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High Court judge Justice Chinembiri Bhunu had dismissed an application by Transnational Holdings Ltd, a former 72 percent shareholder in IHL, seeking to invalidate the sale of the shares to ZBFH by the Reserve Bank.
The central bank, which had bailed out IHL subsidiaries — Intermarket Discount House and Intermarket Banking Corporation — had gained a controlling 51 percent stake in IHL following the conversion of debts into equity through a High Court-approved scheme of arrangement in 2005.
After the scheme of arrangement, the RBZ became the controlling shareholder with 51 percent. THL was diluted to 15,42 percent while ZBFH held 8,88 percent. The remaining 24,71 percent was held by minorities who were former creditors of Intermarket Discount House and IBC.
THL had challenged the disposal of IHL stake to ZBFH arguing that other shareholders had not been given an opportunity to exercise their pre-emptive rights in respect of the 51 percent of the issued share capital in IHL.
Some of the shareholders include Econet Wireless Ltd, the second applicant.
THL argued that Justice Bhunu dismissed the application on the grounds that the platform agreement, a culmination of the debt equity-swap deal had relevant approvals “whereas the dispute before him dealt with . . . transactions which took place after the scheme of arrangement”.
The platform agreement provided for a series of transactions which include the cession and assignment by Zimbabwe Banking Corporation to ZBFH, of debts owed by Intermarket Discount House.
It also involved the assumption of the Intermarket Discount House debts by IHL. Also in the agreement was the conversion of the debts assumed by IHL into equity through a High Court-sanctioned scheme of arrangement.
This was then followed by acquisition of ZBFH shares held by members of IHL in exchange for its own shares, resulting in IHL becoming a 100 percent subsidiary of ZBFH.
The platform agreement was subject to conditions precedent, which included approval by IHL directors and shareholders at a general meeting. A general meeting was held in January 2005 to consider the transaction.
At this meeting, according to Vingirai, the management and the board of IHL “which were now evidently under the control and influence to ZBFH”, only accepted the assumption of Intermarket Discount House debt by IHL and its conversion into equity. But the shareholders rejected the acquisition of IHL by ZBFH as they expressed their need for a proper evaluation of entities involved and options available, including merging with the then Zimbabwe Allied Banking Group.
A subsequent shareholder meeting was held on March 30, 2005. At that meeting, ZBFH’s intention to acquire IHL was signalled. However, the meeting was not asked to make any resolution on the proposed transaction, presumably because it had been rejected by the earlier general meeting.
In addition, the pre-condition set by the shareholder for considering the transaction had not been met.
The meeting approved the taking over of the Intermarket Discount House and Intermarket Banking Corporation debts by IHL and the conversion of such debts into equity.
“It must be emphasised that this meeting did not approve the takeover of IHL by ZBFH as envisioned in the platform agreement,” argues Vingirai. “It is the assumption by IHL of the debts of Intermarket Discount House and Intermarket Banking Limited and conversion of such debts to equity in IHL that constituted the scheme of arrangement that was approved by the High Court of Zimbabwe.
“The scheme did not approve the acquisition of IHL by ZBFH. There were only three parties to this High Court case — IHL, Intermarket Discount House and Intermarket Banking Corporation.”
The sale of the IHL stake to ZBFH was concluded in November 2006 at a price of Z$5 billion, with the former becoming a controlling shareholder with 60 percent.
Online Reporter