adminTHE Deposit Protection Corporation wants Interfin Bank directors arrested for causing the institution’s collapse, a move analysts say will chip away at corporate governance deficiencies in the banking sector.
The Reserve Bank of Zimbabwe placed Interfin Bank under curatorship in June 2012 after its debts topped US$80 million. The curatorship expired on December 31, 2014 with the RBZ declining to extend it because the bank had failed to find an investor to pump in a required US$50 million, condemning it to liquidation.
DPC was appointed liquidator in January this year, and creditors authorised pursuing legal action against the bank’s directors.
Similarly, on January 28 this year, creditors of the defunct Royal Bank demanded the arrest of former shareholders, who included CEO Mr Jeffrey Mzwimbi, for allegedly swindling depositors.
Aurifin Capital MD Mr Knowledge Hofisi, who is also David Whitehead’s judicial manager, said it was possible to arrest directors – past and present – if there was evidence of mismanagement in terms of Section 318 of the Companies Act.
According to that legal provision, “(1) If at any time it appears that any business of a company was being carried on – (a) recklessly; or (b) with gross negligence; or (c) with intent to defraud any person or for any fraudulent purpose; the court may, on the appointment of the Master, or liquidator or judicial manager or any creditor of or contributory to the company, if it thinks it proper to do so, declare that any of the past or present directors of the company or any other persons who were knowingly parties to the carrying on of the business in the manner or circumstances aforesaid shall be personally responsible, without limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.”
The DPC is understood to be exploring use of such provisions to ensure any liable parties are brought to book in Interfin’s case.
Interfin head honchos were co-founders Mr Tim Chiganze, Mr Farai Rwodzi and Mr Jerry Tsodzai, who jointly held 60 percent of the bank.
An interim liquidation report presented by Mr Jonas Jonga of BDO Chartered Accountants, said the main reason for the bank’s failure was the high level of insider and related party loans linked to the three.
Related party loans were US$90,602 million as at January 27, 2015, with almost all classified as non-performing loans. The related party loans are said to constitute 53 percent of the total loan book which is valued at US$169,354 million.
The bank has net liability position of US$115 million. Interfin Bank owes US$18 million to the Ministry of Finance and Economic Development, US$23 million to Al Shams Global, while the Zimbabwe Asset Management Company laid a US$23 million claim arising from a PTA Bank facility.
DPC public relations manager Mr Allen Musadziruma told The Sunday Mail Business last week that “every company director has a fiduciary duty to exercise the powers and perform the functions of a director in good faith; in the best interest of the company; and with reasonably expected degree of care, skill and diligence”.
Mr Musadziruma said the creditors’ resolution was passed in terms of Section 318 of the Companies Act and should be respected.
“Section 319 of the same Act provides for prosecution of delinquent directors and others. We are therefore going to action the resolution in terms of the law.
“As rightfully indicated in the report which we presented to creditors of Interfin bank, the matter is still under investigation. We still need to conclude investigations into certain areas that were not covered by the forensic audit before instituting any legal proceedings,” said Mr Musadziruma. The DPC said bringing accountability would “definitely send a strong signal to the other directors who are engaging in the same conduct”.
“Moreover bringing directors to book will enhance public confidence in the banking sector. The directors who are found at fault will be required to make restitution if found at fault. That in effect will enhance public confidence in the banking sector and promote financial sector stability,” said Mr Musadziruma.
Since 2009, Allied, Genesis, Interfin, Trust, AfrAsia Zimbabwe, Royal and Capital banks have shut down, leaving depositors’ money trapped in those institutions while directors ride off into the sunset.
A judicial manager who declined to be named said public confidence would be boosted if the DPC gathered incontrovertible evidence nailing Interfin Bank bosses, leading to prosecutions.He said emphasis had been placed more on restitution rather than “criminal charges because if you were to prefer criminal charges, what will essentially happen is that it becomes the State versus the accused person and criminal offence is punished at law through custodial sentence of which at the end of the day, creditors and other shareholders might end up not benefiting from that arrangement”.
The judicial manager said both civil and criminal proceedings could be instituted.
“The advantage of civil (suits) is that you are asking for a specific performance to say that this person stole my money and you have to pay back and once that is done, shareholders and creditors can be paid.
“The director being sued will be forced to sell assets to recover money to settle his obligations. Preferring criminal charges, as I have said, yes, it is good but the challenges are that at law, you have to prove beyond reasonable doubt that a criminal offence was committed.
“And if you prefer criminal charges, because of the complexities that are involved, you find that at the end of the day, there may be loopholes along the way and someone ends up being acquitted on a technicality because you have to prove beyond reasonable doubt that an offence was committed.
“But with civil, you work on a balance of probabilities to say that this offence was actually committed.
“Secondly, if it is civil, it is not about convicting someone, but about restitution; the moment you are able to recover what was stolen by someone, in my opinion, it is a good starting point because even if someone is convicted, they can still go back and come back and enjoy whatever they would have stolen from those institutions,” said the judicial manager. He added that many local companies collapsed due to corporate governance shortcomings.
“Directors are given carte blanche powers to make decisions at the detriment of shareholders. If you are a shareholder in Zimbabwe, you rarely benefit, it is the directors who benefit,” he said. In April 2015, Government launched the Zimbabwe National Code on Corporate Governance (ZimCode) to provide a framework for corporate conduct for both public and private sectors.
Among its key targets are eliminating corruption in the private and public sectors and enforcing corporate disclosure.
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