that the Black’s Law Dictionary 6th edition defines insolvency as a relative condition of a person’s or entity’s assets and liabilities that the former if all were made available would not be sufficient to discharge the latter’.
Insolvency under the Act on the other hand is not a mere failure or inability to pay debts though that might be a relevant consideration in determining insolvency. Under the Insurance Act 2010 general insurance companies must operate within solvency margins levels set out under section 13 of the Insurance Act.
Section 13
‘an insurer shall be treated as having a margin of solvency sufficient for the purposes of carrying on any class of insurance business if the insurer meets the insolvency conditions as set out in the Registrar’s directives’.
In that regard the Registrar has issued Directives called Directives on Minimum Capital and Solvency Requirements for General Insurance 2010[Directives] determining solvency margins. We look at some relevant parts.
Paragraph 6(2) of the Directives provides that:
‘An insurer shall be deemed to have sufficient margin of solvency if-
a.  It has a solvency ratio of not less than 20 percent [20%] being the percentage that adjusted net asset of the insurer bears to the net written premium [NWP] for the corresponding period;
b.  The value of the core capital of the insurer is not less than fifty million kwacha [K50000000.00]’.
Paragraph 6(3) of the Directives provides for the manner of calculating the solvency margins.
‘The solvency margin shall be represented by the following adjusted net assets:
a.  Net assets [total assets minus total liabilities];
b.  Less inadmissible assets;
c.  Less adjustment for discounted assets;
d.  Less weighted policyholders’ reserves; and
e.  Less adjustment on capital items’.
Paragraph 6(4) of the Directives provides:
‘if the adjusted net assets of the insurer as calculated in 3 above is less than twenty percent [20%] of NWP or if its core capital is less than  fifty million kwacha[K50,000,000.00] then the insurer has insufficient capital to meet the solvency margin requirements and shall therefore be deemed insolvent unless capital is immediately injected into the company’.
It is clear in our judgment that whereas the cases cited by the petitioner vis a vis insolvency correctly state the law the same is only with respect to insolvency as understood under the Companies Act 1984. That is different from that referred to under the Act which is clearly that defined in paragraph 6(2) and (4) of the Directives. When we in this matter therefore ask the question whether or not the Company is insolvent we are not thereby seeking to answer the question whether the Company is failing to pay its debts, even though we might have to take such fact into consideration in so far as it affects the Company’s assets and liabilities, but rather whether or not the Company on the material day i.e. the day on which the Registrar applied for a winding up order, met the capital and solvency margins set out under the Act. The question, put directly is whether the Company has a solvency ratio of less than 20% of NWP or a core capital of less than K50,000,000.00. We remind ourselves that it is for the Petitioner to prove on a balance of probabilities that the Company has a solvency ratio of less than 20% of NWP or a core capital of less than K50,000,000.00. It is not, we should emphasize, for the Company to prove that it has met such threshold.
The Petitioner referred us to exhibits PM 26, 27, 28 and 30 in the affidavit of Patrick Mhango. In respect of exhibit PM 26, a largely narrative report of the Company’s finances spiced with tables and figures, Mr. Patrick Mhango said in paragraph 26 of his affidavit that:
THAT an onsite examination was conducted on the Company between 26 April and 5 May 2011 to assess the financial condition of the Company and to follow up on the progress made since the last examination of June 2010. The examination results showed that as at December 2010 the Company’s capital had depleted with a core capital of – K56.80 million and a solvency ratio of -19% against the regulatory minimums of K50million and 20% respectively. The Company now needed to be recapitalized to an amount of K164.04million in order to meet its capital and solvency requirements. I exhibit hereto a copy of the that on-site report marked as “PM 26”. [Sic]
Pages 10 and 11 thereof purported to give an illustration of how the -19% solvency ratio, the -K56.80 million core capital and the K164.04million capital injection requirement was arrived at. There are two tables on page 10 of exhibit 26.  Table 3 is as follows:
Table 3: Core capital of the company as at 31 December, 2010
Paid up capital
Retained up capital
Current year loss
Core capital
Table 4 is similarly reproduced.
Table 4: Solvency position (‘000)
Net premium written (NPW)
Less assets (i.e. Total capital)
Less: inadmissible assets
Less: discounted assets
Less: weighted policy holders reserves
Net assets available to meet solvency (NAA)
Solvency Ratio (NPW/NAA) x 100
On page 11 is Table 5 which we also reproduce.
Table 5: Additional Capital Required based on:
i) Core capital test
Minimum core capital required
Core capital as at 31 December 2010
Required capital injection before Examiners’ adjustments
Claims under-provision (as noted by Examiners)
Capital injection required
ii) Solvency test
Net assets required to meet solvency (20% of Net Premiums)
Net assets available to meet solvency
Capital injection required
There are in exhibit 26 no explanations specific to Tables 3 and 4 in the same way there is one for Table 5 on page 11 of the exhibit. What we are given in Tables 3 and 4 are figures relating to paid up capital, retained earnings, current year loss and core capital. There is no explanation on how the figures were arrived at. Just the figures themselves. There is no explanation for instance how after arriving at the conclusion that the core capital of the Company is K56,795,000.00[see Table 3] Mr. Patrick Mhango concluded that the Company’s core capital was depleted to a core capital of negative K56.80 million see paragraph 26 of Mhango’s affidavit. One would have thought that the deponent would have taken time to show and explain not just the figure but also how the figure was arrived at and also how a figure appearing as a positive in Table 3 is said to be a negative in paragraph 26 of Mhango’s affidavit. The first part of Table 5 does not help matters vis a vis the Company’s core capital either. It reiterates that the minimum capital required as K50,000,000.00. It then records the core capital at December 31, 2010 as being K56,795,000.00 which again does not accord with the negative core capital assertion from Mr. Mhango. Much the same can be said about the solvency ratio and Table 4. It only provides what might be called from the Petitioner’s viewpoint conclusive figures. Not how they were arrived at. That denies this Court, indeed any innocent bystander, the chance to on proven facts agree or disagree with the Petitioner in so far as the veracity of the figures is concerned.
A further concern is the manner of calculating core capital and solvency ratios which the Registrar’s Directives specifically provide for in Directives 6(2), (3) and (4). There are therefore provisions for net written premium[NWP], net assets which is according to the directives total assets minus total liabilities and not just total capital as appears in Table 4 and one for an adjustment on capital items which does not appear in Table 4. In Directive 6(2) there is specifically talk of ‘adjusted net assets’ and net written premium. In Table 4 we have NAA which has not been defined and NPW which may or may not be net premium written if we go by the second line in Table 4. One need not be a genius to notice that Table 4 and therefore the Petitioner are using terminologies different from those prescribed by statute. The question would then be whether the result would be identical to that sought to be achieved by statute. This question was not specifically put to the Petitioner or indeed Mr. Mhango. In our judgment it only serves to emphasize the point we make hereinabove that there is a difference between assembling figures and tables and throwing them in the face of the Court in the hope that the court will somehow make sense of them and taking the court through the process by which such figures were arrived at while at all times sticking to the exact terminologies and formulae used in the statute. As matters stand it is a fact that some of terms used by the Petitioner are not identical to the ones used in the statute. The Petitioner has not explained the differences to us or that they have no effect on results or indeed whether the figures thrown at us are the same as that which would have been generated had the Petitioner strictly adhered to the statute’s terminologies and formulae. The ultimate question is of course whether in the final analysis the Petitioner’s figures in exhibit 26 are indeed reflective of the truth or the status quo. Having said so we know that some would be quick to remind us ‘but there are exhibits PM 27 and 28, a letter from the Company and a record of some meeting which confirm the findings in exhibit PM 26 that the Company  failed to meet its solvency and capital margins’!. Of particular interest to the Petitioner was paragraph 4 of exhibit 27 which went:
‘we entirety agree with the formula and calculations of solvency ratios and confirm that the position indicated is a true reflection of the solvency status’.
The Petitioner thinks the allegations against the Company vis a vis its solvency and capital requirements should be an open and shut case. With respect that is reading too much into very little. To begin with it is very clear that if there is any admission it is in relation to the same figures which we have shown hereinabove to be dubious. Secondly it is also clear that whatever was said in exhibits PM 27 AND 28 was said out of court and has since been repudiated by the Company. Whereas therefore such statement might be a relevant consideration in deciding whether the Petitioner has proved his allegation it does not by itself absolve the Petitioner from proving his allegations more especially where such statement has been repudiated. In the instant case it is up to the Petitioner to prove to this Court on a balance of probabilities that the Company is insolvent as alleged. It does not do that by waving in our face an extra judicial statement of the kind contained in exhibit 27 which Messrs Nyirenda and Mulalo repudiated. More than it appears to us that there is actually no connection between exhibit PM27 and exhibit PM26. The latter is dated May 2011. It is an Onsite Examination Report. Exhibit 27 on the other hand is a letter dated August 23, 2011 responding to a letter from the Registrar dated August 8, 2011 which is not exhibit PM 26. True there is mention in exhibit PM 27 of an onsite report but it is not identified  by date or otherwise as being exhibit PM26. Not even by reference to its authors i.e. Messrs Chithambo, Kachingwe and Mhango. Regarding exhibit PM 28 if it contains admissions they are also extra judicial and have been repudiated by the Company by its insistence inter alia on the fact that it is not insolvent. Further we think the contention that exhibit PM 28 contains binding admissions would have carried more weight if the minutes were also signed by the Company. Lastly we think that if there is any admission in exhibit PM28 then it is one with respect to the formula for calculating solvency ratio and core capital which are provided for by statute and not therefore in dispute. But accepting the formulae is not the same as accepting the results thereby generated. In saying the foregoing we accept we are opening ourselves to the criticism that we are demanding too much from the Petitioner as industry Regulator. But that is as   it is and must be. The cost of getting it wrong is too high to contemplate not just for the insurance companies which includes shareholders and employees but even to the very public that the Petitioner seeks to protect. Erroneous calculations would see rogue insurance companies carrying on business at the expense of the unsuspecting public. On the other hand similarly perfectly sound companies would also be put out of business hence the need for a meticulous and stringent regulatory regime. One that allows only qualified institutions to operate without hindrance.
There are also issues about the credibility of onsite report itself. It does not inspire too much confidence in our view. Paragraph 2 says ‘however it should be noted that these financial statements are based on unaudited figures and therefore may not be fully reliable’. These are figures on the basis of which the Registrar calculated the solvency and capital margins and now wants us to wind up the Company. He knew at all material times that the figures were not reliable. That they had not been audited. It was within his capacity to have audited figures or indeed to get these very figures audited before using them as he sought to. He did neither. He instead went ahead to use figures he knew were unreliable and still had the temerity not just to present the results thereby obtained as being a true reflection of the Company’s state of financial health but also to ask this Honorable Court to proceed on their strength. We will not.
We are aware of the four appendices to exhibit PM 26. Appendix 1 was for claims not provided for in the statement of accounts. Appendix 2 is for long outstanding claims. Appendix 3 is a statement of comprehensive income for the year ended December 31, 2010 and the fourth one a statement of the Company’s financial position. We are not sure what the Petitioner wanted us to do with these appendices. They are based on the same data he said should be treated with caution. That should surely make the appendices unreliable as well. We were not told where in the scheme of Directives 6(2),(3) and (4) they should fit in. Or what effect they are supposed to have in the calculation either of the core capital or solvency ratio. We speak elsewhere herein of a party collecting figures throwing them at the Court and hoping that the Court will somehow make sense of them. This is one such case in our humble view. The Petitioner collected various figures which by his own admission are unreliable and hopes we will conclude from them that the Company is insolvent. As some would say it is a long shot.
Then there was the contention that the Company must be insolvent because it owes certain sums to Malawi Revenue Authority[MRA] NICO Life Assurance Company [NICO] and others whom the Petitioner called sundry creditors. That the Company owes may be true. We are unable however to agree that that should by itself mean that the Company is insolvent. That would have been the case if this petition were brought under the Companies Act 2000 where a failure to pay debt is a ground for insolvency. Under the Act failure to pay debts is not by itself a ground for insolvency. It can only be a factor towards determining core capital or solvency ratios. The Petitioner chose to proceed under the Act even thought it was open to him proceed under the Companies Act or indeed under both the Act and the Companies Act. He should not be allowed to litigate this matter other than as pleaded. In our judgment therefore throwing at this Court figures indicating that the Company owes this or that person  is in the circumstances of this an exercise in futility. It does not go to showing that the Company is insolvent i.e. that it has a negative core capital of less than K50,000,000.00 or a solvency ratio of less that 20% of NWP.
A slightly different version of the immediately foregoing is in paragraphs 17, 20 and 24 of Mr. Patrick Mhango’s affidavit where the Petitioner sought to prove the Company’s insolvency by showing that: there had been complaints about the Company’s inability to pay claims [see exhibits PM 13 to 16]; that the Company’s Mzuzu office had been sealed by the Sheriff of Malawi in relation to nonpayment of damages and legal fees[see exhibits PM 18 and 19] and also that between January and February 2011 there had been  four petitions to wind up the Company for failure to settle judgment debts[see exhibits PM21 to 24]. Again that maybe true. Of importance though is the obvious fact that none of the above exhibits was certified as a true copy of their originals. Secondly and with specific reference to the complaints we do not think that complaints are by themselves of any consequence in the present scheme of things. They become so once proven. An institution regulated by the Registrar will therefore not be insolvent merely because somebody has complained against it. Only when complaints have been proven against it. And we are not talking of any complaint here. Only those upon whose proof insolvency can be concluded. Thirdly, and we have said this above, the fact that the Company failed to pay its debts does not under the Act mean  that the Company is insolvent.
About the winding up petitions it is obvious that they did not have the sanction of the Registrar as demanded under the Act section 72(2). They would therefore be caught with the prematurity argument and be of no use in this case. More than that it is clear that we are here dealing with unsuccessful petitions. If they were the Company would have been wound up already and we would not be sitting here deciding whether or not the Company is insolvent. They were unsuccessful because whatever they alleged was not proven. If we now allowed them to be the basis for concluding insolvency and a winding up of the Company [as the Petitioner wants] we would in effect be allowing the petitions to achieve, namely a winding up of the Company, via the backdoor what they could not achieve face to face in their other life. What we have just said applies equally to the claims lodged by those sought to support this application. At the very most they proved that the Company was unable to pay its debts not that it was insolvent under the Act.
The Petitioner also sought to conclude the Company’s insolvency on the basis of exhibit PM 30 his own Statutory Management Report dated September 2011. In it he alleges that the Company’s shortfall of assets in comparison to liabilities is estimated at K380million; that the Company’s loss at the end of July 2011 is K492.3million; that the core capital is negative K440.2million; that the solvency ratio is negative 104.2 percent; that the Company’s total liability claim is K487.1million being K167.9million an amount for claims concluded but  pending payment, K310.0million being provision for new claims and claims under negotiation, K9.2million being provision for legal fees, and K163.8 being a sum expected to be recovered from reinsurers; and that the Company needed the sum of K522.8million to resume financial viability. Proceeding on such figures the Petitioner contends that the Company’s core capital is negative K440.2million and its solvency ratio negative 104.2%. He thinks the Company is insolvent and urges us to conclude likewise. It is worth noting that part of exhibit PM 30 is a report purportedly prepared by Deloitte who are for the record public accountants dated October 7, 2011. The Petitioner uses such report to buttress his findings immediately above. In paragraph 5.12 of his submissions the Petitioner contended that his figures must be correct because they are the same figures used by Deloitte in its report.
The Company called into question the figures put out by the Petitioner. In its opinion the figures are without basis. Central to the   Company’s contentions is the calculation of its claims liability. In its view the quantum of claims against the Company cannot be equal to its claims liabilities. Claims by their very nature are capable of being negotiated down, of being rejected and yet others settled in part or wholly by reinsurers which the Company has. In that regard the Company informed us that it was for every claim only liable to pay up to a maximum of K500,000.00. Any excess was to be being paid for by reinsurers.  This, the Company argued, was not fully taken into consideration by the Petitioner with the result that the amount put out as payable as claims is untenable and incapable of belief anyway.  By way of example the Company said the statutory report of September 30, 2011 put claims liability at K487.1million. Deloitte’s report on the other hand put the figure at K356,047,352.00. The Deloitte report was, as we show later herein, based on information made available by the Registrar. How, the Company asks, does the Petitioner explain the difference if the claims liability is based on identical figures? Does whatever explanation is offered include the possibility of a lack of sufficient ability on Deloitte or the Registrar or both to do the needful? The Company also disputed the inclusion of a provision of  K309,992,812.00 for claims under negotiations. The figure according to the Company is not justifiable because it does take into consideration the obvious fact that it was in the nature of all claims capable of being negotiated down and would largely be met by reinsurers. The Petitioner put simply cannot claim to have any idea about the Company’s claims liability which in turn makes it impossible for him to have calculated with any degree of certainty the Company’s core capital or solvency ratio. From such unreliable figures and uncertainty the Company argues it is impossible to conclude the Company’s exact insolvency.
Any which way we look at this matter it is clear that there are fundamental questions to be addressed before we even start discussing the extent of the Company’s finances and therefore whether the Company is indeed insolvent. Firstly ‘has the Petitioner abandoned his case in so far as it is based on exhibit PM 26 the May 2011 onsite report?’ Does he in the alternative want us to decide the Company’s insolvency on the basis of both the May and September 2011onsite reports? Whatever the Petitioner’s position might be we would have been better served if rather than proceed  in a roundabout fashion the Petitioner came out straight and informed us that his case was based on this or that report or both. Be that as it maybe  let us for now proceed on the basis of exhibit PM30 and the attachments thereto. Does it show that the Company is insolvent?
Firstly we have to re-remind ourselves that the  solvency in issue is that which is set out in the Act and no other. Secondly we have to point out that section 72(4) makes it clear that the Registrar can only apply to wind up when he is of the view inter alia that a prudentially regulated financial institution is insolvent. Meaning in our view that the relevant insolvency is that which, if any, subsisted at the time and thereafter the Registrar made this application. The Company’s alleged history of financial woes is thus perhaps not very useful for our present purposes. The questions now are whether on the date of exhibit PM 30 the Company had a core capital of K440.2million and a solvency ratio of negative 104.2%.
For ourselves let us say that some of the things that we said about the May 2011 on site report apply with equal force here. The September 2011 on site report is therefore also mainly in the narrative. It was also content to narrate the compilers’ conclusions and not how they came by whatever conclusions they are now throwing at this Court. That denied us a chance to subject the Registrar’s conclusion to scrutiny. We are in other words presented with conclusions which we are then being asked to agree with without being given reasons why we should do so. In the alternative without being given an opportunity to disagree with. There are also issues about the report’s general credibility. For instance the Petitioner in paragraph 5.12 of his final submissions seeks to garner credibility for the report by saying it has used the same figures used by the Deloitte report. It is puzzling to say the very least. The statutory report is dated September 30 while the Deloitte report is dated October 7. How does the Registrar’s report which predates the Deloitte report use the latter report’s figures and hope that his report will thereby have greater credibility? On the other hand it is clear that the Deloitte report is based on information supplied by the Registrar. The Deloitte report makes reference to a letter from the Registrar dated September 1, 2011 and accompanying financial information on which the Deloitte report is based. At the very least one of the foregoing two stories and therefore the reports must be an inexactitude. The problem is of course which one. Either way it casts a shadow of doubt on whether any one of the reports or both of them are capable of being relied upon for purposes of determining whether or not the Company is insolvent as alleged or at all. Secondly the report itself is very clear that it was prepared on the basis of procedures ‘determined by the Registrar and the procedures were performed solely to assist the Registrar’[Sic]. It was not by Deloitte’s own admission an audit report. See page 2 of the report which goes:
‘because the procedures performed by us did not constitute either an audit or a review in accordance with International Standards on Audit or International Standards on Review Engagements we dot express any assurance on the accompanying financial report.
Had we performed additional procedures or had we performed an audit or review of the financial statements of the company in accordance with International Standards on Auditing, other matters might have come to our attention that would have been reported to you’. [Sic]
It was erroneous therefore for the Registrar to refer to it as an audit report. Equally wrong in our view to treat it as one. When therefore the Petitioner seeks to give his views herein credibility by alleging that he has the backing of a Deloitte audit report he cannot be saying truth. There is simply no such a thing as a Deloitte audit report. But maybe more than that one cannot escape regarding the report as lacking in sufficient independence. It is a report geared towards achieving the Registrar’s ends. Such in our judgment is the conclusion to be had from a report prepared on procedures and information determined by the addressee and for purposes of helping him. This takes us to the small matter of conflict of interest and/or good corporate governance. Basically the Company thinks the Registrar erred in signing off reports when he was not the author thereof and secondly writing reports to himself wherein he was recommending [to himself] the winding up of the Company. The Registrar was content to deal with the matter as broadly that of consent. In his view he can by himself inter alia take any step to wind up a prudentially regulated financial institution. Similarly he can by himself apply to court for a winding up order. He does not have to seek anybody’s consent. The Company in his words does not raise pertinent issues in so far as conflict of interest and good corporate governance is concerned.
For ourselves we think this matter should again be debated in the context of the regulatory framework envisaged in the Act and the rest of the legislation dealing with especially prudentially regulated financial institutions. We therefore do agree that no resolution, demand or other step towards winding up a prudentially regulated financial institution shall take effect without the approval of the Registrar. Similarly no application to wind up a prudentially regulated financial institution would be entertained by the courts unless  sanctioned by the Registrar. This obviously is inter alia to weed out rogue players who might want to destabilize an institution and therefore the industry by threatening a winding up or such other step for no good cause other than malice while at the same time allowing genuine complaints to see the light of day. That approval, we also agree with the Petitioner, is of course implicit where the Registrar is the author of the other step or is the one making the application. It is also clear that the Registrar can of his own volition or on application by a third party put a prudentially regulated financial institution on statutory management.  He then appoints a Statutory Manager who advises him on the way forward vis a vis the company.
In the instant case the Registrar’s officers namely Messrs Chithambo, Kachingwe and Mhango prepared exhibit PM26. Using exhibit PM26 and under section 68(2)(a)(ii) of the Act the Registrar put the Company under statutory management. He specifically stated that the exercise was in order to:
‘Determine the viability of the Company. In the event the exercise discloses that that the Company is insolvent and in order to protect policyholders and the general public the Registrar will proceed to petition the court for a winding up order in accordance with section 72(4) of the Financial Services Act ….’ [Sic]
The Registrar appointed himself Statutory Manager with the following officers as aides:
1.  Patrick Mhango
2.  Chimwemwe Kachingwe
3.  Lyton Chithambo
4.  Noel Kantchewa
5.  Andrew Pemba
6.  Kondwani Kampanda
7.  Martin Kachikwati
8.  Yanna Chimwaza
9.  Laurence Sheriff
10. Temwa Banda
11. Glory Kasasi
12. Owen Chimwaza
Exhibit PM 30, which is the Registrar’s report, concluded that the Company was insolvent. The Statutory Manager’s report which is also the Registrar’s report compiled by the very same officers that compiled exhibit PM 26 came to the same conclusion namely that the Company was insolvent and should be wound up. Two questions were posed by the Company. First whether the Registrar not being the actual author of the reports exhibit 26 and 30 or being involved in the conduct of the onsite examination can sign them off and secondly whether the reports are not flawed on grounds of conflict of interest and a lack of good corporate governance. We are with the Registrar on the first question. If only in this case. We doubt whether when the law spoke of Registrar they expected him or her to attend to all matters of regulation personally. It must have been envisaged that due to the realities on the ground certain things would be done on his or her behalf by his employees. That would not of itself make whatever those persons did ineffectual. It must have been envisaged that it would be in order for as long as the Registrar had authorized the actions in issue. The matter of conflict of interests is a different matter altogether however. The Registrar had already decided that the Company was insolvent. And here he was asking himself the very same question about the very same Company namely whether the Company was insolvent. He put himself in a situation where even he himself would have had no hesitation in concluding conflict of interest or bad corporate governance. We are in saying this aware that the law allows the Registrar to appoint himself Statutory Manager and that therefore there should be nothing in principle wrong with him appointing himself Statutory Manager in this case or writing a report in respect of the Company where he is Statutory Manager. We are of the view however that the Registrar cannot in so doing proceed in total disregard of well founded principles of good corporate governance or rules of natural justice. He cannot be judge in his own case just as, if we may say so, all of us cannot be judges in our own cases. This is clearly a case where the Registrar would have been well advised to hand over the statutory management to a person who would not be suspected of acting less than objectively. One who would not be accused rightly or wrongly of trying to protect his own positions. It is not, we opine, for nothing that the Act provided for a situation where the Registrar could appoint a person other than himself to be statutory manager. It was to cater for those situations like the present one where the issue at stake was the Registrar’s very opinion. We find ourselves obliged to agree with the Company that in so far as the instant case is concerned the Registrar/Petitioner found himself in such a position of conflict of interest and breach of the rules of natural justice and good corporate governance as to make his decision to wind up so suspect as to be virtually untenable. It is worth noting that apart from Part IV that speaks specifically of corporate governance the same permeates the totality of the Act. The Registrar should be the first to walk the talk.
We also looked at the Company’s contention that the above notwithstanding the figures are untenable. We agree with the Company. The Registrar alleged that the Company’s claims liability was K487.1million. Deloitte put the figure at K356,047,352.00. Even if we forget the disparity it is clear that both figures proceeded on the basis that once a claim is lodged it is payable. That is illogical in the extreme in our judgment. The Registrar contends in paragraph 5.2 of his final submissions that ‘it is trite law that once a claim is lodged it is recorded as payable’. If it is trite we are sure the Registrar would have made it part of his trial bundle. That he did not maybe suggests that it is not so trite after all. But the Registrar’s contention is without basis anyway. By its very nature a claim is no more than a claim. It must be proven before it becomes payable. To suggest therefore that it must be regarded as payable once made is preposterous. It is equally preposterous to forget that such claim might be negotiated down, might be dismissed or might be paid for wholly or in part by reinsurers. All these points should in our view have been taken into serious consideration when the Company’s claims liability was being calculated or provided for. As matters now stand it is clear that the claims liability was at most a guesstimate. On page 14 and 15 of its September 30 report the Petitioner says he used experience and precedents to come up with quantums in respect of personal injury claims, claims for loss of life and  loss of expectancy thereof, for damages and legal fees. What experience and/or precedents they used we will never know. We cannot therefore say for ourselves whether or not they used the correct experience or precedents. There was also mention of some formula that is used by the courts. Again what this formula is we were not told. We have no way therefore of verifying whether the Registrar proceeded properly and/or arrived at the correct provisions. And just to give an indication of what we are talking it will be noted that having given the total figure for claims liability as K356,047,352.00 the provision for claims under negotiations was K309992812.00. If we take the above concerns into account it is clear that the figures put out by the Registrar as representing the Company’s financial state  of affairs are far from being certain or capable, on a balance of probabilities, of belief. And because it cannot be said on a balance of probabilities what the Company’s claims liability is it cannot also be said what the solvency ratio or core capital is. Indeed whether the figure put out by the Petitioner is correct.
We think it worth noting as well that the Deloitte report was neither by the Registrar nor Mr. Mhango. There is therefore good cause for regarding it as hearsay and therefore inadmissible in this case. Order 41 of the Rules of the Supreme Court would have us treat affidavit evidence just as good as viva voce evidence. It is regulated by the same rules against hearsay in that it must be that which is perceived by a witness’ senses. Further that if the evidence is for purposes of proving matters in issue then the maker of the affidavit should be one who is not caught by the rules against hearsay. Applying that to the instant case it is clear that the Deloitte report in so far as it sought to prove its contents should not have been introduced by Mr. Mhango but the maker thereof. See also National Democratic Alliance v Malawi Electoral Commission, Malawi Broadcasting Corporation and Another 2004 MLR 217. We are aware of the case of DPP v Subramanian but we are afraid that this case does not fall into the exception to the rule laid down in Subramanian. The Deloitte report was not introduced merely to show that certain things were said but to prove the extent of the Company’s insolvency. And once we take off the said report we also do away with the assertions from the Petitioner about his calculations of insolvency, core capital, claims liability and their credibility.
Even using exhibit PM 30 Our conclusion remains that the Petitioner has failed to prove on a balance of probabilities that the Company is insolvent as defined under the Act.
This question would have been relevant if we had agreed with the Petitioner that the Company was in terms of the Act insolvent. Not having so found the question is only of academic interest.
The answer is in the negative. To begin with this was not pleaded and in keeping with the principle that matters should only be determined on the basis of pleading we would be within our rights to refuse to even consider the Petitioner’s case thereon. But even if we did we would not have come to the conclusion the Petitioner came to. Firstly we do not agree with the Petitioner that the just and equitable principle does not depend on pleadings but the Court’s proactivity. The Petitioner claims this was said by the Court in the Soche Tours case. The Petitioner misread or misunderstood the Court’s opinion. What the court decides on depends on pleadings and the Soche Tours case did not say anything different. We must not forget that the Saukila case referred to above is Supreme Court decision. The Soche Tours case cannot therefore even begin to overrule it. Secondly maybe we should remind the Petitioner that the insolvency in issue in the Soche Tours case is different from that in issue herein. It is dangerous to therefore think that what the Court said about the just and equitable principle in relation to insolvency under the Companies Act 2000 applies with equal force to insolvency under the Act.
This refers to the Petitioner’s case namely whether or not the Company is insolvent and whether it will not be returned to solvency within a reasonable time. On the first question two issues arose that of prematurity and whether the Company is insolvent as alleged. As a matter of law there should have been compliance section 72(1) of the Act. In fact it was not complied with. In effect the Petitioner had nothing to bring to this Court. In other words he brought nothing to this Court on which we can exercise our discretion. The case for prematurity is made out. We have also as a fact that the Petitioner has not on a balance of probabilities made out its case that the Company is insolvent. The Petitioner’s application is therefore accordingly dismissed in its entirety.
The Company prayed that this application be dismissed. That prayer is granted on the reasons given hereinabove. More than that it prayed that it be awarded damages for loss of business, defamation and that it be reimbursed all expenses incurred by the Registrar during the period of statutory management and the subsistence of this petition and lastly costs.
These are supposed to flow from a dismissal of this application and the wrongful placement of the Company on statutory management. The Petitioner argued against an award of damages firstly because he felt he was justified in placing the Company on statutory management and seeking to wind it up and secondly because there is no evidence on the basis of which an award for damages can be made. Speaking for ourselves whether or not damages will be awarded should be addressed at two levels. Firstly the principle and then the quantum. On the question of principle there is first section 69(10) of the Act to contend with. The section makes it clear that a Statutory Manager will only be liable if loss is occasioned by fraud, dishonesty, negligence or willful failure to comply with the law. Much the same principles should apply in our view in respect to the application. Only when a case has been made out in any of the instances envisaged in section 69(10) can we go ahead to inquire into what loss was suffered by a party and the quantum needed to make good such loss. Coming to the instant case we have found that the Registrar/Petitioner acted in breach of section 72(1) of the Act. He was guilty of prematurity. Similarly he was guilty of a misapprehension of the law. Then he was guilty of what we have termed sloppy accounting. He did no audit where the situation clearly demanded one. As a result he proceeded on the assumption that the Company was insolvent when it is possible that such was not the case. Where the law appoints an industry regulator the appointee is expected to be versed in the workings of the industry including the applicable law. It is clear that the Registrar/Petitioner was not. In our view he was guilty of negligence and willful disregard of the law. The Company is entitled to damages for any loss thereby suffered. The Company claimed for damages from lost business and for defamation. We doubt whether a Company can be defamed in the manner a natural person is defamed. We will therefore not allow the Company to claim for damages for defamation. We will however allow it to claim for loss of business. The quantum of such damages shall be assessed by the Registrar of this Court before the expiry of 60 days from this date.
Renewal of License
The Company wants us to order a renewal of its operating license. The Petitioner thinks we cannot do so. We were faced with an identical situation in Msenga Mulungu’s case. After reviewing an application for registration of a political party and faulting the Registrar of Political Parties the question arose whether or not we could then by ourselves and in view of the Registrar’s wrongs register the party. We thought strictly speaking we cannot seeing as the Court is not the registering authority. We can however in the name of effective remedy order that certain issues are addressed within a specified time frame to ensure that the needful is done. In the Msenga Mulungu case we ordered that the party will be deemed to have been registered if it was not within a certain period duly registered by the Registrar of Political Parties. In principle we are of the same view even now. The licensing authority is not the Court but the Registrar. The Registrar however must in so doing abide by the law. The Company’s license was not renewed because the Registrar misdirected himself him in law and fact. He believed the Company insolvent when the facts do not bear that out. He in breach of section 72 of the Act brought along this petition. The petition has been dismissed. There was and is therefore no impediment to a grant of the license. Just like we said in Msenga Mulungu’s case the Company is entitled at law to an effective remedy. in this case and because an insurer must always have a license unless revoked or not renewed and we have found that there was no revocation and no reason not to renew the effective remedy herein would be to proceed on the basis that an operating license was duly granted when applied for. We accordingly order that the Registrar be regarded as having done the needful by the date he put the Company into statutory management. We accordingly order.
The Statutory Manager expended some sums in the course of carrying out his functions.  The Company thinks that such sums should be reimbursed seeing as there was no cause for either this application or the statutory management. We agree. But to better facilitate the process of reimbursement we think it even better that the Registrar renders an account of all transactions he took out in relation to the time he was Statutory Manager of the Company. From that it will be known what sums he expended on himself and/or his office during the statutory management. Such sums should then be reimbursed to the Company. This process should be carried out before the expiry of fourteen [14] days from this date. He will then turn over the Company in its entirety including all its assets on the date it was put into statutory management to those who were entitled to its management on the date prior to the said statutory management or their nominees.
The Petitioner will within 14 days from this date certainly before handing over the Company to those entitled to its management on the day before it went into statutory management make arrangements to pay the Employees’ November 30, 2011 salaries.
These are in the discretion of the court.  We grant them to the Applicants and the Employees.  With a little bit of sobriety of thought and better appreciation of the law we doubt whether it would have been found necessary to have this matter the subject of litigation.
Dated this April 30, 2012 at Lilongwe.