The applicant and respondent were co-shareholders and co-directors in Graphic Age (Private) Limited, each holding 50% shares. In December 2006, the applicant resigned as director. In accordance with their shareholders' agreement, the respondent exercised his pre-emptive rights to acquire the applicant's entire shareholding. A company valuation was conducted as per the shareholders' agreement. However, there was delay in payment by the respondent to the applicant. Due to hyperinflation, the applicant requested revaluation of the company assets to cushion himself, but the respondent refused and offered to pay according to the already concluded valuation. Aggrieved by this, the applicant brought an application seeking to place the company under provisional judicial management, claiming that since his resignation, the remaining director (respondent) could not form a quorum and the company could not function properly.
The application was dismissed with costs on an attorney-client scale.
A former director and shareholder who has resigned and relinquished his entire shareholding in a company has no locus standi to bring an application for provisional judicial management on behalf of that company. Where a shareholders' agreement contains an arbitration clause providing for the resolution of disputes, parties are bound to exhaust that domestic remedy before approaching the court, and cannot unilaterally circumvent such clause. An application for provisional judicial management under section 300 of the Companies Act must properly articulate and satisfy all three statutory requirements: (i) that the company is unable or probably unable to pay its debts due to mismanagement or other cause; (ii) that there is reasonable probability that judicial management would enable the company to pay debts and become successful; and (iii) that it would be just and equitable to make such an order.
The court observed that the applicant's proper remedy was to enforce his rights against the remaining shareholder (the respondent) directly, since the dispute was between the two individuals and had nothing to do with the company, whose operations had been normalized by the appointment of other directors. The court also noted that a litigant who persists with an application after being forewarned of its impropriety and futility by opposing legal practitioners must be prepared to pay costs on a higher scale.
This case clarifies important principles in Zimbabwean company law regarding: (1) the requirement of locus standi for bringing applications on behalf of companies, particularly where a former shareholder/director has relinquished all interest in the company; (2) the binding nature of arbitration clauses in shareholders' agreements and the requirement to exhaust domestic remedies before approaching the court; and (3) the strict requirements that must be met and properly articulated when seeking provisional judicial management orders under section 300 of the Companies Act. The case also demonstrates the court's willingness to award costs on a higher scale where a litigant persists with an application despite being forewarned of its impropriety.