Tanzania Mortgage v BRELA

1 IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA COMMERCIAL DIVISION AT DAR ES SALAAM MISC. COMMERCIAL CAUSE NO. 4458 OF 2024 TANZANIA MORTGAGE REFINANCE CO. LTD APPLICANT VERSUS REGISTRAR OF COMPANIES 1ST RESPONDENT THE ATTORNEY GENERAL 2ND RESPONDENT RULING April 25th, 2024 & May 17th, 2024 Morris, J With a certificate of urgency attached to the present application, Tanzania Mortgage Refinance Company Ltd pursues the orders of this Court for tetrad reliefs. One, sanctioning the issuing of 25,135,156 of unsubscribed ordinary shares to the applicant’s shareholders at a discounted price. Two, sanctioning the issuing of the stated shares above to the existing shareholders at a 10% discount. Three, each party to bear own costs; and four, any other reliefs which the Court may find appropriate to grant. The application is under the support of the affidavit by Oscar Mgaya - the Chief Executive Officer of the applicant. 2 It is evident from his affidavit that, the applicant’s major objective is to support banks through provision of long-term loans for ultimate lending services to mortgage borrowers. The Government of the United Republic of Tanzania (hereinafter, ‘the Government’) intends to purchase shares from the applicant at a discounted rate. The applicant has willingly agreed and is ready to sale such shares to Government which step will allow the latter to join the applicant’s shareholding base but also enable the applicant­ company to raise its capital for smooth operations of its core lending­ business activities. Further deposition is to the effect that the applicant’s current shareholders are eighteen (18) all of whom are financial institutions. Moreover, the applicant maintains that her share capital is Tanzania Shillings (Tshs) 150 billion divided in One Hundred and Fifty Million ordinary shares of Tshs 1,000/- each. In addition, the applicant’s paid-up capital stood at about Tanzania Shillings Twenty-Six (26) billion by the end of 2023. The value of each share as stated above notwithstanding, the applicant avers that she has continually been conducting valuation of her shares and results thereof indicate oscillation of price thereof. For instance, 3 valuations conducted in 2016, 2019 and 2023 revealed that each of her shares was valued at Tshs 1,622; Tshs 1,642; and 1,622 respectively. Consequently, working from the latest value of each share at Tshs 1,622; the applicant’s Extra Ordinary Meeting held on December 20th, 2023 approved the purchase of shares by the Government at 10% discount thereof. In order for the applicant to comply with the law regarding sale of her shares at the discounted rate, this application was inevitable. When the matter came for hearing on April 25th, 2024 Ms. Monica Mushi, learned advocate, appeared for the applicant while both Ms. Jackline Kinyasi and Ms. Grace Umoti, learned State Attorneys, represented the respondents. The counsel for the applicant submitted briefly that, following the Government’s request herein, the applicant’s members approved the issuance of additional shares by way of Rights Issue in order to enable further capitalisation of the company. Nevertheless, the respondents gladly supported the application. Before I advance further, I wish to start by commenting on the fact that this application was uncontested. It is trite the law that the court is obliged to analyse the grounds advanced in an application, absence of 4 opposition notwithstanding. The objective is to resolve whether the stated reasons are sufficient enough for the Court to grant the sought reliefs. Hereof, I have Denis T. Mkasa v Farida Hamza (administratrix of the estate of Hamza Adam) & Another, Civil Application No. 46/08 of 2020 (unreported) in mind for reference. In line with the above comment, the present application has been preferred on the basis that the Government is willing and ready to invest in the applicant, on the one hand; and the latter is in dire need for raising her capital investment in order to increase and sustain more long-term housing loans to her clientele, on the other. Hence, the two have arrived at concessions, the major one being disposition of the applicant’s shares to the Government at a discounted price. On record, the current value of each share is estimated at Tshs 1,622. Applying the discount rate of 10 per centum thereto, the price of each share drops to Tshs 1,459/8. Further, as it is indicated by the applicant; the Government wishes to get 25,135,156 of the applicant’s unsubscribed ordinary shares. The proposed transaction will therefore generate a total of Tshs 36,692,300,728/8 in favour of the latter. However, in consequence, the 5 reduction of the share price from its current value to the discounted worth, will also benefit the existing shareholders of the applicant-company who will also be issued with shares at the discounted rate. For the present application to be determined justly, in my view, the following fundamentals are inescapable. One, lawfulness of the transaction. That is, law should permit the price discount of the company shares. Two, the discount must be subject to the prior authorisation of the general meeting’s resolution. Three, the issuing of shares at the discounted rate must be sanctioned by the court. Four, at least one year must have passed since the company became eligible to commence business before the subject issue is made. Five, unless otherwise condoned by the court, the issue of such shares must be done within a month of the court’s authorisation. Six, the issuing of the shares must be done in favour of the eligible person or entity. Seven, the issuing should be done on parties’ mutual consent basis. I will now apply the foregoing basics as the litmus test to the present application correspondingly. Firstly, it is legit under section 60 (1) of the Companies Act, Cap 212; for a company to issue its shares at a discounted 6 rate. In addition to that, the applicant’s Articles of Association are permissive in this regard. To be precise, Article 10 thereof allows issuance of shares to specified categories of new eligible members. It reads as follows: “Shares shall be issued or transferred to any new member, which is a bank or financial institution as defined under the Banking and Financial Institutions Act, 2006 or any other entity who is not a bank or financial institution and is ready to join as a non-borrowing member” (bolding rendered for emphasis). From the excerpt above, the applicant not only reserves her right to issue shares to new members but also, she specifies the persons/entities to which such issue may be done. The Government is, thus, eligible. Hence, the first and sixth fundamentals above are discharged favourably to the application. Secondly, the applicant’s decision to issue shares to the Government is backed up by the requisite resolution. According to annexure A5 attached and being referred to under paragraph 12 of the affidavit; the applicant held her 9th Extraordinary General Meeting on December 20th, 2023 and passed the resolution authorising the Government’s request; the discount of share price; and the Rights Issue in favour of the existing shareholders. 7 Thirdly, the present proceedings correspond with the statutory requirement that issuing of the shares at the discounted price should be sanctioned by the court. Fourthly, the applicant was incorporated on January 29th, 2010 and has been in operation ever since. This fact is evident from the Certificate of Incorporation (annexure A1) and paragraphs 2 and 8-11 of the affidavit in support of the application. Hence, the timeframe set by the law regarding duration of operations by the company issuing the shares at the discounted rate is fully satisfied. Fifthly, setting of the timeline within which the issuing of shares should be effected is subject of this application. Until it is determined, such requirement cannot be fulfilled. However, I am cognisant of the fact that by its nature, the entity willing to be issued with the shares by the applicant would need adequate time to deliberate on critical aspects regarding the projected acquisition herein. Sixthly, the parties subject of the proposed issue hold no contention against the transaction herein. Indeed, the applicant has adequately exhibited the mutual involvement of her and the Government in this connection. For instance, she has supplied the Treasury Registrar’s letter, ref. CAC.76/299/01 and the applicant’s reply thereto, ref. 8 TMRC/OTR/2023/004 (collectively, annexure A2) to justify that the steps being taken are backed up by the parties’ reciprocated consents. Further, applicant’s resolution stated above; and paragraphs 12 and 15 of the affidavit buttress such position. The Court is equally mindful of the further certifying-deposition of the applicant’s Principal Officer (paragraphs 13, 14 and 15 of the affidavit) that: the creditors of the company will not be prejudiced by the proposed discount howsoever; the company is able to handle any creditors’ demands, as and when such claims may arise; and no shareholder objects to the proposed sale of shares at a reduced price. It is thus objective for the Court to hold, as I hereby do, that the present application meets the threshold of the law and practice to warrant being merited. In view of the analysis rendered above; it is held in principle that the present application succeeds. The Court thus grants the reliefs sought therein. In the interest of exactness, the applicant is hereby sanctioned to issue the designated shares to both the Government and the existing shareholders at the 10% discount rate of the current share value of Tshs 1,622 per each share. It is further ordered that the issuing exercise must be 9 completed within ninety (90) days of this ruling. I accordingly allow the application without costs. It is so ordered. C.K.K. Morris Judge May 17th, 2024 Ruling delivered (online) this 17th day of May 2024 in the presence of Advocate Monica Mushi for the applicant and Mr. Francis Wisdom, learned State Attorney for the respondents. C.K.K. Morris Judge May 17th, 2024