Directors who negate their fiduciary duties by recklessly and fraudulently driving companies into debt will be held personally liable if the current version of the draft Companies Bill gets the thumbs up from stakeholders.
Government, through the Ministry of Justice, Legal and Parliamentary Affairs, is in the process of revamping the 65-year-old Companies Act, which is now incompatible with the evolving demands of the market.
The review is being undertaken under the auspices of the Office of the President and Cabinet to give effect to Government’s commitment to improve the local business environment.
Provisions of the draft Bill seemingly take aim at former and current company executives and directors who either wittingly or unwittingly run down companies.
In particular, clause 61 of the proposed Bill gives the High Court “the power to declare a director or member or former director or member of a company or PBC (private business corporation) personally liable for the company’s or the PBC’s debts if he or she was responsible for carrying on its business recklessly, grossly negligently or fraudulently”.
Also, clause 62 provides criminal penalties for fraudulent, reckless or wilful failure to comply with provisions of the Bill to ensure proper financial accounting by companies.
It also makes it difficult to falsify or deliberately conceal or destroy documents.
The current version of the Companies Act does not make directors criminally liable for neglecting their fiduciary responsibilities, and many shareholders feel short-changed as a result, especially in cases where purportedly offending directors go scot-free.
the draft Clause 61 is therefore similar to Section 424(1) of South Africa’s Company Act which empowers the court to declare a person charged with the affairs of a company “personally liable, without limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.”
Notably, in October 2012 the South African High Court used the same law to declare former Shabanie-Mashaba Mine (SMM) directors Messrs Mutamwa Mawere and Parmanathan Mariemuthu criminally liable for R18 million prejudice suffered by the local asbestos miner.
Ironically, the duo had successfully escaped from the clutches of the local law.
Government has begun soliciting for comments on the new draft.
In a letter to stakeholders dated August 10, 2017, Willie Mushayi – team leader of the working group for starting a business and protection of minority interests – said the new Bill “addresses the shortcomings of the previous draft that were identified during stakeholder consultations and incorporates subsequent work undertaken by the Technical Working Group which has input of key institutions/stakeholders (including the private sector) as well as international and domestic experts.”
A draft Bill that was compiled by a consultant from the United States of America was recently rejected after it excluded most of the input from key players in the market.
Professional bodies that have been key in the creation of the new Companies Act include the Institute of Chartered Accountants of Zimbabwe (Icaz), the Instituted of Chartered Secretaries of Zimbabwe (ICSAZ), the Bankers Association of Zimbabwe (Baz), SMEs, and the Employers’ Confederation of Zimbabwe (Emcoz), among others