TROUBLE FINANCIAL INSTITUTIONS(RESOLUTION) ACT (CHAPTER 24:28)

CHAPTER 24:28

TROUBLE FINANCIAL INSTITUTIONS(RESOLUTION) ACT

Act 31/2004

ARRANGEMENT OF SECTIONS

PART I

PRELIMINARY Section

PART II

DECLARATION OFTROUBLED FINANCIAL INSTITUTIONS

4. Investigation of certain financial institutions.
5. Action where investigated financial institution not troubled but in default of Banking Act, etc.
6. Declaration of troubled financial institutions.
7. Effect of declaration.
8. Transmission of declaration to certain officers.
9. Confirmation of declaration.

PART III

OBJECTS OF ADMINISTRATION ANDFUNCTIONS OF ADMINISTRATOR

10. Object of administration.
11. General powers of administrator in relation to troubled financial institution.
12. Application of certain provisions of Companies Act to administration.
13. Voidable dispositions of property by troubled financial institutions and specified persons.
14. Statement of troubled financial institution’s affairs.
15. Revaluation of assets, liabilities and share capital of troubled financial institutions.
16. Initial meeting of creditors and members.
17. Subsequent meetings of creditors and members.

PART IV

SPECIFIED PERSONS INRELATION TOTROUBLED FINANCIAL INSTITUTIONS

18. Identification of persons responsible for causing financial institution to be troubled.
19. Special commissioners for taking evidence.
20. Forfeiture or vesting in State of rights of, or disposal of shares held by, specified persons.
21. Attachment of assets of specified persons in satisfaction of their liabilities to troubled financial institution.
22. Powers of administrator in relation to specified persons.
23. Transactions by specified persons.
24. Offences by specified persons.
25. Power of administrator to compromise with persons liable to be specified or prosecuted.

PART V

SCHEMES OF RESOLUTION ANDINTERIM MANAGEMENT OF SUCCESSOR FINANCIALINSTITUTIONS

26. Powers of administrator with respect to scheme of resolution.
27. Special provisions for repayment of depositors of troubled financial institutions.
28. Approval of scheme of resolution.
29. Consequences where resolution not possible.
30. Implementation of scheme of resolution and matters incidental thereto.
31. Duties of interim board.

PART VI

GENERAL

32. Arbitration where valuation of shares, etc. by administrator or Reserve Bank disputed.
33. Persons employed by troubled financial institution before its administration.
34. Application of assets during administration.
35. Remuneration of administrator and assistant administrators.
36. Liabilities incurred by administrator and interim board to have preference over pre-administration liabilities.
37. Period of administration excluded in determining preference under mortgage bond.
38. Position of auditor during administration.
39. Administration expenses.
40. Cancellation of declaration.
41. Offences consequent upon administration.
43. 14:28 notto apply.

AN ACT to provide for the administration of troubled financial institutions; to provide for formulation and implementation of schemes of resolution in respect of such institutions; and to provide for matters connected with or incidental to the foregoing.

[Date of commencement: 14th January, 2005.]

PART I

PRELIMINARY

1    Title

This Act may be cited as the Troubled Financial Institutions (Resolution) Act [Chapter 24:28].

                       2    Application

This Act shall apply to all financial institutions referred to in section 6(1), including those formed, registered or incorporated before the date of commencement of this Act:

Provided that if the Reserve Bank proposes to issue a declaration in relation to a financial institution, and, before such declaration is issued, there is made or presented to the court

• an application in terms of section 191 of the Companies Act for the sanctioning of a compromise or arrangement proposed between the financial institution and its creditors or members, sections 191 to 194 of that Act; or
• a petition for the winding up of the financial institution in terms of section 207 of the Companies Act, Part V or VI of that Act; or
• an application for a provisional judicial management order in terms of section 299 of the Companies

Act, Part V or VI of that Act; shall apply to such financial institution unless, within thirty days after the date of presentation of the petition or the making of the application, as the case may be, the Reserve Bank issues a declaration in respect of the financial institution.

3    Interpretation In this Act

“administrator” means an administrator appointed under section 6(1), and includes any assistant administrator appointed under that provision;

“administration”, in relation to a troubled financial institution, means the administration of the troubled financial institution in accordance with the notice of declaration or a scheme of resolution;

“associate”,                 “board”, “curator”, “director”, “chief executive officer”, “inspector”, “registered” and

“supervisor” have the meanings assigned to those terms by the Banking Act;

“the Banking Act” means the Banking Act [Chapter 24:20];

“the Companies Act” means the Companies Act [Chapter 24:03];

“commencement of the administration” means the date when a declaration in relation to a financial institution takes effect in terms of section 6(7);

“court”, “Master”, “Registrar”, “secretary” and “share” have the meanings assigned to those terms by the Companies Act;

“declaration” means a declaration issued in terms of section 6;

“document” includes any document stored in electronic form in any computer;

“financial institution” means—

• any banking institution registered or required to be registered in terms of the Banking Act [Chapter 24:20]; or
• any building society registered or required to be registered in terms of the Building Societies Act [Chapter 24:02]; or
• the People’s Own Savings Bank established in terms of the People’s Own Savings Bank of Zimbabwe Act [Chapter 24:22]; or
• an asset manager as defined in the Asset Management Act [Chapter 24:26]; or
• a collective investment scheme as defined in section 3 of the Collective Investment Schemes Act, 1997; or
• any person who carries on a business of acceptance of deposits and other repayable funds from the public;

“member”, in relation to a financial institution, means

• a shareholder, debenture-holder or other person having a right to vote at meetings of the

financial institution; or

• any contributory as defined in section 202 of the Companies Act;

“Minister” means the Minister of Finance and Economic Development or any other Minister to whom the President may, from time to time, assign the administration of this Act;

“officer”, in relation to a troubled financial institution, includes an auditor of the institution;

“public funds” means funds held by or on behalf of the State (whether or not appropriated by Act of Parliament) and includes any moneys advanced by the Troubled Bank Fund;

“Reserve Bank” means the Reserve Bank of Zimbabwe referred to in section 4 of the Reserve Bank of Zimbabwe Act [Chapter 24:22];

“scheme of resolution” means a scheme referred to in section 26;

“specified person” means any person specified in terms of section 14(8);

“successor financial institution” means a successor to a troubled financial institution that is reconstructed, amalgamated or transferred in terms of section 10(a), (b) or (c);

“troubled financial institution” means a financial institution in respect of which a declaration has been made;

“Troubled Bank Fund” means the Troubled Bank Fund established by the Reserve Bank for the purpose of providing financial assistance to financial institutions.

PART II

DECLARATION OFTROUBLED FINANCIAL INSTITUTIONS

                       4    Investigation of certain financial institutions

(1) If the Reserve Bank has reasonable grounds for believing that a financial institution—

• which is indebted to the Reserve Bank (whether by virtue of having received assistance from the Troubled Bank Fund or otherwise) is unable to repay its indebtedness to the Reserve Bank; or
• will need to receive public funds in order to prevent systemic risk, that is to say, a risk that a failure on the part of such financial institution to meet its obligations may result in other such financial institutions being unable to meet their respective obligations; or
• has failed to comply or is unlikely to be able to comply with any requirement relating to capital, reserves, assets, liabilities, credits, deposits or other requirement prescribed for the purposes of section 29, 30 or 31 of the Banking Act; or
• is not conducting its business in accordance with sound administrative, accounting, corporate governance or risk management practices and procedures; the Reserve Bank may direct an inspector to conduct an investigation into the financial institution concerned or any aspect of its management or activities.

(2) Sections 49 to 52 of the Banking Act shall apply in relation to an investigation of a financial institution in terms of subsection (1):

Provided that the Reserve Bank may require the financial institution to submit representations in terms of section 50(3) of the Banking Act within one week after receiving a summary of the inspector’s conclusions and recommendations, if the Reserve Bank considers that urgent action on the inspector’s report may be necessary to prevent irreparable harm to the financial institution or its depositors, creditors or members.

5     Action where investigated financial institution not troubled but in default of Banking Act, etc.

• If the Reserve Bank, after considering the report of—
• an inspector following upon an investigation under section 4; or
• a supervisor following upon an investigation under section 47 of the Banking Act; is satisfied that—
• the share capital of the investigated financial institution is substantially over-valued taking into consideration the institution’s net asset value; or (d) the investigated financial institution—
  • has failed to comply with any requirement relating to capital, reserves, assets, liabilities, credits, deposits or other requirement prescribed for the purposes of section 29, 30 or 31 of the Banking

Act, but may be likely to comply with any such requirement if any person holding shares in the financial institution relinquishes his or her shareholding; or

• is not conducting its business in accordance with sound administrative, accounting, corporate governance or risk management practices and procedures but may be likely to do so if any person holding shares in the financial institution relinquishes his or her shareholding;

or

• any shareholder of the investigated financial institution is not qualified in terms of the Banking Act to hold such shares; the Reserve Bank may authorise the inspector or investigator, as the case may be—
• in the case of a finding under paragraph (c), to undertake a valuation of the assets and liabilities of the financial institution in order to determine its net asset value, and section 15 shall apply to such valuation; or
• to issue a written direction to any shareholder referred to in paragraph (d)(i) or (ii) or (e)—
  • directing the shareholder to dispose of his or her shares to another person (who must be qualified in terms of the Banking Act to hold such shares) within such reasonable period as the inspector or investigator shall specify in the notice; and
  • suspending (notwithstanding anything contained in the memorandum and articles of the financial institution) all voting rights attaching to the shareholder’s shares until such time as they are disposed of under subparagraph (i), and until they are so disposed of such shares shall be deemed not to form part of the share capital of the financial institution;

or

(h) to undertake a valuation of the assets and liabilities of the financial institution under paragraph (f) and issue a notice in terms of paragraph (g).

• A person to whom a notice has been issued in terms of subsection (1)(f), (g) or (h) may, within fourteen days of receiving such notice, apply to the High Court to set it aside on the grounds that he or she— (a) is not responsible for the financial institution’s failure to—
  • comply with any requirement referred to in subsection (1)(d)(i); or
  • conduct its business in accordance with the practices and procedures referred to in subsection

(1)(d)(ii); or

(b) is qualified to hold the shares in terms of the Banking Act; as the case may be:

Provided that such person shall bear the onus of proving that he or she is not so responsible or is so qualified.

• If the shareholder to whom a notice has been issued in terms of subsection (1) is unable to dispose of his or her shares at a reasonable price within a reasonable time to any other person, he or she may offer them for purchase by the Reserve Bank, which may—
• purchase the shares on behalf of the State; or
• purchase the shares on behalf of the financial institution without the authority of a general meeting referred to in section 79 of the Companies Act.
• Section 32 applies to any dispute about the value of shares required to be valued or sold pursuant to a notice issued in terms of subsection (1)(f) or (g).