SME Bank liquidation - Kamushinda, Metbank and World Eagle’s liability decided
Kamushinda v SME Bank in Liquidation (SA 101-2020) [2024] NASC (13 March 2024)
Facts
The liquidators brought a counter-application against the appellants in the High Court to rectify the members’ register of the SME Bank and for MetBank and World Eagle to make their outstanding payments for their shareholding; for Mr Kamushinda to be declared liable for the liabilities of the SME Bank under s 430 of the Companies Act 28 of 2004 (the Act); for MetBank and World Eagle to be declared liable for the liabilities of the SME Bank at the date of liquidation; and for judgment against the appellants jointly and severally for the following amounts: (i) N $1028286903,13;( ii) N $60 million; (iii) interest on these amounts at the legal rate from 12 July 2017 to date of payment; and costs. This counter-application was opposed by the appellants whereat they raised preliminary points of prescription and non-joinder. The High Court proceeded to hear the counter-application and granted judgment in favour of the liquidators.
The appellants appealed against that judgment of the High Court.
Issues for determination
On the merits, at issue on appeal was the liquidators’ counter application.
Discussion
The Supreme Court dealt with the specific claims (merits), as follows:
‘Rectification of the members’ register
[74] Relevant for present purposes is that SME Bank was licensed as a bank by BoN on 30 November 2012. BoN approved only a five per cent shareholding for World Eagle and eventually approved a 30 per cent holding for MetBank. The remaining 65 per cent of the shares was to be held by the Government of the Republic of Namibia through a corporate entity, the NFT…
[76] Metbank acted upon that approval and accepted its shareholding at that level until the liquidation…
[78] It is further stated that nothing prevented them to take necessary steps to obtain proof of their ownership by obtaining their certificates and that the shares were transferred without the need for share certificates. Reference is also made to SME Bank’s 2015 annual financial statements where the shareholding is reflected, as contended for by the liquidators. The liquidators thus sought rectification of the register of members to reflect that under section 122 of the Act.
[79] These statements are met with bald denials by the appellants in answering to the counter-application…
[80] The High Court … concluded that the facts put up by the liquidators cumulatively viewed constituted equity justifying the rectification of the register in accordance with the Act. The retrospective date for that rectification was in accordance with the facts which were not properly disputed. Those conclusions are unassailable. The court in its reasoned judgment also correctly found that the liquidators had not unduly delayed bringing the claim for rectification.
[81] The appeal against the rectification of the members’ register is devoid of any merit.
Shareholders’ contributions
[82] The liquidators further state that there were outstanding contributions as share premiums which MetBank and World Eagle undertook and were required to make to SME Bank since 1 March 2015. They are in the sums of N$121 463 077 and N$20 243 846 respectively. The liquidators sought and were granted an order to that effect.
[83] This statement is likewise met with a bare denial. On the other hand, the evidence as to these outstanding contributions is set out in detail by Ms Magda Nel, SME Bank’s external auditor, with reference to detailed contemporaneous documentary evidence that such contributions were outstanding and with reference to undertakings to pay them and that they remained unpaid, which evidence was not properly challenged.
[84] The appeal against the order against MetBank and World Eagle to pay their shareholder contributions of N $121463077 and N $20243 846 respectively is likewise without merit.
Order declaring MetBank and World Eagle liable for SME Bank liabilities
[85] The liquidators also point out that the SME Bank was at all times a registered public company and that representatives of MetBank and World Eagle were aware of the fact that SME Bank had less than seven members in conflict with s 37 of the Act.
[87] The liquidators accordingly claim that MetBank and World Eagle be declared liable for the liabilities of SME Bank at the date of liquidation, 11 July 2017, by virtue of s 72 of the Act.
[89] The liquidators state that the contracted liabilities as at 11 July 2017 amounted to N$1 028 286 903,13 in respect of depositors and a further N$60 000 000 in respect of a promissory note issued to JM Busha. These liabilities are supported by detailed evidence.
[90] In written argument filed on behalf of the appellants, it is contended that s 37 of the Act contemplates that the seven or more persons referred to are natural and not juristic persons. It is thus submitted that the High Court erred in making an order that MetBank and World Eagle are liable for the debts of SME Bank because they are not natural persons.
[91] No authority was provided in support of this contention. This is not surprising. It flies in the face of logic. There is no basis for reading in a limitation of that nature into the section. It falls to be rejected on first principles of statutory interpretation and the definition of ‘person’ contained in the Interpretation of Laws Proclamation 37 of 1920.
[92] The appeal against the order granted to this effect is also without any merit.
Liability of Mr Kamushinda under section 430 of the Act
[93] As to the claim against Mr Kamushinda under s 430 of the Act, the liquidators point out that he was closely involved in the establishment of the SME Bank and was a director of the bank since its inception on 23 March 2011 until its demise on 11 July 2017. He was also elected as deputy chairperson of the board as from 11 October 2012, a position he held until its demise and in fact served as acting chairperson for the period 30 April 2015 to 1 September 2015. In his capacity as a director, he chaired its board credit committee and was also a member of its board audit committee.
[95] This is a punitive remedy under which a director can be held personally liable for the liabilities of a company without proof of a causal connection between the fraudulent or reckless conduct of the companies’ business and those liabilities. This section can also give rise to criminal liability. Section 430(4) provides that without prejudice to any other criminal liability incurred, where any business of a company is being carried on recklessly or with the intent to defraud creditors of a company or any other person or for any fraudulent purpose, every person who was knowingly party to that commits an offence. [97] The two key elements to establish civil liability under s 430(1) are recklessness or an intention to defraud in the conduct in question and that the defendant ‘knowingly engaged in it.’
[99]As a result of these investigations and the enquiries, the liquidators were able to establish that a total N$ 247 535 004 was stolen from the funds held by SME Bank to entities mostly based in South Africa. The large-scale misappropriation of SME Bank funds was, according to the compelling evidence provided by the liquidators, perpetrated by Mr Kamushinda and identified individuals who were employed in the finance department of the SME Bank, all of whom were, like Mr Kamushinda, Zimbabwean nationals. The modus operandi of this large-scale theft and fraudulent conduct is set out in detail together with supporting documentation in the counter-application.
[100] The detailed documentation comprising financial records and bank statements, records of transactions, damning computer inscriptions and other documentary proof is confirmed under oath by a former senior officer of SME Bank and senior officers of commercial banks which had processed transactions. This evidence is essentially met with bare denials and is thus not properly challenged by Mr Kamushinda.
[101] The liquidators also provided evidence that some of this misappropriated money was in turn transferred by electronic bank transfers to corporate entities, namely Crown Finance Corporation (Pty) Ltd (Crown) and Heritage Investments (Pty) Ltd which were owned or controlled by Mr Kamushinda. In addition, several cash deposits were made in Crown’s banking account exceeding a total of N$3 million from cash withdrawn from SME Bank. Crown did not hold an account with SME Bank. Nor did it provide any service to SME Bank.
[102] The court below rightly referred to this body of evidence as ‘this overwhelming body of convincing and sufficient evidence’…
[103] The court rightly found that the claim against Mr Kamushinda under s 430 of the Act was established.
[104] Mr Kamushinda’s appeal against the order granted against him under s 430 of the Act likewise enjoys no prospects of success.
Concluding remarks
[105] A total of at least N$247 535 004 was looted from SME Bank in the manner set out above. This occurred over a period spanning several years until BoN took over control of SME Bank on 1 March 2017 and eventually applied to place it under provisional liquidation on 11 July 2017, made final on 29 November 2017. Quite how this systematic looting of a registered bank was able to proceed over such a sustained period raises questions concerning the efficacy of the regulation and supervision of SME Bank by BoN, especially after SME Bank’s external auditors raised concerns about investments totalling N$196 million with a South African company and drew these concerns to the attention of BoN more than six months before the latter took over control of SME Bank on 1 March 2017.
[106] The numerous payments to which Mr Kamushinda was party which are well documented in the counter-application would prima facie appear to constitute not only contravention(s) of s 430(4) but also more serious crimes including theft and contraventions of the Prevention of Organised Crime Act 29 of 2004 (POCA). Yet we were informed at the hearing that no warrant for the arrest of Mr Kamushinda has been issued. The prima facie criminal conduct on the rampant scale set out in the counter-application is of massive proportions, involving the theft of more than N$247 million from a registered bank to the detriment of its several deposit holders and creditors. Economic crime of this scale within the context of the Namibian economy justifies an appropriately serious response. The registrar is directed to provide a set of papers in the counter-application to the prosecutor-general.
[107] Finally, the liquidators are to be commended for the thorough investigation they pursued which has uncovered the nature and extent of the looting of SME Bank. These investigations have involved meticulously gathering evidence to determine and pinpoint liability for those losses and their extent. Not only has the body of creditors been very well served by this exercise, but the public interest has also been served in the process of bringing to light the systematic looting of a registered bank to the detriment of its depositors and creditors and the financial system as a whole.’
SMUTS JA (MAINGA JA and FRANK AJA concurring) held that:
Held that, on the merits the appellants’ papers in answering to the counter-application are replete with bald denials. These unsupported and bare denials are not sufficient to raise a material dispute of fact, especially in the face of the very detailed evidence backed by compelling documentary evidence properly confirmed under oath by senior bank officials and other relevant witnesses.
Held that, Mr Kamushinda left Namibia after 17 February 2017, shortly before BoN took over the management and control of SME Bank on 1 March 2017. Mr Kamushinda has remained outside Namibia since then – as a result, prescription has not completed by virtue of s 13(1)(l) of the Prescription Act 69 of 1969. The same applies to foreign companies which do not have a place of business in Namibia.