HomeBusiness DigestGovt can now take over failed firms

Govt can now take over failed firms

Roadwin Chirara

THE Parliamentary Legal Committee last week produced a damning report on government plans to take over failed firms through the Reconstruction of State-Indebted Insolvent Com-panies Bill.
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The legislation, which was nevertheless passed last Thursday, empowers government to issue reconstruction orders in respect of companies that are indebted to it and are unable to repay the loans.


A reconstruction order empowers the state to appoint an administrator to assume control and management of the company and take possession of all its assets.


The law also provides for the identification of officers culpable for carrying on the business of distressed companies in a “reckless, grossly negligent or fraudulent manner”.


The legal committee concluded that clauses 12, 15, 17 (1), 19 (9), 24 (2) and 24 (3) of the Bill violated Section 18 of the Constitution.


Clause 12 (1) of the Bill obliges the administrator to nullify any share, right or interest in or claim on a company under reconstruction purportedly held by a culpable person, which was obtained by or as a result of fraud.

The Welshman Ncube-chaired committee said Section 16 of the Constitution provides for personal protection from deprivation of property.


The committee said property could only be compulsorily acquired in the “interest of defence, public safety, public order, public morality, public health, town and country planning or … for a purpose beneficial to the public generally or to any section of the public…”


The committee also comprises Innocent Gonese (MDC) and Kumbirai Kangai (Zanu PF).


Government wants to use the legislation to expropriate firms owned by Mutumwa Mawere who is accused of externalising $300 billion. However, an administrator appointed by government to investigate the firms said the companies were not badly exposed.


Last week Justice minister Patrick Chinamasa said the state would not let go of Mawere’s SMM Holdings.


A fortnight ago, Chinamasa revoked the reconstruction order on FSI Agricom Holdings through a notice in the Government Gazette.


The Parliamentary Legal Committee said Clause 19 of the Bill which says “no creditor or member who is culpable shall participate whether in person or by proxy in any meeting of creditors or members” was also unconstitutional.


“It was your committee’s view that to deny the shareholder his rights as such in the absence of a court order to that effect amounts to an unjustifiable interference with his right of freedom of property enshrined in Section 16 of the Constitution.”


The report said provisions of clauses 24 (2) and 24 (3), which provided that shares in a reconstructed company were to vest in the state amounted “to a clear deprivation of the rightful shareholder’s property in violation of Section 16 of the Constitution”.


The committee also criticised the sections for failure to comply with Section 18 of the Constitution.


The report said the presumption of innocence operates in respect of every person accused of a criminal offence adding that the law guards the exclusive jurisdiction of the courts to pronounce on the existence of criminal culpability.


“To the extent that the provisions of the Bill allows executive authorities to find the actions of a culpable person to have been fraudulent and to proceed to apply what are essentially sanctions on the person on the basis of such a finding, they are in apparent contravention of Section 18 of the Constitution,” the report said.


“In conclusion, for the reasons given above, your committee found the provisions of clauses 12, 15, 17 (1) 19 (9), 24 (2) and 24 (3) to be in violation of the Bill of Rights, particularly Sections 16 and 18 of the Constitution.”

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