Reserve Bank of Zimbabwe v Royal Bank of Zimbabwe Limited

Royal Bank of Zimbabwe Limited was incorporated on 6 November 1997 and registered as a commercial bank on 8 May 2002. In August 2004, it was placed under curatorship by the Reserve Bank of Zimbabwe due to poor lending practices and corporate governance issues. Its assets were acquired by Zimbabwe Allied Banking Group. The bank was re-licensed in September 2010 but soon encountered serious undercapitalization, persistent liquidity challenges, and repeated losses. As at 31 May 2012, the bank required US$11.4 million to comply with the minimum capital requirement of US$12.5 million. It imposed a maximum daily withdrawal limit of US$50 on clients, failed to pay creditors totaling US$2.27 million, and failed to meet statutory obligations to NSSA, ZIMRA, and Workers' Compensation Insurance Fund. The bank recorded a cumulative loss of US$5.98 million as at 30 June 2012 and had been using depositors' funds to cover operational expenses, resulting in a non-funded deficit of US$4.1 million as at 14 June 2012. On 27 July 2012, the bank surrendered its banking licence to the Reserve Bank. The Reserve Bank applied for the bank to be placed under provisional liquidation. Two shareholders opposed the confirmation of the provisional order.

• Whether the first respondent was unable to pay its debts as contemplated in section 206(f) read with section 205 of the Companies Act [Cap 24:03]
• Whether it was just and equitable for the first respondent to be wound up in terms of section 206(g) of the Companies Act
• Whether the court should exercise its discretion to grant a final winding up order
• Whether the substratum of the company had disappeared

The provisional order granted on 20 February 2013 was confirmed. The first respondent (Royal Bank of Zimbabwe Limited) was placed under final liquidation.

A company is unable to pay its debts within the meaning of section 205(c) of the Companies Act where it is in commercial insolvency, meaning it is unable to meet current demands upon it or day-to-day liabilities in the ordinary course of business, regardless of whether its assets exceed its liabilities on paper. It is just and equitable to wind up a company under section 206(g) where the substratum of the company has disappeared, which occurs when it becomes objectively impossible for the company to achieve its objects - in this case, a bank that has surrendered its banking licence can no longer carry on the business of banking. The court's discretion to wind up a company must be exercised judicially upon consideration of all relevant facts and circumstances, and where creditors' interests (particularly depositors in a bank) are at stake and there are no prospects of recovery, the discretion should be exercised in favor of winding up.

The court made observations on the central role of banking in the economy and its potential to destroy confidence if not properly conducted. The court cited United Dominions Trust v Kirkwood [1966] 2 QB 431 on what constitutes the business of banking, including the undertaking to pay cheques and conduct current accounts allowing free withdrawals. The court also noted that the relationship between banker and customer is fundamentally a debtor-creditor relationship where money credited to a current account is lent to the banker (citing Joachimson v Swiss Bank Corporation [1921] 3 KB 110). The court observed that in determining substratum, the court is not necessarily confined to the main object in the memorandum but can ascertain the main business actually carried on. The court emphasized that intention of a company is irrelevant when determining whether substratum has failed - it must be objectively impossible to achieve the company's objects.

This case is significant in Zimbabwean company and banking law as it demonstrates the application of both the inability to pay debts ground and the just and equitable ground for winding up under sections 205 and 206 of the Companies Act. It affirms the principle of commercial insolvency (inability to meet current demands) as distinct from balance sheet insolvency. The case emphasizes the importance of protecting depositors and the public in banking institutions and illustrates the application of the 'disappearance of substratum' doctrine where a company can no longer carry on its main business. It confirms that courts will exercise their discretion to wind up failed financial institutions where the interests of creditors and depositors are at stake, and establishes that a company's intentions to pursue alternative business ventures are irrelevant when determining whether the original substratum has failed.