Deeps Enterprises v Registered Trustees of the Archdiocese of Blantyre (Civil Cause No. 96 of 2006) ((Civil Cause No. 96 of 2006)) [2006] MWHC 19 (24 May 2006);

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IN THE HIGH COURT OF MALAWI

PRINCIPAL REGISTRY

CIVIL CAUSE NO. 96 OF 2006

BETWEEN:

DEEPS ENTERPRISES………………………………….………………………………………..PLAINTIFF

                  and

THE REGISTERED TRUSTEES OF THE
ARCHDIOCESE OF BLANTYRE…………………………………………………………DEFENDANT


CORAM:   THE HON. MR JUSTICE F.E. KAPANDA
                  Msungama, of Counsel for the Plaintiff
                  Gulumba, of Counsel for the Defendant
                  Matekenya, Court Clerk


Place and Date of Hearing:       Blantyre                  2nd March 2006

Date of Ruling            :                                   24th May 2006









_________________________________________________________RULING


Kapanda, J:


Introduction


         The case at hand involves the application of some provisions of the Companies Act. As a matter of fact, through an Originating Summons, the Plaintiff is applying for an Order that the Defendant (The Registered Trustees of the Archdiocese of Blantyre) is severally liable, under the provisions of Section 42(1) of the Companies Act (Cap 46:03) of the Laws of Malawi, for the payment of a debt owed by a company in which the said Defendant is a shareholder. The amount of debt involved is in the sum of MK5, 980, 535. The Plaintiff further wants the Defendant adjudged liable to pay collection charges in the sum of MK598, 053 with interest at the current bank lending rate from the time the said sum of MK5, 980, 535 and the collection charges were due to the date of payment.

Background facts

                  The Plaintiff as a creditor

         It is not in dispute that the Plaintiff is owed money for goods sold and supplied. The said good were supplied to a company called Montfort Press and Popular Publications Limited. Further, there is no denying of the fact that the said goods were supplied during the period January 2004 to May 2005. Indeed, on 10th May 2004 Montfort Press and Popular Publications Limited acknowledged owing the Plaintiff sums of money. Furthermore, the Defendant’s letter to the Plaintiff, dated 15th July is more revealing of the indebtedness of Montfort Press and Popular Publications Limited. The said letter was in the following terms:-

         “15th July 2005.

         Mr P.S. Nyadawad
         Deeps Enterprises
         P.O. Box 31674
         Chichiri
         BLANTYRE 3.

         Fax:     265 1 643 681

         Dear Sir,

         Montfort Press & Popular Publications Limited

Reference is made to your letter dated 30th May 2005 to Montfort Press & Popular Publications Limited in which you submitted a demand for settlement of a long outstanding debt owed to you in the amount of MK5,688,730.00. We are writing to you in our capacity as shareholders of the company on a strategy we have adopted to address this matter.

In order to resolve this and other financial problems facing the company as well as strategy matters, the Archdiocese has commissioned a task force to address the issues. The task force comprises:

         Monsignor Montfort Stima
         Father Lawrence Simbota
         Father Enoch Kanjira
         Mrs Agnes Valera
         Mr Ken Mthuzi
         Mrs Maria B Msiska
         Mr Lucius C K Mandala

These people, who belong to our congregation and are conversant with financial issues, are mandated by the Archdiocese to discuss future payment modalities on the company’s indebtedness to yourselves. The members will contact you directly for an appointment to set the ball rolling.

May I record my debt of gratitude on your patience and high degree of understanding so far and hope for a continued mutually beneficial relationship with you.

         Yours faithfully

         T.G. Ziyaye
         Archbishop of Blantyre

         Copy to:         Members of the task force.”


         As it were, there was an unequivocal admission that Montfort Press and Popular Publications Limited (hereinafter referred was to as the Company) owed the Plaintiff sums of money for goods supplied.

The involvement of the Defendant in Montfort Press and Popular Publications Limited

         Further, in the said letter of 15th July 2005 the Defendant admitted that it is a shareholder of Montfort Press and Popular Publications Limited. The said Montfort Press and Popular Publications Limited is a limited liability company incorporated on 31st July 1996 with a share capital of 100,000 shares of MK1.00 each. At time of incorporation there were two allotted shares and shareholders (members) of the company viz Bother Johannes Andreas Hermans and Father Joseph Munyapa but the shareholding eventually changed as is reflected in the company’s, as well as last, Annual Return filed with the Registrar of companies. In the return of the company made of up to 17th August 1992 the shareholders were the Registered Trustees of the Archdiocese of Blantyre with 99,999 shares and the General Manager with one (1) share. Moreover, according to the annual return made up to 31st March 2002 and filed with the Registrar of companies there were still two shareholders (members) of the company, viz The Registered Trustees of the Archdiocese of Blantyre, of P.O. Box 385 Blantyre with 99,999 shares and the other shareholder is indicated and/or described as The General Manager of P.O. Box 592 Limbe with one share.

                  Attempts to settle debt on behalf of the Company

         The Defendant, through its letter of 15th July 2005, appears to have decided to help in the settlement of the debt, the subject-matter of this action. Indeed, in the said letter of 15th July 2005, the Defendant wrote the Plaintiff stating that as shareholders in the Company it had established a task force to address the issues relating to the said indebtedness of the company including the sums of money owed to the Plaintiff. The said task force actually wrote the Plaintiff indicating that it was putting in place measures for settlement of the debt the company owed the Plaintiff. The Chairman of the task force wrote the Plaintiff thus:-

5th September 2005
        
Mr Yadawad
Deeps Enterprises
P.O. Box 31674
Chichiri
BLANTYRE 3

Dear Mr Yadawad

Montfort Press & Popular Publications Limited
Reference is made to our previous meetings and the telephone conversation (Yadawad/Mandala) of last Friday 2nd September 2005. You will recall that we had promised to give you progress reports as one of our major creditors as we go along so that you can appreciate the steps we are taking towards resolving the indebtedness problem that we have with you.

In order to ensure long-term sustainability of the company, the taskforce has gone to an advanced stage in negotiating with a technical partner and financial institutions on the following:

a)      
Refinancing of existing trade and non-trade creditors;
b)      
Arrangement of working capital; and
c)      
Refurbishment and replacement of printing machinery and equipment

At the meantime, one of the major machines has already been repaired and some have been shipped to South Africa for refurbishment. Working capital in the form of material inputs is also continuously being arranged. Financial institutions have indicated willingness to provide the requisite financing that is going to go towards creditors including you and await submission of a business plan, which we are in the process of preparing. In order to improve cash flow, we have engaged a legal firm to assist in debt collection and, right now, reconciliations are being made so that action can start almost immediately.

I would like to reiterate that we are taking these issues very seriously and at the same time getting the goodwill that we were looking for from all quarters. To this end, the taskforce is aware, at least from your actions, that you would want the problem resolved as soon as possible and that our indebtedness to you has made you lose interest in Montfort Press as trading partner. We will work hard to ensure that we resolve the issue. It would be appropriate to give the task force a chance knowing very well that, although the members are new to Montfort operations, they are trying hard to quickly resolve the matters. You would do us a favour, therefore, if you stopped phoning shareholders such as His Grace The Archbishop, or indeed any of the members of the clergy on the company’s indebtedness with you. The task force has got the full mandate to respond to any of your queries. In addition, the assertion you made to the Archbishop that the task force is not helping you is rather unfair. Where we can indeed not help you is to give you post-dated cheques (as requested) because it is against good financial management practice. Business etiquette has it that you work on trust and that’s what we would want to develop with you.

I hope the above gives a brief position of where we stand now and hope that the current problem will be over very soon. Should you seek clarifications, please do not hesitate to contact us.

Yours sincerely

Lucius C K Mandala
CHAIRMAN

         The above letter was followed with yet another one dated 16th September 2005 the contents of which were to the effect that the whole debt would be liquidated by the 30th of November 2005. The said letter was as follows:

16th September 2005

Deeps Enterprises
P O Box 31674
Chichiri
Blantyre

Attention:       Mr Yadawad

Dear Mr Yadawad

MONTFORT PRESS INDEBTNESS TO DEEPS ENTERPRISES
K5,6000,000

Reference is made to our discussion of last week during which we agreed to liquidate the above amount as follows:

                  K2 million       -        by 30th September 2005
                  K1.8 million     -        by 31st October 2005
                  K1.8 million     -        by 30th November 2005

Please, find enclosed our cheque of K350,000 being part settlement of the first instalment.

Yours faithfully

LUCIUS C K MANDALA
CHAIRMAN – TASKFORCE FOR TURNAROUND      


         The promise to settle the said debt by the said 30th of November 2005 was never fulfilled. This is borne out by a letter, from the Chairman of the said task force established by the Defendant, and it is dated 13th October 2005. The letter was addressed to the Plaintiff and copied to the Defendant’s Financial Administrator/Vicar General. The purport of the said letter was to inform the Plaintiff that the said taskforce no longer had anything to do with the issue of the company’s indebtedness to the Plaintiff and that instead the said issue had been referred to a third party. The relevant parts of the said letter of 13th October 2005 were as follows:-

13th October 2005

Mr Yadawad
Deeps Enterprises
P.O. Box 31674
Chichiri
BLANTYRE

Dear Mr Yadawad

Montfort Press & Popular Publications Limited

Further to our previous correspondences and meetings, the shareholders of Montfort Press & Popular Publications Limited have today signed an agreement with Skipco Malawi Limited in which the latter takes over the management of the company with immediate effect. This relationship brings with it technical and financial support to the company and enhances its revenue earning capacity. I am sure that you will be pleased to note this arrangement as our business partner.

In view of the foregoing, all matters and files relating to the indebtedness of the company to Deeps Enterprises have been transferred and handed over to the new managers to deal with them and here you being directed to transact with them accordingly. In addition any future business deals with the company need to be discussed with them too. The contact executive and the address of the new managers in both Malawi and South Africa are as follows:

Mr Skip Scheepers                                            Mr Skip Scheepers
Skipco Malawi Limited                                        Skipco International Trading
P.O. Box 30388                                       70 Tungsten Street
Blantyre 3                                                    Melville 2109
Malawi                                                         Republic of South Africa
Tel:     265(0) 1676740                              Tel:     27(0) 11792 0338
Fax:     265(0) 1677 434                             Fax:     27(0) 11792 9489
Email:            Email:  

You will note that with this arrangement, the shareholders and the Board Task force fully delegates management responsibilities which include creditors issues to Skipco Malawi Limited so that we maintain commercial discipline and order in the company as well as observe corporate governance principles.

At this juncture, let me express my gratitude on behalf of the company for the business relationship that has and will continue to exist between Deeps Enterprises and Montfort.

I have taken the liberty to copy this communication to all those who have been involved at/(in) whatever levels and capacities in the matter between Deeps and Montfort for their necessary information. The new managers have also been favoured with a copy for their information and immediate action.

Yours faithfully
ON BEHALF OF THE TASK FORCE

LUCIUS C K MANDALA
CHAIRMAN

Copy to  - The Financial Administrator/Vicar General
                          The Archdiocese of Blantyre
                          P O Box 385 Blantyre

                          -Mr Vales Machila
                          Deputy General Manager
                          Montfort Press & Popular Publications Limited

                          -All Members of the Task Force

                          -Skipco Malawi Limited/Skipco International Trading
                          Malawi/South Africa”

The above is what could be described as a synopsis of the relevant factual background to this matter as was observed from the affidavits on record. It should also be stated here that I had the occasion to read the Defendant’s affidavits and I wish to observe that most, if not all, of what is contained in the affidavits is what I would properly describe as matters of opinion or law. The affidavits should not have contained matter of opinion or law. Indeed, the said matters of law or opinion should have been left to be included in the submissions.

Arguments       

         Both the Plaintiff and Defendant have given their points of view in this matter. Naturally, they are not in agreement on the question of liability of the Defendant to settle the debt that was incurred by the company.

         It is the Plaintiff’s main contention that it commenced the action against the Defendant because at the time the debt was incurred the Defendant was the only member of the company. The Plaintiff argues that since the other shareholder was only referred to as “General Manager” then the Defendant was for all intents and purposes the only member of the company. Counsel for the Plaintiff has forcefully argued that the term “General Manager” refers to an office and not a legal entity. Thus, so the argument goes, the said General Manager is not capable of being a member of the company and/or a shareholder of the company that incurred this debt. The only shareholder is the Defendant. Accordingly, in the view of the Plaintiff, in terms of Section 42(1) of the Companies Act the Defendant has to be adjudged by this court to be severally liable to settle the debt in issue.

         The Defendant’s argument is that it is not true that membership in the company went below the requisite two since the first two subscribers of the shares never transferred their allotted shares to any person. Indeed, the Defendant purported to show that it is only recently that the company entered into an agreement with a third party Skipco Malawi Limited to become shareholder. The said agreement is dated 13th October 2005. Further, the Defendant is of the view that in the circumstances the Plaintiff is obliged to claim against the company directly and not against it. The short of it is that the Defendant denies that it is severally liable to liquidate the debt herein.

         The above are the arguments that were advanced by the parties through their respective Counsel. There were also authorities that were cited in support of these submissions. This is now an opportune time to enumerate the issues for determination in the matter.

Issues For Determination

         The issues that must be adjudicated upon by this court have arisen from the Summons and, to some extent, the submissions by Counsel. The said questions, in my judgment, may be put thus:-

(a)     
Whether or not membership in the company had been reduced to less than two at the time the debt, the subject matter of this action, was incurred by the company.
(b)     
Whether or not the Defendant is severally liable to settle the debt on behalf of the company.
(c)     
How much, if any, is owed by the company to the Defendant.

As mentioned earlier, the questions that have been isolated herein arise from the Summons and the arguments of Counsel. There are other ancillary questions that will also be alluded to later in this ruling. I will not however give the court’s view on the issues in dispute until after the law is set out in this ruling.

The law

         As I see it, the applicable law in this matter is the one obtaining under the Companies Act of the Laws of Malawi. Indeed, Counsel addressed me at length on the provisions of the said Companies Act as they relate to the instant case. I will, therefore, proceed to cite the stipulations in the said Act which I found to be relevant to the matter before me.

                  Membership of a company

         As regards membership of a Company, the provisions of Section 31 and 32(1) of Companies Act are apt. Section 31 of the said Act provides:-

(1) The subscribers of the memorandum of a company shall be members of the company, and shall be entered as members in its register of members.

(2) Every other person who agrees to become a member of a company, and whose name is entered in its register of members, shall be a member of the company.

(3) In the case of a company limited by shares and an unlimited company, each member shall be shareholder of the company and shall hold at least one share, and every holder of a share shall be a member of the company.” (emphasis supplied by me)

It would appear that the above cited section envisages that members of a company will ordinarily be legal persons or legal entities. Indeed, as rightly submitted by Counsel for the plaintiff, only a legal entity is capable of owning shares in a company and therefore being a member of a particular company. This view is fortified by a reading of the provisions of Section 32 of the Companies Act, the relevant parts of which state that:-

(1) Every company shall keep a Register of its members and enter therein the following particulars-

(a)     
full name, address and occupation of each member, and in the case of a company limited by shares or an unlimited company a statement of the shares held by each member----
(b)     
the date at which each person was entered in the Register as a member