IndependentProperty – 15 months on, FNBS still closed

Ndamu Sandu

WHEN David Scott was appointed curator of the troubled First National Building Society (FNBS) he might not have anticipated that putting the financial institution back on track would take that lo

ng.


But after 15 months in office nothing has changed and the building society remains closed.


FNBS was placed under curatorship on February 7 last year after the arrest its two founding directors, Samson Ruturi and Nicholas Musona, for allegedly defrauding the society of $1 billion. The duo has a combined 89,74% shareholding in the holding company, First National Holdings Ltd (FNHL).


Account holders and investors are puzzled that after 15 months there is no solution in sight. Instead, the curator and the founding directors are taking each other to the courts.


The curator, it seems, misunderstood the power dynamics for the control of the building society.


As was reported by businessdigest recently, boardroom manoeuvres could have spawned trouble for the society. It was evident that there were individuals working behind the scenes to wrestle the society from the founding directors. Businessdigest reported in January that Morgan Moyo and Gerald Mhlotswa, FNBS general manager and FNHL company secretary respectively, wanted Zimnat, with a 4,40% equity, to have a controlling stake in FNHL, a charge they denied.


Analysts at the time noted that such feuding – to pave way for Zimnat to gain a controlling equity in the society – could have led to the collapse of talks between TA Holdings and Intermarket who were also prospective suitors.


Close sources say Intermarket was keen to take over Zimnat Lion and Zimnat Life while ceding 23% of its shares to TA. The deal depended on Zimnat acquiring a controlling stake in FNBS in preparation for the TA/Intermarket deal. If the deal had sailed through it would have made Intermarket a key player in the construction of houses since it would have taken aboard FNBS.


In the end, Zimnat failed to acquire FNBS and the deal collapsed.

Besides investors, Scott is facing criticism from all angles – his employers PriceWaterhouseCoopers (PWC) included. As reported in March by businessdigest, Scott is facing mounting pressure from PWC to end his marriage with the society since “it was tarnishing the image of the accounting firm”.


For the past 15 months FNBS has been in and out of the courts. At some point Scott has applied for the liquidation of the society. But in all the court hearings, the presiding judges have ruled in favour of Ruturi and Musona.

In February High Court judge Justice Tendai Uchena ruled against the liquidation of the society saying the matter did not require an urgent chamber application. Justice Uchena also ruled that the founding directors had locus standi in the subject matter since they had a controlling shareholding in the society.


Scott filed papers in March for liquidation. Opposing papers by the founding directors went missing and Justice Susan Mavangira passed a default judgement in favour of liquidation and that Scott be appointed the provisional liquidator.


After the ruling, Scott was accused of acting prematurely in inviting tenders for the sale of three of the society’s posh vehicles before it had been placed under liquidation by the High Court.


According to regulations, the move to dispose of the assets of a liquidated company can only be carried out with the authority of the Master of High Court.


The same court should also confirm the liquidator before they begin the liquidation process.


It also emerged that Scott’s certificate of appointment as provisional liquidator did not give him the authority to sell off property belonging to the society.


In contravention of the terms set out in his certificate of appointment, Scott went on to invite tenders for the society’s three vehicles three days before the High Court was due to make a ruling on the matter.


The advertisement said a Mercedes Benz C220, Mercedes Benz E280 and a Peugeot 406 were up for grabs.


The vehicles were part of the fleet that was used by senior managers of the society before it was shut down last year.


Scott had earlier written to the Master of the High Court on April 27 seeking leave to dispose of the vehicles. Businessdigest is in possession of a letter from the Master of the High Court dated May 5 refusing Scott the permission to sell the three vehicles.


“Thank you very much for you letter dated 29 April 2004. I however advise that for the meantime I cannot grant authority to dispose of the motor vehicles,” said the letter from the High Court.


Despite the correspondence, Scott went ahead and invited tenders for the vehicles.


But in May Scott’s attempt was foiled by a High Court order that threw out an application by the Reserve Bank of Zimbabwe (RBZ) for the liquidation of the society. Justice Charles Hungwe also threw out an application to have Scott confirmed as the liquidator, making his initial attempt to sell off the property illegal. The order by Justice Hungwe meant that Scott had no authority to dispose of both the vehicles and other assets.


Justice Hungwe also ordered that the liquidation of FNBS be stayed until the founding directors, Ruturi and Musona, had filed their papers opposing the Reserve Bank’s application for the liquidation of the society.


Justice Hungwe ruled that the matter be heard in the same court on June 16 when the directors were expected to argue that the society was not insolvent.


When the court sat last month, Scott “consented that Ruturi and Musona had the locus standi”. The matter was deferred to Wednesday next week.

Whatever happens on July 21 at the High Court when the FNBS’s case would be heard, hurdles still lie ahead. Even if the court were to rule for the reopening of the society, the founding directors would have to face challenges, chief among them the new capital requirements set out by the central bank in the monetary policy statement. The founding directors have to raise $7,5 billion needed for building societies, either from their own pockets or from institutional investors.


But considering the bad blood that exists between the founding directors and some institutional investors, notably Zimnat, there is no way they can choose the latter.

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