oxy IN THE HIGH COURT OF MALAWI COMMERCIAL DIVISION BLANTYRE REGISTRY COMMERCIAL CASE NUMBER 396 OF 2020 (Before the Honourable Dr. Mtambo, J) BETWEEN: TUPALI KAHUMBE. 15? CLAIMANT NATASHA KAHUMEE ... .+.28? CLAIMAN CHENG AIKANE KAHUMBE.... 38 CLAIMANT -AND- ALLIANCE CAPITAL LIMITED ... . DEFENDANT CORAM Honourable Justice M.T. Msungama Kambale, Counsel for the Claimants / Judgment Creditors Sauti-Phiri, Counsel for the Defedant / Judgment Debtor Makombe, Court Clerk RULING Background 1. The Claimants (“the Judgment Creditors”) in this matter, who are siblings, are business people. The Defendant (“the Judgment Debtor”), on the other hand, carries on business as a portfolio and investment manager. It is duly registered under the Financial Services Act ! and prudentially regulated by the Reserve Bank of Malawi. * In the year 2016, the parties herein entered into certain agreements to the effect that the "Act No. 26 of 2010 2 Directive No. 4 of the Financial Services (Establishment and operations of Portfolio Managers) Directive, 2015Judgment Debtor would manage some cash investments on behalf of the Judgment Creditors in consideration for a fee. The arrangement was on the understanding that the Judgment Debtor would arrange short term investments in liquid assets on behalf of the Judgment Creditors. These investments would then be rolled over upon maturity with the option that they could be withdrawn anytime upon request by the Judgment Creditors. In line with this arrangement, the Judgment Creditors transferred several amounts of money to the Judgment Debtor. In the month of October 2020, the Judgment Creditors informed the Judgment Debtor that they wanted to withdraw their funds. However, the Judgment Debtor was unable to comply with the Judgment Creditors’ request on account that it had liquidity challenges. Subsequent requests for the withdrawal of their funds by the Judgment Creditors were not honoured. Every time a request for a withdrawal was made, the Judgment Debtor assured them that they would be paid ‘soon’. In December 2020, the Judgment Debtor actually wrote the Judgment Creditors through its letter dated 16" December, 2020 undertaking that the Judgment Creditors’ money would be paid out to them within a month. However, this undertaking was not fulfilled by the Judgment Debtor. Unhappy with this state of affairs, the Judgment Creditors decided to take out a legal action to recover their funds. 2. Upon being served with court process, the Judgment Debtor filed a notice admitting part of the Judgment Creditors’ claim. Further, the Judgment Debtor prayed in the notice of partial admission that it be allowed to settle the sum owed by paying an initial sum of MK100, 000,000 on the 31 day of May, 2021 and the balance by the 19" day of August, 2021. Subsequently, the Judgment Creditors filed a request for judgment in respect of the admitted sums but rejected the settlement proposal by the Judgment Debtor. On the 23 day of February, 2021, this Court entered a judgment in favour of the Judgment Creditors against the Judgment Debtor for the sum of MK371,513,560.31, interest on the said sum at the rate of 10.5% with effect from the 6" day of February, 2021 up to the date of judgment and legal collection charges in the sum of MK13,383,113.78 (collectively referred to as “the judgment debt”). The Application 3. The present application is for an order of this Court to determine the time and rate at which the judgment debt should be satisfied in view of the Judgment Debtor's settlement proposal and the rejection thereof by the Judgment Creditors. The application is made under Order 12 rule 39(2) of the Courts (High Court) (Civil Procedure) Rules, 2017 ( “the Rules”). The application is supported by a sworn statement and a supplementary sworn statement sworn by the Third Judgment Creditor, one Chengaikane Kahumbe. On the other hand, the Judgment Debtor prays that the judgment debt be settled as per its proposal. This is supported by a sworn statementand a supplementary sworn statement swom by the Judgment Debtor's Chief Executive Officer, one Gift Manda. During the hearing of the application, Mr. Gift Manda was cross-examined by Counsel for the Judgment Creditors, . The Judgment Creditors, through the sworn statements of Chengaikane Kahumbe say they need their funds immediately. They have their own liabilities including rent, upkeep and medical bills for their parents which need to attended to, They have lost confidence in the Judgment Debtor since past commitments for payment have consistently been broken. Mr. Gift Manda has deponed that the Judgment Debtor is an asset management company with licenced capital of MK50 Million. Its balance sheet is less than MK500 Million. As of 6" February, 2021, the Judgment Debtor was owed MK(16 billion by several companies and individuals listed in the Schedule attached his sworn statement. Out of this amount, the sum of MK15.9 billion belongs to the to the Judgment Debtor's clients including the Judgment Creditors. He indicated that the Judgment Debtor is recovering what it is owed at an average of MK500 million per month. Apart from the Judgment Creditors, there are other clients who have taken out legal proceedings against the Judgment Debtor seeking to recover their money. Another group of clients has also threatened legal action. Therefore, the MK500 Million monthly collections are being applied to meet these demands. In view of this state of affairs, he says, it is not possible to meet the whole amount due to the Judgment Creditors at once, hence the prayer for time. In the course of being cross-examined by Counsel for the Judgment Creditors, Mr. Manda confirmed that the Judgment Debtor has been unable to pay the Judgment Creditors because money which they were expecting from various debtors had not yet been received. He also conceded that some of the parties who were owing the Judgment Debtor were business entities related to the Judgment Debtor (“related parties”). These related parties included Alliance Holdings Limited, the Judgment Debtor’s holding company (MK690 million), Prudential Investments (MK104 million), Liberty General Insurance Company Limited (MK342 million), Sycamore Credit Limited (27 million) and Bwanje Cement Company Limited (MK1.7 billion). He admitted that the money which was used by the Judgment Debtor to advance financial facilities to these related entities as well as other debtors was from the pool of money belonging to its clients. He also admitted that Judgment Debtor had used funds belonging to its clients to invest in long term business ventures, for example, acquisition of a stake in a life insurance company.Counsel Arguments 7. Counsel for the Judgment Creditors has argued in this court that the Judgment Debtor has capacity to pay the whole debt at once without resorting to instalments as proposed. He believes that the Judgment Debtor has assets which can be liquidated quickly in order to satisfy the Judgment Creditor’s debt. He argued that the monthly sum of MKS00 million which the Judgment Debtor collects is adequate for this purpose. He opined that the Judgment Debtor can easily approach a bank and borrow funds to settle the Judgment Creditors’ claim. Counsel also took issue with the fact that some of the entities owing huge sums to the Judgment Debtor are related parties to the Judgment Debtor. He suspected that the related parties have been inappropriately accessing funds held by the Judgment Debtor on behalf of its clients, I must hasten to add that there was no evidence produced to support this assertion. In fact, contrary to that assertion, Mr. Gift Manda stated that the Judgment Debtor followed all required procedures when granting facilities to the related parties. Counsel insisted that it was imprudent for the Judgment Debtor to indulge in long term investments using short term investment funds held on behalf of clients. He, therefore, felt that the Judgment Debtor has itself to blame in finding itself in this situation, as such it should not be treated with sympathy by the court, 8, Judgment Debtor's counsel, on the other hand, argued that his client should be allowed time and be ordered to pay the judgment debt in the manner prayed on account of the liquidity issues and all it was asking for is a bit of time to settle the judgment debt. He pleaded with the court not to order immediate settlement because that is likely to lead to execution on the Judgment Debtor. Such execution, he stated, would be an exercise in futility because the Judgment Debtor's assets would not cover the amount owing to the Judgment Creditors. Further, Counsel believes that an order of the court requiring immediate settlement of the judgment debt will ultimately lead to the insolvency of the Judgment Debtor. Such insolvency, he asserts, will result in everyone losing out. He submitted that since a liquidator in such a scenario would be obliged by law to look afier the interests of all creditors, unsecured creditors like the Judgment Creditors would not be treated with priority. Counsel also implored the court to bear in mind the importance of maintaining a stable environment in the financial services sector. He said that this stability can easily be put in jeopardy if one of the players in the market is made to fail. In this respect, he said it was in the interest of the regulator of financial sector, namely, the Reserve Bank of Malawi, to ensure that stability is maintained. 9. Counsel referred me to two case authorities on the issue of settlement of judgments debts by instalments. The first was Gulf International Bank BSc v Al Ittefag SteelProducts Co [2010] EWHC 2601 (QB) > in which the main principle articulated is that when considering whether to give time to a judgment debtor to settle a judgment debt, the court must take into account the interests of both the judgment creditor and the judgment debtor. The other case authority was Chikowa Produce Lid v Maldeco Aquaculture Ltd ® in which the court held that a period of between 2 and 3 years for instalments settlement of a trade debt was reasonable, I have had occasion to read both authorities and fully agree with the principles expounded in the Gulf International Bank case. As for the period of 2 to 3 years indicated in Chikowa, I must hasten to say that the case does not lay a general rule in terms of the length of time a debtor should be allowed to settle a judgment debt. The circumstances the court was faced with in that case were different from the circumstances we are dealing with here. Chikowa was dealing with a typical trading debt. Each case is decided on its own peculiar facts. Judicial discretion is granted to the courts on that basis, and as such, decisions should be based on the peculiar circumstances of a case rather than a rigid application of the law. Decisions made under discretionary powers have to be sound and not arbitrary, meaning that such decisions must be made based on what is right and equitable under the circumstances. Issue 10. The issue for the determination of this court is whether or not to allow the Judgment Debtor time in which to settle the judgment debt and if so the rate at which it should be settled, The law 11. The Courts Act confers express jurisdiction on the High Court to order payment of any judgment debt by instalments 7. 12, Under Order 12 rule 33(2) of the Rules, a judgment debtor is at liberty to admit part of a claim by filing an admission in appropriate form, Where there is such an admission, the judgment creditor may apply for judgment in respect of the admitted sum *. A judgment debtor who makes admission is at liberty to request for time to pay the admitted debt ° . Where a judgment creditor does not accept the judgment debtor's proposal for payment, the judgment creditor is obliged to file into court a notice to that effect "° . Proceedings for determination of time and rate for payment, if done in a 5 [2010] EWHC 2601 (QB) * Civil cause No. 150 of 2013, High Court Principal Registry (Unreported) 78.11 (@) () of 8 Order 12 rule 31(1) ® Order 12 rule 37 1 © Order 12 rule 38 (2)hearing, the proceedings must take place in open court '' . This explains why this hearing was in open court. 13. Where a judgment debtor requests the court to grant it time for settlement of a judgment debt under the Rules, the position is similar to the one where the court is considering an application to have a judgment debt settled by installments. Therefore, the principles expounded by our courts in respect of applications for settlement of judgment debts by instalments are applicable. The guiding principles were well expounded in Leasing & Finance Co. v Maltraco Ltd. These can be summarized as follows: a) the court must balance the interest of a judgment creditor to recover the debt against genuine inability to settle on the part of the judgment debtor; b) the court must be very cautious and reluctant to allow instalments in a trading debt; and; ©) the judgment debtor must approach the court with clean hands and make full and frank disclosure of its financial position because he is seeking the sympathy of the court, Analysis and Finding 14, In the present application, the Judgment Creditors are insisting on the judgment debt being paid immediately rather than in accordance with the proposal by the Judgment Debtor. Since October 2020 the Judgment Creditors have been receiving promises from the Judgment Debtor. These promises have not been fulfilled to date. The last such promise was the one made in writing. Further, the Judgment Creditors are contending that the Judgment Creditor should be able to settle their dues all at once since it is getting an average sum of MK'500 million a month from its own debtors. It is pertinent to note that the Judgment Debtor made no attempt to explain to the court how the average monthly amount of MK500 million is being distributed. All the Judgment Debtor was happy to assert was that this sum is being used to settle such other liabi owing to other clients. Unfortunately, no details of those creditors whose debts are being serviced and how much is owed were made available to the court. The court cannot proceed on assumptions in this respect. I do not think the Judgment Debtor made full and frank disclosure of its financial position in order to help the court to arrive at a decision that would be appropriate in the circumstances. Unfortunately, the Judgment Creditors also did not do much in fulfilling their obligation by ensuring that the disclosures made by the Judgment Debtor were full, frank and honest. It appeared to 8 Order 12 rule 39) "= [1997] 2 MLR 250 (HC)the court that the Judgment Creditor was contented just to make the Judgment Debtor admit that some of the money owed to it was owed by related parties. Be this as it may, 1 do not think the circumstances of the present matter warrant the court to exercise its discretion in favour of the Judgment Debtor. My reasons for arriving at this conclusion are grounded on the following considerations: i. There is no information regarding how the average monthly sum of MK500 million is being utilized. This leaves the court with no choice but to conclude that it is possible for the Judgment Debtor to pay off the whole judgment debt at once using this source. ii, Despite the Judgment Debtor collecting the above sum on monthly basis, there has been no attempt on its part to pay anything to the Judgment Creditor. iii, On several occasions, the Judgment Debtor has undertaken to settle the amounts ‘owing but no payment has been made to date, iv. There isno evidence that the Judgment Debtor is taking any serious action to collect debts owing to it in order to place itself in a comfortable position whereby it would casily settle its debts. It was revealed during current proceedings that some of the money owed to the Judgment Debtor is owed by related parties including the judgment debtor’s own holding company and companies controlled by individuals who are directors in the Judgment Debtor. This leaves this court with a feeling that the judgment debtor has placed itself in an awkward position where its ability to push for settlement of its dues has been compromised. 15.In the circumstances, this court declines to exercise its discretion in favour of the Judgment Debtor and order that the judgment debt be settled in full by the 31% day of March, 2021. Costs in relation to this application are for the Judgment Creditor. Pronounced in open court this 23 day of March, 2021 at Blantyre in the Republic of Malawi. M.T. Msungama JUDGE