SME Bank mandate objectively impossible
While employees at SME Bank are having sleepless nights over their futures, government is adamant that closing the bank is in the best interest of the country’s financial sector.The staff members accuse government of sitting idle without consulting them as to what it plans to do with the 208 people employed by the bank.
On Thursday the legal teams of SME Bank and BoN battled it out in the High Court, with the latter seeking permission to liquidate SME Bank. A number of SME Bank employees also attended court proceedings. Defence lawyer, Sisa Namandje asked the High Court to struck the matter of the roll saying BoN’s application did not follow the rules and procedures of Namibia’s Companies Act 28 of 2004 that deals with liquidation matters.“The security certificate was not properly issued by the Master of the High Court as per requirements of the Companies Act of 2004. This application was just rushed to court without non-compliance of the requirements and rules of the Companies Act in respect of seeking winding-up,” said Namandje.Namandje also told the judge that the period given to him was too short, considering the fact that some of his clients are foreign nationals.
“They even refused to move the matter to Friday My Lady. It is not the court’s business to panel beat the work of applicants who rush to court,” he said. Namandje’s interruption was based on the fact that section 351, subsection four of the Companies’ Act of 2004 was not complied with. The section stipulates that before any application for winding up a company is registered or lodged with the Registrar of the High Court, such an application must first be submitted to the Master of High Court ten days before it is lodged with the Registrar’s office.
This is because when a company is closed by the High Court it is placed under judicial management or liquidations, which is then the responsibility of the Master’s office. Advocate Andrew Corbett, who is representing BoN, pleaded with the court to allow the application to go ahead. He maintains that the application must be given the greenlight “to arrest a situation where a large sum of money is at stake.” Court papers filed by BoN states that no relief is sought against the first respondent(government) and second respondent(Ministry of Finance). “No relief is sought against them, save for costs against any such respondent electing to oppose this application,” said the bank. In the court papers, Shiimi recalls investments made by Mr. Joseph Banda as three stand alone investments to VBS Bank and Mamepe Capital. These investments of N$10m, N$150m and N$25m exceeded the approval limit of SME Bank’s then CEO Tawanda Mumvuma, and therefore required approval from the board of directors of SME Bank.
“SME Bank had set internal approval limits in its signing agreement and limits policy guideline which required that all investments exceeding N$150 million be approved by the said Board. Mr. Joseph Banda(SME Bank’s Finance Manager) could not furnish any proof that such approval had been granted, despite requests do so by the Bank’s examiners, Mr. Immanuel Hawanga and Ms. Karin Elago,” said Shiimi. Shiimi asserted that SME Bank is indeed insolvent. According to two reports namely an Investment Recoverability and Solvency Assessment Report and the Investment Reconciliation Report the investment balance in VBS is to be written down by N$154.7m from N$155.2m to N$459 000.00. VBS confirmed that funds with them were only the N$459 000.00 and not N$155.2m as reported by management. This they repaid in April 2017 and closed accounts. Consequently according to a court affidavit the rest of the balance is impaired as there is no evidence that the balance exists.
Shiimi in an annexure states how the troubled bank incurred losses from its lending activities and other operations, which further eroded the capital position of the bank. As at 31 March 2017, the court papers indicated that the total assets of the SME Bank stood at N$997,996,000 while the total liabilities stood at N$1,160,031,000. This effectively means the total shareholder’s equity is negative N$162,065,000. In order to get a glimpse of how the repatriation of the funds invested with or through Mamepe Capital will be, a report titled SME Bank Cash Flow, Liquidity, Solvency Scenario was prepared. “It found that at 22 June 2017, SME Bank held liquid assets of N$76,5 million, the liquid ratio stood at 7.2% or 72%, which is below the minimum level of 75% of the average daily amount of liquid assets required to be held. If the investments on 30 June 2017 were received(which we know, did not occur), the liquid assets ratio would have increased to 15.5% and SME Bank would have been compliant with the Minimum Liquid Asset Return,” states the report.
It also said inflows will do very little to improve the liquidity situation due to large expected outflows that will be falling due on 30 September 2017. “The liquid asset ratio is expected to drop as low as 1.54% and this is not likely to improve beyond that point. SME Bank will not be able to honor obligations maturing beyond September 2017 without any intervention to inject capital and liquidity into the institution,” states the report. Shiimi said “my clear understanding from my interactions with the sixth respondent[Ngatjizeko] is that Government, as the majority shareholder, has given up on the resuscitation of SME Bank and now favors the winding up of SME Bank on urgent basis.” On 13th of June Minister of Industrialisation unequivocally stated that government has pursued all avenues for SME Bank’s recapitalisation and no resources are available.
Since the bank opened its doors, the minority shareholders(35%) only contributed N$57,7 million while government as the majority shareholder(65%) injected N$448,7 million. Shiimi said winding-up the bank will be in the interest of creditors and underscored that it is important to protect the interests of those who have deposited or made investments with or through SME Bank. He said winding-up will also preclude the unfair treatment of a specific creditor or group of creditors, and will enable a duly appointed liquidator to attend to the orderly wing-up of SME Bank.
“Further, once a liquidator is appointed, he or she can(and must) take such measures, subject to the applicable law, for the protection and better administration of SME bank’s affairs and property,” said the central bank governor. He also indicated that, once appointed, the liquidator who will stand in a fiduciary position to SME Bank must immediately take possession of all assets of SME Bank.
Judge Johanna Prinsloo is expected to make her ruling today. The Patriot posed several questions to the Central Bank in an attempt to get a glimpse of how the employees will be affected. Here are the questions posed to BoN’s deputy director for corporate communications Israel Zemburuka this week:
- Should the High Court grant the central bank permission to wind-up operations at SME Bank, has BoN at this point in time taken a decision regarding the future of the employees?
- How about those who borrowed money from the SME Bank, will they be pursued to repay the loans? How will this be done, will BoN appoint a third party to recover the loans?
- If granted permission to win-up operations, will it be a permanent closure or temporarily while the issues that led to BoN seeking the closure of SME Bank are being sorted out?
- Will BoN hold any of the SME Bank management members legally liable for the downfall of the bank?
- Zemburuka responded saying: “It must be noted that this matter is subject to court application initiated by the Bank of Namibia. The Bank is therefore constrained by the sub judice rule from commenting about this matter.”