Ofer Sivan v Alexious Dera N.O. and Others

The applicant was a director of Adlecraft Investments (Pvt) Ltd and claimed to be its sole shareholder. The second and third respondents, who were also directors, passed a circular resolution dated 1 October 2021 without the applicant's participation to place the company under voluntary business rescue proceedings. The first respondent was appointed as corporate rescue practitioner pursuant to this resolution. The applicant challenged the validity of the circular resolution on grounds that it did not comply with section 196(1) of the Companies and Other Business Entities Act, which requires written consent signed by all directors entitled to vote on the matter. The applicant obtained a provisional order from Musithu J in HC 5436/21 (HH 668/21) suspending the operation of the resolution and interdicting its implementation. The respondents noted appeals to the Supreme Court (SC 462/21 and SC 463/21). The applicant then sought leave to execute the provisional order pending the determination of the appeals.

• Whether the applicant should be granted leave to execute the provisional order pending appeal
• Whether the circular resolution placing the company under corporate rescue was validly passed in compliance with section 196(1) of the Companies and Other Business Entities Act [Chapter 24:31]
• Whether the grounds of appeal filed by the respondents had reasonable prospects of success
• Whether the balance of convenience and prejudice favored granting leave to execute pending appeal
• Whether the applicant had locus standi to challenge the circular resolution in his capacity as a director

The application for leave to execute pending appeal was granted. The judgment in HC 5436/21 (HH 668/21) was to be carried into execution pending determination of the appeals SC 462/21 and SC 463/21. Costs of the application were ordered to be in the cause in case number HC 5436/21 upon its determination on the return date.

A circular resolution of directors passed pursuant to section 196(1) of the Companies and Other Business Entities Act [Chapter 24:31] must be signed by all directors entitled to vote on the matter to be valid. Where such a resolution is passed without the written consent of a director entitled to vote, it is prima facie invalid and cannot serve as a valid foundation for placing a company under corporate rescue proceedings. Leave to execute a judgment pending appeal will be granted where the grounds of appeal have no reasonable prospects of success and the balance of convenience favors execution, particularly where allowing the status quo would perpetuate a prima facie illegal act and cause irreparable harm. An act done contrary to a statutory prohibition is void and of no legal effect.

The court observed that the purpose of a provisional order or interlocutory injunction is to regulate and preserve the rights of parties pending final determination of the matter. The court noted that issues of material falsehoods relating to shareholding were properly left for determination on the return date and did not prevent the grant of interim relief which focused on the validity of the directors' resolution. The court commented that the first respondent (corporate rescue practitioner) was least qualified to assist on whether the circular resolution was validly passed as he had no personal knowledge of the processes involved. The court emphasized that the company had been operational prior to the circular resolution and could continue to operate, and that the provisional order remained temporary and could be appealed.

This case affirms the importance of strict compliance with statutory provisions governing directors' resolutions in company law, particularly section 196(1) of the Companies and Other Business Entities Act [Chapter 24:31]. It establishes that a circular resolution passed without the written consent of all directors entitled to vote is prima facie invalid and cannot found valid corporate rescue proceedings. The judgment reinforces the principle that acts done contrary to law are void ab initio and reiterates the test for granting leave to execute pending appeal in Zimbabwe, emphasizing that courts will not allow continuation of prima facie illegal conduct while appeals are pending where this would cause irreparable harm. It also clarifies that a director has standing to challenge the validity of directors' resolutions in that capacity, regardless of shareholding disputes.