The Creditors of Maamba Collieries Limited v Maamba Collieries Limited (APPEAL NO. 48/2009) [2011] ZMSC 41 (15 April 2011)

J1 IN THE SUPREME COURT OF ZAMBIA HOLDEN AT LUSAKA (Civil Jurisdiction} BETWEEN: APPEAL NO. 48/2009 THE CREDITORS OF MAAMBA COLLIERIES LIMITED AND MAAMBA COLLIERIES LIMITED APPELLANT RESPONDENT Coram: Chtrwa, Chibesakunda, and Mwanamwamba, J. J. S. 1 st September 2009 and 15th April, 2011. For the Appellants: Mr C. K. Banda, SC., of Messrs Chifumu Banda and Associates. For the Respondent: Mr. W. Comhill) of Messrs Wilson & Comhill. Chibesakunda, JS Delivered the Judgment of Court. JlfllfiMENT Cases referred to: 1. OOORBAR VS ALL TIME SECURITIES (1996) 2 ALL E. R . 948. 2. BARLAND'S TRUSTEE VS STEEL (1971) 1 CH 279 p. 288. Legislation referred to: 3. ORDER 30 RULE l(A)(I) CAP 27 OF HIGH COURT RULES. 4. SECTION (2) CAP 234, 261(1) OF THE COMPANIES ACT., CAP 388., 5. HALSBURY LAWS OF ENGLAND VOL. 37 4TH EDITION, PARA 131, 0138 AND 390. 6. ATKINS COURT FORMS VOL 12, para 9 pages 131 -138. This is an appeal against a High Court Judgment, in an application under Order 30 Rule l(a)(i)3, taken out of the Commercial Registry of the High Court, for the interpretation of its own Order dated 27th December ,2007, approving a Scheme of Arrangement that entitled the Respondent's Creditors (the Appellant inclusive) to be paid 25°/o of the amount owed by them, visa -vis the Consent Order of 21 st August, 2007 entered between the Respondents and Belle-Isle UK Limited. J2 In its ruling of 28th November, 2008 the High Court had ruled that this Order of 27th December, 2007 approving a Scheme of Arrangement to pay 25% of the amount owed by the Respondent to its Creditors was binding on all Creditors of the Respondent. The brief history of this matter is that, on 22nd May, 2007, Belle-Isle Limited ( hereinafter referred to as the Creditors) under Cause No. 2007 /HPC/0145 sued the Respondents for recovery of the sum of US$389,060.83 for goods supplied to them (the Respondent) by the creditors. On 2007, the Creditors obtained a Judgment in default of defence and appearance. Thereafter, the parties entered into a Consent Order dated 21 st August, 2007 for payment of this Judgment debt in monthly installment of US$20,000.00 effective from 30th September, 2007. Despite being in default, the Respondents complied with this Consent Order by paying the first installment of K80million on about 20th November, 2007 while another sum of Kl 7,250,000 was recovered pursuant to a Fifa issued by the High Court. Then the Appellants applied to the High Court under Section 234 of the Companies Act4 for an Order to convene a Creditors 1 meeting to restructure the debts. This application was granted on the 20th October, 2007. A meeting of Creditors was firstly advertised J3 locally for the 3 rd December, 2007 but it was re-advertised locally for 17th December, 2007 and the advertisements were produced as exhibits "SMl and SM2" respectively. The meeting was duly held on 17th December, 2007 at the office of the Zambia Development Agency and the Scheme of Arrangement was approved by 97 .5% of the Creditors present at the meeting in proportion of their respective debts. The Respondents then filed the approved Scheme Arrangement with the Companies Registry and the Scheme Arrangement was subsequently approved by the Court, it then was implemented. The Appellants sought the Respondent's compliance with the Consent Order. The Respondents refused to comply with that Consent Order, as they claimed that the Consent Order had been superseded by this subsequent approval of the Scheme of Arrangement by the Creditors on 27th December, 2007 and the approval by the Registrar of Companies as well as the Court. So, the Appellant then brought this action to seek the Court's interpretation of the following issues:- "Whether the Order approving the Scheme of Arrangement can stay execution of the Consent Order of 21 st August, 2007, when the law clearly states that there can never be a stay of execution of a Consent Order? (i) Whether the Order approving the Scheme of Arrangement can vary/ or set aside the terms of the Consent Order of 21 st August, when the law states that this can only be done by consent of parties to the Consent Order and/or by commencing a new suit and specifically for purposes of setting aside or varying the terms of the Consent Order? (ii) Whether the said Order approving the Scheme of Arrangement is superior to the Consent Order which both parties executed and the Court also appended its signature thereto, which the Applicant herein had even started to comply by paying the first installment" and (iii) Whether the Scheme Arrangement addresses the category of creditors in which Bell-Isle UK Limited falls in (this is that of secured creditor)." The Appellants' argument before the High were as follows:- (1) That the consent Order could only be set aside by commencing a fresh action specifically for the purpose of setting aside the consent JS order in question or by agreement of the parties (See Halsbury Laws of England Vol. 37, 4 th Editions; (2) A term of the consent order could only be altered by consent of all the parties to it or by commencing a fresh action for that particular purpose of setting aside such terms (See Atkins Court Forms Vol. 126; (3) That the consent order was not a contract but evidence of the contract upon which it is based and must be given its full contractual effect. Thus if a party consented to an order requiring him/her to pay money, he is precluded from later contending otherwise and will be obliged to pay the money. The consent order is effective and binding unless and until it is set aside in proceedings instituted for that purpose and it acts as an estoppel (See Atkins Court Laws Vol. 126 ••• ); (4) A consent order executed by all the parties and approved by Courts' stamp and partially complied with cannot be stayed by any of the parties to it since it was arrived at by consent. The Respondents' argument before the High Court were that, a Scheme of Arrangement under Section 234(6)4 • was binding on all Creditors or classes of Creditors or to any member of class as the case may be, and that once there was compromise, as a Scheme of Arrangement agreed to by the Creditors, that was binding on all the Creditors whether secured or not. J6 The learned trial Judge having listened to the arguments before her held for the Respondent. At page 14 of the record, the learned trial Judge held that: "From the foregoing, it seems to me therefore that the law on this issue as stated above is very clear, and my interpretation of my Order dated 27th December, vis "a visa - the Order of the Deputy Registrar dated 21 st August 2007 is as follows:- Order: "The Court's Order of 27th December 27 is binding on all creditors of Mamba Collieries Limited including Belle-Ilse UK Limited. Right to appeal granted" The Appellants aggrieved by the High Court ruling have now appealed to this Court raising four grounds of appeal which were subsequently amended. The amended grounds of appeal read as follows : - ( 1) That the trial Judge misdirected herself in law by holding that the Order approving the Scheme of Arrangement dated 27th December, 2007, is binding on all Creditors of Maamba Collieries Limited including the Creditors. (2) That the learned trial Judge erred in law by failing to consider and appreciate that the Consent Order J7 entered into between the parties under cause No. 2000/HPC/145 is superior and binding on all parties thereto. (3) That the Court below misdirected itself by holding that the Appellants sat on its rights and did so at its own peril by absconding the Creditors' meeting that was held with the Creditors thereby allowing itself to be bound by the Respondent's resolutions contained in the Scheme of Arrangement when in fact the Appellant, whose registered office is outside jurisdiction, was not notified of the same meeting. (4) That the trial Judge erred in law and fact when she held that the Appellants had slept on its opportunity to participate and raise objections to the Scheme of Arrangement at the meeting between the Respondents and its Creditors which finding is not supported by any evidence. (5) That the trial Judge erred at law by approving the Scheme of Arrangement when the Scheme was so unreasonable and forced on the Creditors who got almost nothing and gave up everything contrary to the JS spirit in which Schemes are entered into ie., to be beneficial to both sides. (6) That the trial Court misdirected itself by sanctioning the Scheme of Arrangement in the manner it did in that the Scheme was clearly outside the spirit of the law as there was no compromise or Arrangement of the creditors' rights but almost a total surrender, confiscation and or abandonment of the creditors' rights without any form of compensation. Grounds 1 - 4 were rolled up in one argument and even grounds 5 and 6 were equally rolled up in one argument. So in total there were only 2 grounds of appeal. In grounds 1- 4 the core argument was that the Scheme of Arrangement could be impugned from a variety of angles which are: (1) that the Scheme was not properly envisaged under the relevant Section 2344 : (2) that the Scheme of Arrangement could not be binding on a creditor who was not served with a notice of the meeting as directed by the Court. It was argued that an advertisement in the Times of Zambia was not notice to a creditor based in the United Kingdom as envisaged in Section 2344 • According to Counsel, a notice of a meeting required personal J9 service on Belle-Isle UK based in UK or sent by a prepaid mail to each of the Creditors. It was further argued that there was no such service to the Appellants for the Appellants to participate in the meeting of Creditors and to raise any objections to the Scheme of Arrangement, there was no proper service of the notice of the meeting on the Appellants. It was therefore argued that the finding by the learned trial Judge that the Appellants slept on their rights, was not supported by any evidence. It was argued therefore that, Creditors based outside Zambia were not bound by the Scheme of Arrangement. So such creditors were free, if need be, to bankrupt the debtor. See the case of Doorbar Vs All Time Securities1 • Counsel argued that in the Scheme of Arrangement, there was no consideration moving from the Respondents to the Appellants to accept 25% payment as full and final settlement of the debt. On grounds 5-6, Counsel argued that the Scheme of Arrangement was so unreasonable, that one can rightly conclude that, the Scheme of Arrangement was imposed on the creditors who got almost nothing and gave up everything contrary to the spirit in which Schemes are entered ie. to benefit both sides. Counsel argued that the lower Court misdirected itself by sanctioning the Scheme in the manner it did in that the Scheme was clearly outside the spirit the of the law as there was no compromise or Arrangement of the creditors' rights but total surrender, confiscation and or abandonment of the creditors' rights without any form of compensation. He explained that the thought behind Section 234' was to provide a 'compromise or Arrangement.' Whereas the sole purpose of this exercise was to bring about a reconstruction of the debtor company. He further argued that the Court should have taken into account the provisions of Section 236(1)4 which states that: "where an application is made to the court under section 234 to approve a compromise or Arrangement referred to in that section, and it is shown to the court that: (a) The compromise or Arrangement has been proposed for the purpose of or in connection with a Scheme for: (i) the reconstruction of any company or companies; or (ii) the amalgamation of any two or more companies; and (b)under the Scheme the whole or any part of the undertaking or the property or any company concerned in the Scheme (in this section referred to as "the Jl l transferor company) is to be transferred to another company ('in this section referred to as "the transferee company') the court may, either by the order approving the compromise or Arrangement or by a subsequent order, provide for all or any of the following" (i) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of the transferor company; (ii) The allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in the transferor company which under the compromise or Arrangement are to be allotted or appropriated by the transferor company to or for any person: (iii) The continuation by or against the transferee company of any legal proceedings pending by or against the transferor company; (iv) The dissolution, without winding-up of the transferor company; (v) The provisions to be made for any persons who within such time and in such manner as the court J12 directs, dissent from the compromise or Arrangement; (vi) Such incidental, consequential and supplementary matters as are necessary to secure that the reconstruction or amalgamation is fully and effectively carried out. According to Counsel, what transpired was some form of accord and satisfaction, although even this was not properly done as in such arrangements all debts would have been written off to the tune of 75%. The Respondents' response on grounds 1, 2, 3 and 4, is that the learned trial Judge was on firm ground when she held that the Order approving the Scheme of Arrangement was binding on all Creditors, the Appellants inclusive. According to Counsel, the learned trial Judge was on firm ground when she held that even though the Appellants did not attend the extraordinary meeting which resolved in accepting the Scheme of Arrangement which Scheme was later on approved by the Court, the Appellants were bound by the Scheme of Arrangement. This is so because, as Counsel argued, whereas the Consent Order is founded on Common Law principles, the Scheme of Arrangement is sanctioned by Jl3 Section 2344 • So the Scheme of Arrangement, which was arrived at, at the meeting by an extraordinary resolution, was sanctioned by the statute. The learned trial Judge therefore rightly held that, the Consent Order was superseded by the Scheme of Arrangement and thus binding on all the Creditors. The Scheme of Arrangement being a creature of the statute was juridically superior to the Consent Order and that it applied indiscriminately to all Creditors. In addition, on the argument that the learned trial Judge erred by holding that, the Appellants sat on their rights by absconding from the meeting which resulted in the Scheme of Arrangement being registered and sanctioned by the Court, Counsel contended that the learned trial Judge was correct to have held so for the following reasons:- (i) That the Appellants at all material times, had advocates on record under Cause No. 2000/HPC/ 145. Since the defaults Judgment remains hitherto unsatisfied, these same Advocates still have conduct. The Advocates should have reacted to the notices of the meeting and obtained instructions vis-a-viz the J14 Scheme of Arrangement which ipso facto would affect their client's rights. (ii) That the order to convene a meeting of creditors did permit the Respondent to serve notice of the meeting by advertisement at least 28 clear days before the date of the meeting. Service of the notice by advertisement was therefore pursuant to an order of court hitherto unchallenged. The Appellants' advocates in possession of a favourable judgment against the Respondent ought to have responded to these notices. (iii) That in its application to interpret the order approving the Scheme of Arrangement, the Appellant did not raise any contention with the mode of service of the notices for the meeting. To endeavour to challenge the order approving the scheme on this ground is adventurous and an after thought. He argued that as in a plethora of authorities, these new issues cannot be raised before this Court. Jl5 Counsel further has argued that, according to the Terms Report, at page 35 of the record, 86.8 % of the creditors were in attendance; UK creditors inclusive attesting to the fact that service of notice was done and the Appellant ignored it. Counsel further has argued that although Counsel for the Appellant has referred the Court to numerous authorities on the "reconstruction", these are irrelevant to the issues before Court. What transpired, according to Counsel in this Scheme of Arrangement the sole shareholder of the Respondent, GRZ agreed to transfer its shareholding portfolio in the Respondent to ZCCMIH. In consideration of this transfer of shares, ZCCMIH agreed to settle the Respondent's debts to its creditors by making divers' payments pursuant to the Scheme Arrangement. Section 2344 defines a share as including stock. A comprehensive definition was made by Lord Farwell Jin Harland's Trustee Vs Steel2 . . . : " .. . . . . . . . . a share is the interest of a shareholder in a company measured by a sum of money, for the purpose of liability in the first place and interest in the second place, but also consists of a series of mutual covenants entered into by shareholders inter se." Counsel went on to argue that what happened at this meeting was not a "reconstruction," it did not involve transfer of any asset of the J16 Company and the members of the Company changed substantially after the Scheme. These were the arguments before Court. We have considered the record of appeal and all the issues raised by both parties in this appeal. On the question of impugning the Scheme of Arrangement as argued in grounds 1, 2, 3 and 4 of the appeal, it is trite law that a consent order is not a contract. It is evidence of a contract which by its nature, has to be given full contractual effect. So the Consent Order in this case was effective and binding unless and until it was set aside in proceedings instituted for that purpose. It therefore acted as estoppel by record. See Atkins Court Forms Vol. 12.6 However, in this case, it is common ground that what happened was that, after the consent order was entered into and after partial execution of this Consent Order, the Respondents being judgment debtors and being insolvent sought refugee of Section 234 (2-4)4 , which says: "(2) ... Where a compromise or arrangement is proposed between- (a) (b) a company and its creditors or any class of its creditors; or a company and its members or any class of its members; The court may, on the application of the company or of any creditor or member of the company, or in the case of Jl 7 a company being wound up of the liquidator, order a meeting of the creditors, the class of creditors, the members or the class of members, as the case may be, to be convened, held and conducted in such a manner as it thinks fit to consider the compromise or arrangement. (3) Subject to the order of the court, Part VII shall apply to a meeting of members or a class of members ordered to be convened pursuant to this section. (4) Subject to the order of the court, section one hundred and forty-six to one hundred and fifty-two shall apply, with the necessary modification, to a meeting of creditors or a class of creditors ordered to be convened pursuant to this section. (5) Unless the court orders otherwise, the voting power at the meeting of creditors ordered to be convened pursuant to this section shall be assigned to the creditors in proportion to the amount of the debt outstanding from the company to each creditor ... ). Section 234(1) defines what an "arrangemenf' is; according to this sub-section: "an arrangement includes a reorganization of the share capital of the company by the consolidation of shares of different classes or by the division of shares in shares of different clauses or by both methods." It is equally common cause that the respondent petitioned the Court for a meeting of creditors to either approve the Scheme of I I Jl8 Arrangement or disapprove of the Scheme of Arrangement pursuant to Section 234 (2) of the Companies Act4 , the principle legislation relating to the overall conduct of a Company in Zambia subject only to the Constitution of the Republic of Zambia. As per pages 37 -40 of the record, the reasons for seeking an agreement on the Scheme of Arrangement were that:- " 1.1 GRZ has decided to restructure or reorganize the company by transferring 88, 178, 223 of its shares in the Company to ZCCM-IH in Order to facilitate the continuance of the operations of the Company as a going concern. 1.2 The manner in which the huge liabilities of Maamba Collieries Limited will be as settled will be specified herein. 1.3 The creditors shall not take any action to obtain payment of their claim or claims, principal or interest, by any court proceedings and or execution of existing Court Orders or set off or otherwise except as stated herein." The Company was in financial distress and was completely incapable of carrying on its business or operations in a manner .. J19 befitting a viable going concern, thus falling within the ambit of Section 2344 • The Appellants therefore called for a meeting of creditors which included the Appellants. A meeting was held at which an extraordinary resolution was passed, which was a Scheme of Arrangement. The Appellant has argued that, this Scheme of Arrangement could be impugned on the grounds that the notices of the meeting were not served properly on the creditors. Elaborating on this point, they have argued also that, as the Appellants had their headquarters in UK, there should have been a personal service or registered mail sent to the registered office of the Appellants. Firstly, we on this point wish to accept the Respondent's argument that these reasons were never canvassed in the High Court. As pointed out in a plethora of authorities' issues not raised before the High Court cannot be raised in this Court. Secondly, as pointed out by the Respondent, the Appellants have retained the same Advocates as they had in the consent Judgment and as they did in this application for interpretation of the Consent Order vis-a viz Scheme of Arrangement under Order 30 of the High Court Rules3 and as they did in this appeal before this Court. These Advocates are based in Zambia and according to the record, they followed the proceedings up to this stage. It therefore must go without saying that, these same Advocates were aware of all the stages of proceedings and that these Advocates should have protected the interests of their clients (the Appellants). It is therefore a novel and a startling one too, for these same Advocates to come to Court as they appeal against the ruling of the High Court to claim that their clients were not properly served with the notices of the meeting, which was advertised on two occasions locally. The other limb of this argument is that the consent order is binding unless or until it is set aside either by consent of all parties or by commencing fresh action for that purposes to set aside the Consent Order. We accept that, that is a valid principle at common law. However 1n this case a statutory provision Section 234 (6)(a)4, provides as follows:- "If a meeting by extraordinary resolution agreed to any compromise or arrangement the compromise or arrangement - (a) shall be binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be:" (b) shall be binding on the Company if and when, J21 (i) It has been approved by order of the Court; and (ii) A copy of the order has been lodged with the Registrar." These provisions are clear and unambiguous. We agree with the learned trial Judge that, according to these provisions, if a meeting by extraordinary resolution agrees to any compromise or arrangement, it shall be binding on all Creditors or class of Creditors or on the members or class of members as the case may be. Further it shall be binding if and when it has been approved by a Court Order and a copy of the Consent Order has been lodged with the Registrar. This is what happened in this case. We therefore hold that as statutory provisions prevail over common law, so the Scheme of Arrangement prevailed over the Consent Order. It has also been argued that the Scheme of Arrangement was so unreasonable and as such was forced on the creditors who got nothing and gave up everything contrary to the spirit in which the Scheme was entered. Elaborating on this same point, it was argued that the Court below misdirected itself as it sanctioned the Scheme of Arrangement which was clearly outside the spirit of the law as there was no compromise or Arrangement of the creditors' rights. J22 There was total surrender, confiscation and or abandonment of all the creditors' rights without any form of compensation. We first agree with the Respondent that these issues were never canvassed in the Court below. So as per plethora of authorities they cannot be raised in this Court. The issues which were before the High Court are as catalogued at J3-4 of our Judgment. Also, it is common ground that the meeting held on the 27th of December, 2007 was attended by Creditors from within and from all parts of the W arid and 97.5% approved this Scheme of Arrangement in the proportion of their respective debts. This means that even if the Appellants had been present by a majority vote, the results would have been the same as now. In addition, the Appellants did not even make use of the provisions of Section 234(8), which say: "At the hearing by the court of the application for approval of the compromise or arrangement, any member or creditor of the company claiming to be affected thereby shall be entitled to be represented and to object." The Appellant had a choice even after the meeting of the 17th September, 2007 to challenge this Scheme of Arrangement at the stage that it was approved by the Court, they did not do so, again missing a chance to object to this Scheme of Arrangement. J23 We therefore in sum total find no merit in the appeal; we dismiss the appeal. We order costs for the Respondent to be agreed upon in default to be taxed . . . . . . . . . . . . . . . ilk ...................... . D. K. Chirwa Ag./DEPUTY CHIEF JUSTICE L. P. Chibesakunda SUPREME COURT JUDGE