SPVs in Zimbabwe: What they are, why they matter, and when to use them

TARIRO MAGAYA / FUNGAI CHIMWAMUROMBE

In Zimbabwe’s evolving corporate and financial landscape, the Special Purpose Vehicle (SPV) has become an indispensable tool for structuring transactions, managing risk, and facilitating investment.

While the concept originates in international finance, its application within Zimbabwean law is firmly grounded in the Companies and Other Business Entities Act [Chapter 24:31], which provides the framework for incorporation and governance of companies.

This article explores the definition, purpose, importance, benefits, and circumstances under which one may elect to establish an SPV, with reference to Zimbabwean statutory provisions and case law.

An SPV is a separate legal entity created to achieve a specific, limited objective. It may take the form of a private company, public company, or private business corporation under the Companies Act.

The doctrine of separate legal personality, affirmed in Salomon v. Salomon & Co. Ltd [1897] AC 22 and consistently applied in Zimbabwean jurisprudence, ensures that the SPV’s liabilities remain distinct from those of its parent company.

This principle was reiterated in Dube v. Premier Service Medical Investments (Pvt) Ltd HH 123/15, where the High Court emphasized that shareholders are not liable for company debts unless exceptional circumstances justify piercing the corporate veil.

Thus, the SPV’s independence is legally recognized, providing a foundation for its utility in practice.

The purpose of an SPV in Zimbabwe is multifaceted. It is often established to isolate risk, ensuring that high-risk ventures do not jeopardize the parent company’s broader operations.

In project financing, particularly in infrastructure and mining, SPVs provide a vehicle through which external investors can participate without assuming exposure to unrelated liabilities.

Banks and microfinance institutions may use SPVs for securitization, pooling receivables into securities that are bankruptcy-remote.

In estate and property transactions, SPVs can hold and manage assets during succession, offering clarity and fairness among beneficiaries.

The importance of SPVs lies in their ability to provide bankruptcy remoteness, thereby insulating valuable projects from the insolvency of the parent company.

They enhance investor confidence by ring-fencing risks, and they offer legal flexibility in structuring transactions to comply with Zimbabwe’s regulatory framework.

The benefits of SPVs are considerable. They enable effective risk management by separating risky ventures from the parent company’s balance sheet. They provide asset protection, safeguarding property from creditors. They allow for financing flexibility, including off-balance-sheet financing, and may deliver tax efficiency depending on structuring. Operationally, SPVs streamline complex projects by focusing on a single, defined objective, while their clarity of purpose appeals to investors seeking certainty.

The circumstances under which one may elect to establish an SPV in Zimbabwe include:

Ø   When undertaking risk-heavy ventures, such as speculative mining or real estate projects.

Ø   For large-scale infrastructure financing, including toll roads and energy projects.

Ø   In securitization of assets, particularly in the banking sector.

Ø   To facilitate joint ventures, where multiple parties require a neutral entity.

Ø   In estate administration, complex succession demands clarity and fairness.

Ø   For bankruptcy protection, to safeguard valuable assets from creditors.

Despite their advantages, SPVs must be carefully managed. Misuse, as seen in international scandals such as Enron, has led to heightened regulatory scrutiny worldwide.

In Zimbabwe, courts retain the power to pierce the corporate veil where fraud, abuse, or improper conduct is proven. Thus, transparency, accountability, and compliance with statutory provisions are essential to ensure that SPVs serve their intended purpose.

In short, the SPV is a vital instrument in Zimbabwean corporate and financial law. Established under the Companies and Other Business Entities Act [Chapter 24:31], SPVs provide risk isolation, asset protection, financing flexibility, and investor confidence.

They are elected in circumstances involving risk-heavy ventures, project financing, securitization, joint ventures, estate management, and bankruptcy protection. Zimbabwean case law affirms their separateness, making them indispensable tools for managing complexity and safeguarding interests in today’s dynamic legal environment.

Tariro Magaya is an intern at Zenas Legal Practice and can be contacted on What’sApp +263 71 493 9942 or  tariro@zenaslegalpractice.com

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Zenas Legal Practice and can be contacted at fungai@ zenaslegalpractice.com