Despecify Mawere, Companies — Gono

Reserve Bank governor Gideon Gono recently wrote an advisory note to President Robert Mugabe urging him to allow government to return business tycoon Mutumwa Mawere’s assets. Excerpts of the letter are below.

1.1 Your Excellency, this advisory brief seeks to highlight pertinent review points on the SMM case that are recommended to form the basis for a resolute way forward on this long outstanding matter.

Your Excellency, having gone through the availed documentation and the facts that prevailed on the ground at the time this matter arose, the bank has come to the following conclusions on the various critical points:
Were SMM liabilities legal loans by the state?
2.2 Court records and proceedings of the matter indicate that the issuance of the Reconstruction Order on SMM was based on the following liabilities:
a) A debt of Z$396 million in respect of a commercial bond issued by the MMCZ whose proceeds were used by SMM;
b) An RBZ PSF loan totaling Z$30 billion, disbursed in two tranches, Z$20 billion on 24 May 2004 and Z$10 billion on 17 August 2004;
c) A debt of Z$8,2 billion owed to Zesa;
d) A debt of Z$252 million owed to the National Social Security Authority (NSSA); and
e) A debt of Z$39,9 billion that was due to Zimra.
2.3 Your Excellency, at law the above SMM liabilities at the time the Reconstruction Order was instituted did not qualify as state loans to SMM.  
2.9 In this case, the creditor-debtor relationship lay between SMM and the individual entities that were owed money, and not the state as erroneously advanced.
2 Insolvency of SMM
2.11 Your Excellency, at law, insolvency declaration is a diagnostic conclusion that has to be preceded by minimum procedural steps that do not only involve notification of shareholders, creditors, debtors and other related parties, but also impels the holding of actual judicial hearings to assess the material facts and financial data of the company, as to be able to factually determine and conclude the existence and degree of such insolvency.
2.15 As things went, and as things stand, the State is, therefore, exposed to the risk that the investor community may conclude that the letter and spirit of property rights, human rights and company law is not being followed in so far as the rights of shareholders, debtors, creditors, employees and any other relevant parties are concerned. This is not good for government’s and the country’s image, Your Excellency.
Alleged exchange control violations
2.19 Your Excellency, deliberations at the courts on these allegations have not been conclusive, as the State could not provide evidence beyond reasonable doubt that the relevant amounts as alleged had been banked offshore with the express intention never to repatriate them back to Zimbabwe.
2.22 In the SMM case, the Reserve Bank is happy to drop any Exchange Control related charges, in light of the evidence at hand.
Natural person of M Mawere vs juristic persona in the form of companies
2.25 Your Excellency, the State seems to have inadvertently made an error of principle by failing to distinguish the boundaries of rights and responsibilities for the person of Mutumwa Mawere and those responsibilities for those who were running with the day to day issues of the SMM group of companies.
2.26 Yes, at law, company directors are liable to the circumstances of their companies, but in the matter at hand, the State’s case seems to have hurriedly bundled all allegations on the lap of the person of Mawere, without documentary proof as to his direct involvement in the SMM day to day dealings, let alone the bulk of the charges levelled against him.
Conflict of interests
2.27 Your Excellency, the Reserve Bank has also found the following material grey areas which seem to have compromised the entire handling of the SMM case:
a) Though there is reference to the Fifth Table of the Seventh Schedule of the Companies Act, which sets the payment levels for liquidators and administrators, the fact still remains that Gwaradzimba, the administrator, is getting payments set at 6% of gross proceeds, of all SMM companies which is even more lucrative than shareholders themselves, let alone revenues to government. Your Excellency, there is genuine need for the relevant sections of the Companies Act to be modified. The Administrator’s activities also seem to have entrenched interests of needlessly permanently dispossessing all Mawere of his assets.
b) It has also been established that the Administrator, Gwaradzimba, was a former auditor of SMM, making him the least qualified to vilify SMM financial systems and try to reconstruct the financial fortunes of the company. At best, knowing that he was a former auditor of SMM, Gwaradzimba ought to have honourably turned down the appointment by the Minister of Justice, Legal and Parliamentary Affairs. Your Excellency, this material fact seems to have been grossly overlooked during the judicial proceedings against Mawere.
c) It has also been established that Manikai, who presided as one of the legal minds on the SMM issue was a former legal advisor to SMM, again making him a less suitable candidate to preside over the SMM matter.
2.28 Your Excellency, these anomalies do cast doubt and credibility deficits on the transparency and integrity of the subsisting control and management arrangements of SMM and how the whole matter was handled.
Self-serving lawsuits
2.29 Your Excellency, as I write this Advisory Note to you, there is a matter that is before the High Court seeking to legally declare “culpability” of Mawere, which would have the effect of empowering the Administrator to declare SMM assets to be legally and permanently owned and held by the government of Zimbabwe. There are also unconfirmed indications that the current administration team is actively making preparations to either directly or indirectly acquire stakes in SMM.
3. Recommendations
3.1 Your Excellency, based on the above pertinent factors, and discoveries, I humbly seek to submit the following decision points for your consideration:
e) The de-specification of Mawere and his companies so as to pave way for a new beginning, particularly in the context of investment promotion and empowerment in Zimbabwe.
f) There is need for an urgent realignment in the Companies Act in order to come up with realistic charges for liquidators and administrators. Where an administrator gets 6% of gross proceeds of a company under his/her insolvency salvage operations, as is the case with Gwaradzimba in the SMM case, this creates intractable conflicts of interest, as well as further worsening of the struggling companies’ financial standing.
3.2 Your Excellency, if one or more of the above recommendations finds your approval, it is also strongly recommended that an independent transitional board be put in place, represented by people other than the current administrator to exhaustively work through the financials of SMM to pave way for an amicable settlement of this long outstanding matter.