Business / Companies
Bosses sued over company's collapse
19 Oct 2015 at 01:29hrs | Views
In a landmark case, three former executives of Gulliver Consolidated Industries (GCI) have filed a $650 000 lawsuit against nine directors of the company for causing the collapse of the company due to their poor corporate governance and that this cost the three their jobs.
GCI was placed under judicial management and subsequently liquidated after it failed to settle debts that far exceeded the assets of the company.
In a case which seeks to make the directors of the company accountable for their conduct, two former divisional chief executives Mr Aaron Machando and Mr Abel Jabengwa and an accountant, Mr Godwish Nyandoro, lost their jobs when the company was liquidated.
The three are now suing incumbent directors - Messrs Farai Rwodzi, Justin Samudzimu, Charles Mataure, Lynton Edwards, Elliot Mugamu, K Chirenje, George Khumalo, Francis Rodrigues and Raymond Chindeka.
They have also cited Mr Regis Saruchera in his capacity as the company's liquidator.
In the court proceedings in the High Court, the three who are being represented by Mr Albert Chambati of Chambati and Makaka Attorneys, blamed the conduct of the nine for causing the demise of the company.
They accused the nine directors of carrying out business of the company recklessly and with gross negligence causing it to collapse and be placed under judicial management and subsequently liquidation.
"The defendants carried out with impunity the business of the company, recklessly and negligently without regard to basic tenets of good corporate governance and without good faith," said the trio.
It is the trio's contention that in July 2012, at a time when the company was crumbling under huge debts, it disposed of the company's railway wagons and realised $3 917 000 from the sale.
However, of this amount, the three contend, $2 762 000 never went through the company's accounting books.
"The utilisation of the funds is known only to the defendants," reads the declaration of the three.
The three also said Messrs Samudzimu, Mugamu and Chirenje, with the full knowledge and consent of the other defendants despite being non-executive directors, assumed executive authority of the company at the end of 2010.
During that period, they allegedly instructed that company funds and monies be banked into Samudzimu's personal company bank accounts - Lyton Investments held at Standard Chartered Bank Africa Unity Square branch and the Commercial Bank of Zimbabwe, Selous branch instead of the GCI bank accounts - against all corporate governance and ethical business practice.
The three also accused the directors of causing the delisting of the company from the Zimbabwe Stock Exchange after failing to cause the preparation and publishing of audited financial statements as required by the listing requirements.
"This action by the defendants caused the company to be de- listed from the ZSE in June 2013 for failing to comply with listing requirements."
It is also contended that the directors breached a Companies Act requirement to call for an extraordinary general meeting or issue a cautionary statement informing the shareholders and stakeholders of the state of affairs in the company.
Samudzimu is further accused of awarding his personal companies, Hyper Freight, Multipack and Lyton Investments, contracts to service the company and charged uneconomic rates despite the company facing financial challenges and huge liabilities.
Chindeka is alleged to have been appointed the company's group chief executive despite the fact that he was chairman, director and shareholder of a direct competitor to the company, Mutufu Investments trading as Precision Grinders Engineers, resulting in a direct conflict of interest.
"The defendants should in terms of SEction 318 (1) of the Companies Act Chapter 24:03 be held personally responsible without limitation of liability for the debts of the company to its creditors such as the plaintiffs."
They want to be paid $653 000 in unpaid salaries and benefits, which they claim the company failed to pay them as a result of the defendants' reckless conduct that plunged the company into liquidation.
They are arguing that chances of them securing alternative employment in similar positions are very limited due to the economic environment.
"Employment opportunities are limited hence 36 months damages for loss of employment claimed by each of the plaintiffs being reasonable period of time each of them expect to get alternative employment."
The nine directors are opposing the claim arguing the business affairs of the company are conducted in terms of policy directives through board resolutions and decisions.
Mr Rwodzi denies conducting the business recklessly as alleged.
He argues that the reason for placing the company under judicial management was that the directors hoped it would be able to trade off its troubles.
In his pleadings, Mr Rwodzi also states that the earnings from the sale of the railway wagons were applied towards the payment of various debts due to various creditors of the company including ZB Bank and Interfin Bank.
"The first defendant (Rwodzi) pleads therefore that the proceeds of the sale were properly accounted for," said Rwodzi, who is being represented by his lawyers, Atherstone and Cook.
"The disposal of the wagons was procedurally done. Part of the company core business was to sell railway wagons and no shareholder approval was necessary for the sale of the wagons as alleged."
Mr Rwodzi also contends that the delisting on the ZSE was voluntary. He also denies any knowledge of the company liquidator's negligence in the course of his duties.
Rodrigues and Chindeka argue that the company conducts its business separate from the personal affairs of its directors.
"The liabilities of the said company are not the liabilities of the directors in their collective or individual and personal capacities," reads the defence of Messrs Rodrigues and Chindeka, who are being represented by Mr Tendai Toto of TA Toto Attorneys.
The matter is yet to be set for hearing.
GCI was placed under judicial management and subsequently liquidated after it failed to settle debts that far exceeded the assets of the company.
In a case which seeks to make the directors of the company accountable for their conduct, two former divisional chief executives Mr Aaron Machando and Mr Abel Jabengwa and an accountant, Mr Godwish Nyandoro, lost their jobs when the company was liquidated.
The three are now suing incumbent directors - Messrs Farai Rwodzi, Justin Samudzimu, Charles Mataure, Lynton Edwards, Elliot Mugamu, K Chirenje, George Khumalo, Francis Rodrigues and Raymond Chindeka.
They have also cited Mr Regis Saruchera in his capacity as the company's liquidator.
In the court proceedings in the High Court, the three who are being represented by Mr Albert Chambati of Chambati and Makaka Attorneys, blamed the conduct of the nine for causing the demise of the company.
They accused the nine directors of carrying out business of the company recklessly and with gross negligence causing it to collapse and be placed under judicial management and subsequently liquidation.
"The defendants carried out with impunity the business of the company, recklessly and negligently without regard to basic tenets of good corporate governance and without good faith," said the trio.
It is the trio's contention that in July 2012, at a time when the company was crumbling under huge debts, it disposed of the company's railway wagons and realised $3 917 000 from the sale.
However, of this amount, the three contend, $2 762 000 never went through the company's accounting books.
"The utilisation of the funds is known only to the defendants," reads the declaration of the three.
The three also said Messrs Samudzimu, Mugamu and Chirenje, with the full knowledge and consent of the other defendants despite being non-executive directors, assumed executive authority of the company at the end of 2010.
During that period, they allegedly instructed that company funds and monies be banked into Samudzimu's personal company bank accounts - Lyton Investments held at Standard Chartered Bank Africa Unity Square branch and the Commercial Bank of Zimbabwe, Selous branch instead of the GCI bank accounts - against all corporate governance and ethical business practice.
The three also accused the directors of causing the delisting of the company from the Zimbabwe Stock Exchange after failing to cause the preparation and publishing of audited financial statements as required by the listing requirements.
"This action by the defendants caused the company to be de- listed from the ZSE in June 2013 for failing to comply with listing requirements."
It is also contended that the directors breached a Companies Act requirement to call for an extraordinary general meeting or issue a cautionary statement informing the shareholders and stakeholders of the state of affairs in the company.
Chindeka is alleged to have been appointed the company's group chief executive despite the fact that he was chairman, director and shareholder of a direct competitor to the company, Mutufu Investments trading as Precision Grinders Engineers, resulting in a direct conflict of interest.
"The defendants should in terms of SEction 318 (1) of the Companies Act Chapter 24:03 be held personally responsible without limitation of liability for the debts of the company to its creditors such as the plaintiffs."
They want to be paid $653 000 in unpaid salaries and benefits, which they claim the company failed to pay them as a result of the defendants' reckless conduct that plunged the company into liquidation.
They are arguing that chances of them securing alternative employment in similar positions are very limited due to the economic environment.
"Employment opportunities are limited hence 36 months damages for loss of employment claimed by each of the plaintiffs being reasonable period of time each of them expect to get alternative employment."
The nine directors are opposing the claim arguing the business affairs of the company are conducted in terms of policy directives through board resolutions and decisions.
Mr Rwodzi denies conducting the business recklessly as alleged.
He argues that the reason for placing the company under judicial management was that the directors hoped it would be able to trade off its troubles.
In his pleadings, Mr Rwodzi also states that the earnings from the sale of the railway wagons were applied towards the payment of various debts due to various creditors of the company including ZB Bank and Interfin Bank.
"The first defendant (Rwodzi) pleads therefore that the proceeds of the sale were properly accounted for," said Rwodzi, who is being represented by his lawyers, Atherstone and Cook.
"The disposal of the wagons was procedurally done. Part of the company core business was to sell railway wagons and no shareholder approval was necessary for the sale of the wagons as alleged."
Mr Rwodzi also contends that the delisting on the ZSE was voluntary. He also denies any knowledge of the company liquidator's negligence in the course of his duties.
Rodrigues and Chindeka argue that the company conducts its business separate from the personal affairs of its directors.
"The liabilities of the said company are not the liabilities of the directors in their collective or individual and personal capacities," reads the defence of Messrs Rodrigues and Chindeka, who are being represented by Mr Tendai Toto of TA Toto Attorneys.
The matter is yet to be set for hearing.
Source - the herald
