Supreme Court upholds SME Bank liquidation

The Supreme Court yesterday dismissed an appeal by Metropolitan Bank of Zimbabwe and World Eagle Properties against a High Court order for the final liquidation of the SME Bank and struck the matter from the roll.

The two entities, which are minority shareholders in the SME Bank holding 30% and 5% respectively, argued that the bank was to serve SMEs, which are underserved by the existing commercial banking sector, and to uplift previously marginalised and disadvantaged communities.

They further argued that the Bank of Namibia's winding-up High Court application should have been a last resort and that the BoN was obliged to exhaust less far-reaching remedies first.

The Supreme Court judges, however, said that the final liquidation order was in fact preceded by a number of steps by the BoN spanning several months, and that MetBank and Eagle Properties at each step had failed to provide satisfactory responses, which eventually led to the BoN's winding-up application. Judges Sylvester Mainga, Dave Smuts and Elton Hoff held that the Banking Institutions Act vests extensive supervisory and regulatory powers in the BoN, including a wide range of powers directed at remedial action, as well as to apply for the winding-up of any banking institution. They further held that the BoN has a statutory duty to perform its supervisory functions and exercise its wide-ranging powers in respect of banks, and that the High Court was correct to find that the SME Bank was insolvent.





Background

The High Court on 29 November 2017 ordered the final liquidation of the SME Bank on an application brought by the BoN.

High Court Judge Hannelie Prinsloo found that the SME Bank was commercially and factually insolvent and unable to honour its commitments to its investors and creditors.

Prinsloo also found that the opposition to the application on constitutional grounds was unfounded and dismissed the opposition.

During August 2016 the SME Bank's external auditors had concerns about investments of N$196 million by the SME Bank with Mamepe Capital, the South African company of Mauwane Kotane.

This concern was raised with the BoN's banking supervision department, which then sought and obtained documentation from the SME Bank relating to these investments.

The Supreme Court stated that indications were initially that these investments were placed by Mamepe with VBS Mutual Bank.

Moreover, it said, the investment not only exceeded the approval limit of the SME Bank's CEO Tawanda Mumvuma, but the explanations by the SME Bank's management of the further placement to VBS Mutual were also unsatisfactory. Further investigations revealed liquidity challenges and a targeted inspection from September 2016 to December 2016 found no confirmation of the investments made with Mamepe and VBS. The BoN calculated that the investments were lost and the SME Bank was insolvent, or likely to become insolvent on the strength of capital adequacy returns filed by the SME Bank.

The central bank assumed control of the SME Bank from 1 March 2017 and continued with its enquiries concerning the investments, which showed that earlier information provided by the SME Bank management had been “contradictory and questionable”.

The investigation found that only N$32.7 million had been invested with Mamepe and N$167 million had been paid into accounts of other beneficiaries and not placed with VBS.

Despite demand for payment after the maturation dates of investments exceeding N$88 million, no amounts were returned by Mamepe until the provisional winding-up application was lodged in July 2017.

Before the BoN applied for the winding-up of the SME Bank, it had asked the latter's shareholders to acquire more capital to restore its liquidity.

The Namibian government, the majority shareholder (65%), declined to recapitalise the SME Bank.

CATHERINE SASMAN