Commercial Farmers Union v Nelmah Holdings (Private) Limited

The applicant (Commercial Farmers Union) was owed US$935,796.33 by the respondent (Nelmah Holdings) in terms of a consent order granted on 12 January 2012. When the applicant attempted to execute the order, goods were claimed by third parties including the wife, brother, and father of the respondent's director, Nelson Mahupete. On 20 June 2012, the court granted a provisional liquidation order. The respondent opposed the final liquidation order, claiming it was expecting a US$12 million loan, was owed over a million dollars by its debtors, and that its business had gained momentum. However, the respondent admitted being in financial difficulties and owed approximately $5 million to other creditors. More than a year after making these claims, no payments had been made to the applicant and no evidence of financial improvement was produced.

• Whether the respondent company was unable to pay its debts as contemplated in section 206(f) of the Companies Act [Chapter 24:03]
• Whether the court should exercise its discretion to refuse confirmation of the provisional liquidation order despite the respondent's inability to pay its debts
• Whether the respondent's inability to pay was temporary in nature

The court granted a final order of liquidation of the respondent company.

A company will be deemed unable to pay its debts under section 206(f) of the Companies Act where: (1) substantial debts remain unpaid for an extended period following judgment; (2) execution attempts have failed; and (3) claims of future financial improvement or expected loans are unsubstantiated and remain unfulfilled. The court's discretion to refuse confirmation of a provisional liquidation order under section 206 is limited and will not be exercised merely on unproven promises of future financial recovery. The use of dubious claims by relatives to frustrate execution and the making of unsubstantiated promises of improvement to delay liquidation will not prevent the court from granting a final winding up order where it is in the interest of the transacting public and justice.

The court observed that allowing companies unable to pay their debts to continue operating puts innocent business people at risk and adds to the economic problems of the country. The court noted that the opposition to liquidation appeared to be part of a pattern of avoiding payment of debts, including the claiming of property by the director's relatives under dubious circumstances. The court characterized the respondent's reliance on an expected loan as a case of "borrowing from Peter to pay Paul," citing Nkala and Nyapadi, Company Law in Zimbabwe, at page 406. The court also confirmed that the limited discretion to refuse liquidation exists by virtue of the use of the word "may" in section 206 of the Act and the inherent jurisdiction of the court to prevent abuse of its process, referencing Croc-Ostrich Breeders of Zimbabwe (Pvt) Ltd v Best of Zimbabwe (Pvt) Ltd 1999 (2) ZLR 410 (H) 414 G-415 A.

This case demonstrates the court's approach to winding up applications under section 206(f) of the Companies Act where a company is unable to pay its debts. It illustrates that unsubstantiated claims of future financial improvements and expected loans will not prevent liquidation where a company has demonstrated persistent inability to pay debts over an extended period. The judgment emphasizes the court's role in protecting the transacting public from companies that continue operating while unable to meet their obligations, and confirms that the discretion to refuse liquidation is limited and will not be exercised without proper justification.