Boka Investments (Private) Limited v Thirdline Trading (Private) Limited and Onclass Investments (Private) Limited and Master of the High Court

The applicant (Boka Investments) was the landlord of the 1st and 2nd respondents (Thirdline Trading and Onclass Investments), who jointly operated a tobacco auction floor under the trade name ZITAC. The respondents failed to satisfy an arbitral award granted in the applicant's favour on 16 April 2010 and registered by the court on 19 May 2010. Together with sales commission and arrear rentals, the respondents owed the applicant US$460,800. The applicant obtained a provisional winding up order on 23 February 2011 and brought an application for its confirmation. The applicant contended that the respondents' confirmed liabilities of US$1,630,800 exceeded their assets of less than US$100,000, and that they had no prospect of recovery as they were not granted an auction licence for the 2011 season. The respondents opposed the confirmation, arguing they were not insolvent as their goodwill and business volume (approximately US$6 million annually) should be included in asset valuation. They claimed the provisional order was obtained unprocedurally and that various procedural irregularities existed.

• Whether procedural irregularities in obtaining the provisional winding up order should be condoned under Rule 4C of the High Court Rules
• Whether the provisional order had lapsed due to failure to extend it beyond the original return date of 17 May 2011
• Whether the respondent companies were commercially insolvent and unable to pay their debts within the meaning of sections 205(c) and 206(f) of the Companies Act
• Whether it was just and equitable to wind up the respondent companies under section 206(g) of the Companies Act
• Whether goodwill and prospective business revenues constitute realisable assets for the purposes of determining commercial solvency

The provisional order for the winding up of the 1st and 2nd respondents granted on 23 February 2011 was confirmed and made a final order.

The binding legal principles established are: (1) Under Rule 4C of the High Court Rules, the court has discretion to condone procedural irregularities in winding up applications where the interests of justice require it, particularly where creditors and other interested parties would benefit from finality and the liquidation process has substantially progressed. (2) Commercial insolvency under sections 205(c) and 206(f) of the Companies Act is determined by whether a company has liquid or readily realisable assets available to meet its liabilities as they fall due in the ordinary course of business and thereafter carry on normal trading. (3) Goodwill and prospective business revenues cannot constitute realisable assets for the purposes of determining commercial solvency, as goodwill is only valuable when a business is sold as a going concern and cannot discharge current debts and liabilities. (4) A company may be wound up on "just and equitable" grounds under section 206(g) where its substratum has disappeared, even if other grounds for winding up also exist.

The court made several non-binding observations: (1) It expressed reluctance to reach the conclusion that the provisional order had lapsed due to failure to extend the return date, noting that while this conclusion seemed "inescapable" ordinarily, the specific circumstances of the case (including respondents' conduct and the advanced stage of liquidation) militated against it. (2) The court noted that it should be "less inclined to interfere at a late stage in the winding up process than it would be at an early stage," citing Ma-Afrika Groepbelange (Pty) Ltd v Millman and Powell N.N.O. & Another. (3) The court observed that the respondents' conduct in filing multiple applications and an appeal but failing to pursue them, and only raising the lapsing objection 22 months after the return date, was "tantamount to gross abuse of court process." (4) The court commented that the circumstances enumerated in section 206 for winding up "are to be read disjunctively and not conjunctively." (5) The court noted that having found commercial insolvency, "it seems unnecessary to consider the additional or alternative ground for winding up" under the just and equitable provision, but proceeded to do so "for the sake of completeness."

This case is significant in Zimbabwean company law for several reasons: (1) it clarifies the court's discretion under Rule 4C to condone procedural irregularities in winding up applications where the interests of justice require finality, particularly where considerable time has elapsed and the liquidation process has advanced; (2) it applies and endorses the South African test for commercial insolvency from ABSA Bank Ltd v Rhebokskloof, emphasizing that the critical question is whether a company has liquid or readily realisable assets to meet current demands and remain buoyant; (3) it establishes that goodwill and prospective business revenues cannot be treated as realisable assets for determining commercial solvency, as they cannot discharge current debts; (4) it demonstrates judicial willingness to prevent abuse of process where parties file multiple applications and appeals but fail to pursue them while the liquidation process continues; and (5) it illustrates the application of the "just and equitable" ground for winding up where a company's substratum has disappeared.