National Bank of Malawi v Cane Products Ltd (In Liquidation) (Judgement on Appeal Against Deciaion of Liquidator on Prood of Debt) (Registry Commercial Case No. 24 of 2008) [2017] MWCommC 4 (02 May 2017);

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IN THE HIGH COURT OF MALAWI

COMMERCIAL DIVISION BLANTYRE

REGISTRY COMMERCIAL CASE NO. 24 OF 2008

 

BETWEEN:

NATIONAL BANK OF MALAWI.............................APPELLANT/CREDITOR

AND

CANE PRODUCTS LTD (In Liquidation).................RESPONDENT/DEDTOR

 

CORAM: HON. RACHEL SOPHIE SIKWESE

Nkhono SC;                                      of Counsel for the Appellant

Gondwe;                                           of Counsel for the Co- Liquidator (Munkhondia)

Mhango SC/Dzonzi;                          of Counsel for the Contributories

Kachilambe;                                      Court Interpreter


JUDGMENT ON APPEAL AGAINST DECISION OF LIQUIDATOR ON PROOF OF DEBT


Sikwese J Background

This appeal is brought under section 275 of the Companies Act 1984 providing that any person aggrieved by any act or decision of the liquidator may apply to the court which may confirm, reverse or modify the act or decision complained of and make such order as it deems just. The appellant, National Bank of Malawi is aggrieved by the decision of the liquidator admitting only MK.76 658 076-00 of its proof of debt instead of MK.1 465 519 233-07 as of 23 May 2014 plus interest thereon at 10% above base lending rate until payment in full. The appellant therefore urged the Court to vary or reverse the decision and that the same be substituted with an order directing the liquidators to accept the appellant's entire debt. The appeal is opposed by the co­liquidator Mr. Munkhondia and also by the contributories.

It is the contributories case that the circumstances pertaining to the banking facility giving rise to the winding up of the company for which proof of debt was lodged, did not give rise to admission of indebtedness in excess of MK76 758 076 -00 which had constituted the debt as at December 2005 when the appellant took out a petition against the respondent in which they indicated an indebtedness of MK35 000 000-00 as principal sum and MK41 758 076-00 as interest making a total indebtedness of MK76 758 076-00 which it sought to recover from the respondent. It was their case that the liquidator's admission of MK76 758 076-00 was flawed in law. They prayed that the Court should reverse it and substitute it with MK60 000 000-00 which constitutes provable debt for the appellant.

For the co liquidator, Mr Munkhondia, it was argued that the appellant is not entitled to the sum claimed. It is entitled to the claim up to the presentation of the winding up petition when winding up proceedings commenced in court on 13 December 2005. The Malawi Supreme Court of Appeal ordered the winding up of the respondent based on a debt of MK76 758 076- 00 as at 11 May 2012. The appellant is therefore precluded from re-submitting a fresh claim. He prayed that the Order of the liquidator be confirmed.

The Issue

The issue before the Court is to determine whether the decision of the liquidator to admit MK76 758 076-00 proceeded on sound legal principles governing proof of debt as envisaged by the law?

Proof of Debt in General

Rule 76(1) of the Companies Act (Winding Up) Rules, 2010, provides that in a winding up by the Court, every creditor shall prove his debt. It is therefore the responsibility of each and every creditor to prove his debt. A debt may be proved by submitting with the liquidator any of the following pieces of evidence; a judgment or court order, invoices, statements, delivery notes, contracts, personal guarantees etc. Every submission for proof of debt must be substantiated in order for the liquidator to make a just determination. A liquidator will admit a proof of debt in full or partially or not at all based on the available evidence before him.

In the instant case, the liquidator based his decision on the judgment of the Malawi Supreme Court of Appeal winding up the respondent company delivered on 11 May 2012. The liquidator reasoned that the appellant's claim against the respondent was the basis for the winding up order and therefore the respondent was precluded from resubmitting any further proof of debt.

The Court considered submissions of all three interested parties in the matter. In particular the Court was keen to discover from the evidence of the appellant the material which it presented to the liquidator to prove its debt. The affidavit in support of the appeal was sworn by one Zunzo Mitole, Legal Counsel/ Company Secretary for the appellant bank. In this affidavit, Counsel Mitole referred to ZM1 which was the General Form in respect of proof of debt. Of interest to the determination of this matter is what the appellant provided to the liquidator to substantiate its claim of MK1 465 519 233-07. It submitted (a) letter dated 4 August 2003 and internal memo dated 13 August 2004. Further in paragraph 6 of ZM1, the appellant stated that the debt arose from a lending granted to the respondent at the respondent's own request. In terms of security, ZM1 provided that security for the loan was in the form of a letter of comfort from Presscane Limited. The letter of 4 August was written by the appellant addressed to the Managing Director of the respondent. The appellant and respondent signed the letter. It formed a valid contract between the parties. For clarity purposes the relevant parts of the letter are reproduced below:

Banking Facilities

"(a) We refer to your letter dated 31 July 2003 and are pleased to advise that the bank has agreed to increase your overdraft limit to MK35 000 000-00 up to 31 October 2003. (b)

Interest on the overdraft will be charged at 10% above base rate currently being 46% per annum giving an effective rate of 56% per annum. (c) Please sign over your company stamp and return to us the enclosed copy of this letter signifying your acknowledgement and acceptance of the terms and conditions attached to this lending':

As evidence of its debt, the appellant also submitted a memorandum dated 13 August 2004, the memorandum originated from the Credit Management Division to the Legal Counsel, Head Office. In the memorandum the Credit Management Division is handing over the matter to the legal department to commence legal action against the respondent.

The appellant as a creditor was entitled under the law to submit its proof of debt just like any other creditor. There is no law or authority that exempts a creditor from presenting its proof of debt just because it initiated winding up proceedings. In fact the law is clear on which debts are provable and which ones are not provable. The debt under consideration arose out of a valid contract, the money was still due and owing. It was perfectly legal for the appellant to make its case.

The liquidator misdirected himself on his mandate by considering the winding up order as proof of debt. He used extraneous material to come up with his decision. He cannot for a fact state that the appellant had already submitted its proof of debt. He cannot for a fact produce two proofs of debts from the appellant. He certainly cannot justify in law that a winding up order is proof of debt.

The law gives the liquidator power to consider each and every proof of debt that comes before him. The same law gives guidelines as to the format in which the proof of debt should take, which debts are provable and which ones are not, and which debts can be confirmed, varied or rejected. The standard that the liquidator used to reject the appellant's proof of debt is not covered in our legal system. This Court agrees entirely with the submissions by the Contributories on this point. The liquidator acted beyond his mandate, acted ultra vires. His decision is reversed. It is so ordered.

Whether the Respondent was Solvent

The parties argued at length on whether or not the respondent was solvent or insolvent at the time that the proof of debt was submitted to the liquidator. In other words; whether failure of the respondent to pay its debt was as a result of its insolvency? This question was crucial in the determination of the cut- off date as well as the rate of interest which forms a substantial part of the claim. The Malawi Supreme Court Appeal decision between the parties in MSCA Civil Appeal No. 21/2008(unreported) made its determination on the point on page 13 of the transcript where it held that the respondent was insolvent in the following clear terms:

''We agree with counsel for the Appellant that these three stipulations (under section 213 (3)) are to be read disjunctively, in other words the occurrence of any one of them would result in a finding of corporate insolvency...We have earlier set out a brief background of the matter including the undisputed fact that the appellant wrote and sent letters of demand to the respondent in July 2004 and because those letters did not yield the appellant was compelled to further process including Civil Cause No. 2391 of 2004 which on appeal to this Court was MSCA Civil Appeal No. 25/2008. The present case filed in 2008, four years after the letters of demand. The appellant's efforts followed the path of section 213(3)(a) of the Companies Act". (This Court's emphasis).

The Court could not have made it any clearer than this. If there was any doubt as to whether or not the respondent was insolvent the Court would have said so. It is therefore an error of judgment to bring such issue back to this Court for determination. The arguments submitted by both parties on the issue were irrelevant. They breached the rule of res judicata as correctly observed and submitted by counsel for the Contributories.

Order

This Court is empowered under section 275 of the Companies Act to confirm, reverse or modify the act or decision of the liquidator and make such order that it deems just.

Having identified the error made by the liquidator in considering the appellant's proof of debt, it is Ordered that a fresh meeting of liquidators, the appellant and the contributories be convened within 21 days of this Order to consider the appellants proof of debt as submitted based on the applicable law, being the Bankruptcy laws. The liquidators are at liberty to ask for further documentation and material from the appellant if that will enable them come up with a just decision.

Costs

A successful party is awarded costs. In this case the appeal has succeeded partially. Under the circumstances each pay is ordered to bear its own costs.

Pronounced in Open Court this 2nd day of May 2017 at High Court (Commercial Division) Blantyre.

___________________

Rachel Sophie Sikwese

JUDGE