Mawere responds to Chinamasa on financial assistance


    He informed the House correctly that SMM and its affairs as well as Mawere’s affairs have been the subject of litigation not only in Zimbabwe but in South Africa, Zambia and the United Kingdom.  He then went on to state that these matters are sub judice without offering any explanation as to the content and context of what precisely was sub judice.

    He, however, made reference to an application by Africa Resources Limited and its two English subsidiary companies i.e. SMM Holdings Limited (SMMH), the sole shareholder of SMM, and THZ Holdings Limited, the sole shareholder of Endurite Properties Private Limited that in turn was the controlling shareholder of Zimre Holdings Limited (ZHL) and other companies, challenging the constitutional validity of the Reconstruction Regulations and Laws as well as the actions of Hon. Chinamasa and Mr. Gwaradzimba pursuant to the operation of these laws.

     This matter does not involve any factual dispute but deals with the constitutional aspects of the Laws that permitted the use of extra-judicial powers by the state in assuming the control and management of SMM and related companies by a state appointed Administrator on allegations of state-indebtedness.  It is not clear, therefore, how a Minister of Justice could arrive at the conclusion that discussing the constitutional validity of the Reconstruction Laws has implications to the sub judice rule.  

    The second matter he referred to involves an application by Mr. Gwaradzimba to the High Court to confirm a finding of culpability by a Panel chaired by his partner, Mr. W. Sibanda, against me and other parties.  It is significant that the parties identified as culpable were not notified of the hearings and more importantly were not represented.  Mr. Manikai was the lead prosecutor in the self serving hearings.

    To the extent that the second matter is only valid if the laws and regulations from which Mr. Gwaradzimba derives his legitimacy are found by the Supreme Court to be constitutionally valid, the real outstanding matter is the constitutional challenge.  

    Although in his statement, Hon. Chinamasa refers to outstanding matters in the UK and Zambia, in truth and fact there is nothing outstanding in those countries.  The matter in the UK involved an application by AMG Global Nominees (Private) Limited (AMG), a company beneficially owned by Mr. A.M. Gwaradzimba that was used as a nominee by the government of Zimbabwe in the UK for the sole purpose of wrestling control of SMMH from ARL.  The application by AMG to rectify the member register of SMMH and THZH was dismissed and so was the appeal.  

    Notwithstanding, Mr. Gwaradzimba has sought opportunistically to argue that Justice Evans-Lombe who presided over the matter was a racist judge and he was a former Rhodesian farmer.  The appeal was heard by a panel of three Lords including the Lord Chancellor.  

    The Zambian matter has already been resolved by the Supreme Court that ruled against Mr. Gwaradzimba who had approached the High Court to issue an order whose effect was to apply the Zimbabwean reconstruction regulations and laws to a Zambian company that is beneficially owned by ARL.  

    To my knowledge, therefore, contrary to Hon. Chinamasa’s submission to Parliament, there is no matter outstanding in the UK and Zambia.

    With respect to South Africa, all the matters that were litigated in South Africa were at the instigation of Mr. Gwaradzimba who sought to apply the Reconstruction Laws and Regulations to the affairs of South African companies.  If the Reconstruction Laws are declared to be constitutionally invalid, then all the actions pursuant to the operations of these laws are null and void.

    Hon. Minister then incorrectly informed the House that I had entered into an agreement of sale for the purchase of 100% of shareholding in SMM, which is the owner of the asbestos mines for $60 million.  The correct position is that ARL entered into an agreement with T & N Plc and T & N International Limited in march 1996 for the purchase of the entire shareholding held in SMMH and THZH by T & N Plc and the entire shareholding held by T & N International Limited in African Associated Mines Private Limited (AAM).  

    So it is clear that the subject shares purchased and sold were domiciled in the UK and not in Zimbabwe as stated by Hon. Chinamasa.  Accordingly, there was no exchange of value at the Zimbabwean level and the applicable law was always the UK law hence the application by AMG to assert its purported rights pursuant to an agreement concluded with T & N in November 2004 after the alienation of SMMH from its subsidiary companies using extra judicial methods.

    The consideration for the shares was agreed at $60 million and the payment mechanism was also agreed between the seller and purchaser.

    The Minister erroneously informed the House that the $60 million was not paid.  The truth is that US$37 million of the principal amount was paid including an additional $6 million in respect of interest accrued.

    The government of Zimbabwe was not a party to the acquisition transaction and yet Hon. Chinamasa using retrospective logic is now seeking to argue that the acquisition transaction was illegal and invalid based on his interpretation of Section 73 of the Companies Act that provides for financial assistance in the purchase of shares in the holding company by its subsidiary.

    The same argument was used by AMG in the UK after failing to sustain an argument that ARL by procuring the payment of $37 million and leaving a balance of $23 million of the purchase price was in default and, therefore, the conditions for the power of sale under the security arrangements concluded by the vendor (T & N) and the purchaser (ARL) had arisen and were, therefore, exercisable.  The court ruled that there was nothing illegal in the construction and performance of the agreement.

    However, Hon. Chinamasa who has arrogated to himself the role of creditor, prosecutor, judge, and administrator sought to misinform the court that SMMH and not Mawere as he stated in Parliament, through a special resolution passed by SMM, allowing for the financial assistance to settle the purchase price had violated the Companies Act.

    He stated boldly that: “It is not allowed in terms of the Companies Act and in any case, even a bookkeeper will tell you that receipts are the income of a company.  It is the receipts that are used to pay for the production costs, the running costs, the working capital of the company.  A shareholder who wants to use that money can only do so from the dividends – not from the receipts.”

    He then stated that: “The matter in question is before the courts. So we cannot discuss it here.”  The Minister was fully aware that this matter is not before any court.  In fact, a ruling was already made in the matter.  In any event, the party that would have a legitimate complaint would be SMMH and bona fides creditors of SMM at the material time.  The government was not involved in the purchase and, therefore, the locus standi of Hon. Chinamasa in the financial assistance matter is, therefore, questionable.

    If the transaction violated any law the lawyers of ARL and T & N would have picked it up.  In fact, Mr. Manikai was employed by ARL’s UK Attorneys, Allen & Overy, to give a legal opinion on the transaction.  He not only gave a green light but participated in the drawing of the relevant resolutions that Hon. Chinamasa in retrospect finds illegal.  It is significant that Hon. Chinamasa’s legal advisor is none other than Manikai.

    Assuming that the alleged illegality arose from the implementation of the financial assistance program, the auditors of SMM at the material time, KPMG, would have picked up the illegality.  It is worth mentioning that Mr. Gwaradzimba was an employee of KPMG at the material time.  Why did it take Mr. Gwaradzimba 8 years to arrive at the conclusion that the law was violated?

    Gwaradzimba has sought to argue that no capital was injected into SMM as provided in the resolutions.  However, the audited financial statements of SMM for the year ended 31 December 1996 are as follows:

    All monetary figures in $’000                       
                     GROUP                 COMPANY       
        1996    1995    1996    1995       
    SHARE CAPITAL     110 000    110 000    110 000    110 000       
    SHARE PREMIUM     40 000    40 000    40 000    40 000       
         150 000    150 000    150 000    150 000       
    DISTRIBUTABLE RESERVES     385 325    354 954    378 992    348 642       
         535 325    504 954    528 992    498 642       
    LONG TERM LOANS     596 750    0    596 750    0       
    TOTAL    1 132 075    504 954    1 125 742    498 642    

    As can be seen above, an injection of Z$596.75 million was made in 1996.  This was in the post-acquisition period.  How can then Gwaradzimba and Hon. Chinamasa claim that no injection was made.

    Section 73 reads as follows:”73 Financial assistance by company for purchase of its own or its holding company’s shares
    (1) It shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or, where the company is a subsidiary company, in its holding company unless—
    (a) such assistance is given in accordance with a special resolution of the company; and
    (b) immediately after such assistance is given, on a fair valuation the
    company’s assets, excluding any asset resulting from the giving of the assistance, exceed its liabilities and it is able to pay its debts as they become due in ordinary course of its business.”

    Clearly based on the above, financial assistance is permissible and yet Hon. Chinamasa informed the House otherwise.

    In the interests of transparency, it is important that the facts are exposed.