PRIME SOLE (PVT) LTD v KAZI 2007 (2) ZLR 347 (S)

Flynote

Insolvency — debtor — who is — officer of a company — creditor of company — cannot seek sequestration of officer's estate unless corporate veil lifted

Insolvency — sequestration — provisional — application for — respondent a representative for a company — failure by applicant to lift the corporate veil — respondent's identity separate from that of the company

Headnote

In terms of an oral agreement negotiated by the parties, the respondent undertook to see to it that the appellant's monetary obligations to its South African suppliers were met from free funds held outside Zimbabwe. In return therefor, the appellant was to pay three companies agreed amounts in local currency. In terms of the agreement it duly made payment in staggered amounts. However, for the most part, and contrary to the agreement, the appellant's obligations to its suppliers were not met. The appellant thereupon sought reimbursement of the outstanding amount which remained unpaid to the suppliers. Upon threatening legal action, the appellant received three undated cheques, all signed by the respondent and drawn upon one of the three companies to whom the appellant had made payment in local currency. All three cheques were dishonoured, being drawn on a closed account. The appellant thereupon took the legal action it had threatened and applied to the High Court seeking an order placing respondent's estate under provisional sequestration.

While the appellant submitted to the High Court that the respondent was acting on his own behalf when the agreement was negotiated and was thus personally liable under the Insolvency Act [Chapter 6:04], the respondent contended that he was acting as no more than the representative of one of the other of the three companies which had issued to the appellant the two invoices totalling the amount to be paid in terms of the agreement. The respondent submitted that it was to this company, and not him, that the appellant should look for reimbursement. Notwithstanding this, the appellant was wholly unable to offer any proof that the respondent was acting on his behalf rather than as a representative of the application, the judge held that, unchallenged by the appellant, the respondent was a separate and distinct person from the three companies, including the company which had issued the receipts, and that, further, nothing turned on the fact that it was the respondent who had signed the three dishonoured cheques. On appeal:

Held, that the relevant part of the Insolvency Act [Chapter 6:04] defines "debtor" as a person who "is a debtor in the usual sense of the word". The definition specifically excludes a body corporate or company or other association of persons which may be placed in liquidation or wound up in terms of the law relating to companies. Thus a debtor, according to this definition, must be a natural person.

Held, further, that while the appellant dealt with the respondent in negotiating the agreement in question, it tendered no proof that the respondent was representing himself personally. Given the latter's averment that he had negotiated with the appellant in his capacity as a representative of one of the companies, the appellant had a heavy burden of laying a basis for a finding by the court that the respondent was acting on his own personal behalf. The appellant had not discharged that burden. The appellant took a risk when it failed to ensure that such a weighty transaction was reduced to writing. The appellant did not dispute the existence of the companies, which held active bank accounts into which the funds were deposited. In the face of this, as long as the appellant did not lift the corporate veil of these companies, they remained separate and distinct from the respondent. Thus, when one of these companies, whose separate identity from the respondent the appellant had failed to challenge, generated invoices and the appellant of its own accord made payment to that company, it became difficult to challenge the respondent's assertion that he had negotiated the agreement in question on behalf of that company.

Held, further, that the court a quo was also correct in holding that little turned on the fact that the respondent had signed the three dishonoured cheques. Signing a cheque on behalf of a company, even where the account on which the cheque is to be drawn may be closed, does not of itself transfer the liability of the company to the individual who signs the cheque. That such an act might have implications in respect of criminal law was not relevant to the dispute at hand.

Held, further, that accordingly the respondent could not be termed a "debtor" in terms of the Insolvency Act [Chapter 6:04]. He was not in his personal capacity, the appellant's debtor.