KELVIN SABAO
Introduction
Section 70 of the Companies and Other Business Entities Act (COBE Act) is a provision that empowers the courts to restrain individuals who have been involved in fraudulent activities in connection with companies or private business corporations (PBCs) from managing or controlling such entities.
This legal mechanism serves as a vital tool in upholding corporate governance standards, protecting the interests of stakeholders, and maintaining the integrity of the business environment.
In this article, I will critically examine the key aspects of section 70 of the COBE Act, considering its implications for corporate governance.
The Scope of Section 70
Section 70(1) of the COBE Act outlines the circumstances under which the court can make an order to restrain an individual from managing a company or PBC. The two primary scenarios are:
- Conviction for Offences: If a person is convicted before the High Court of any offence related to the promotion, formation, or management of a company or PBC, they may be subject to an order under this section. This provision acts as a deterrent against individuals engaging in illegal activities within the corporate sector.
- Winding Up or Judicial Management: During the winding-up or judicial management of a company, if it becomes apparent that an individual has committed offences under section 68 of the COBE Act or has engaged in fraud or breached their duties as an officer or controlling member of a company or PBC, the court can issue an order against them.
This ensures that those responsible for corporate wrongdoing face legal consequences.
Notice Requirement
Section 70(2) imposes a crucial notice requirement on individuals intending to apply for an order under this section.
They must provide at least ten days’ notice to the person against whom the order is sought.
This provision ensures fairness and allows the guilty party an opportunity to prepare a defence.
The guilty party may appear at the hearing of the application and give evidence or call witnesses. The principle of natural justice is upheld, as parties have the chance to be heard.
Locus standi for Applicant(s)
Section 70(3) specifies who can apply for an order under this section.
The Master, liquidator, judicial manager, or any person who is or has been a member or creditor of the company may make such an application.
This broad range of applicants emphasizes the importance of safeguarding corporate interests and ensuring that individuals with potential conflicts of interest are held accountable.
Role of the Master, Liquidator, and Judicial Manager
Section 70(3) also grants the Master, liquidator, or judicial manager the authority to participate actively in the proceedings. They can appear and call the attention of the court to relevant matters, provide evidence, and call witnesses.
This involvement ensures that professionals with expertise in corporate matters can assist the court in making informed decisions. It also enhances transparency in the process.
Expansive Interpretation of “Officer”
Section 70(4) adopts an expansive interpretation of the term “officer.”
It includes any person in accordance with whose directions or instructions the directors of the company have been accustomed to act.
This broad definition ensures that those who may not hold formal titles but wield significant influence over company decisions are not exempt from potential orders under this section.
Penalties for Contravention
Section 70(5) establishes penalties for individuals who contravene an order made under this section. They may be liable to a fine not exceeding level ten or imprisonment for a period not exceeding two years, or both.
These penalties serve as a strong deterrent against non-compliance and reinforce the seriousness of the court’s orders.
Conclusion
Section 70 of the Companies and Other Business Entities Act plays a pivotal role in upholding corporate governance standards and maintaining the integrity of the business environment.
By allowing the courts to restrain individuals involved in fraudulent activities or offences related to company management, this provision ensures accountability and safeguards the interests of shareholders, creditors, and the general public.
The notice requirement, locus standi for applicants, active participation of experts such as the Master, liquidator, and judicial manager, and the inclusive definition of “officer” contribute to a fair and transparent legal process.
Moreover, the imposition of penalties for contravention underscores the importance of compliance with court orders.
In conclusion, section 70 serves as a vital tool for deterring corporate misconduct and promoting responsible corporate behaviour. Its provisions are designed to strike a balance between protecting the interests of stakeholders and ensuring due process and fairness in legal proceedings.
Disclaimer:
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice.
Kelvin Sabao is a registered Legal Practitioner and he writes in his personal capacity. He is a co-author of a book entitled ‘The Directors’ Handbook in Zimbabwe’. For more information, you can contact Kelvin via email at: sabaokelvin@gmail.com
