The Chartered Secretary Official magazine of the Institute of Chartered Secretaries and Administrators in Zimbabwe Registered at the G.P.O as a Newspaper Issue 1/2015 Institute joins PAFA and adopts three-year Strategic Plan Inside this issue » Mayor appeals to businesses and residents to assist City » Management requires complete, accurate and timely information » Government should review Judicial Management » Investigations continue into fraudulent ownership of UK property Contents tary ecre S red arte Ch The cial Offi ine of the te of Institu ered Chart aries Secret and rs istrato we bab in Zim Admin Issue 1/2015 magaz er tered Regis Issue 1/2015 at the as G.P.O a pap News ute Instit PAFA s join dopts a and -year e thre egic t Stra Plan e is issu e th Insid and arter al Ch ation nal e, intern eratio op mplet for es co ation orm requir ment timely inf king ma nage d » Ma urate an decision acc priate review appro should nt ent ies me nm ge ver na ity rel » Go icial Ma stabil y and Jud egrit wth y gro and int ics mpan » Co good eth on New » Bye-laws From the Chief Executive’s Desk 2 Institute joins PAFA and adopts three-year Strategic Plan Institute News 3 Mayor appeals to businesses and residents to assist City 4 Institute donates groceries, stationery and television to Khayelihle Children’s Village Board Evaluation 5 Board must be evaluated to justify re-appointments 3 5 Corporate Governance 6 Management decisions require complete, accurate and timely information 7 Corporate Governance rhetoric must be turned into reality Judicial Management 8 Government should review Judicial Management Ethics 10 11 13 13 Ethics provide foundation for good corporate governance 10 Profile PSC Senior Paymaster appreciates role ICSA played in his career International Companies House error costs £9m after ruining a business Investigations continue into fraudulent ownership of UK property 11 Student Supplement 14 Establishing a Holding Company The Chartered Secretary 1 From the Chief Executive’s Desk Institute joins PAFA and adopts three-year Strategic Plan in the country (as far as business is concerned) and retention of the Institute’s market share. Structures and activities to achieve these key goals were put in place in the plan. This year is the first year of implementation of the plan. It is the Institute’s hope that it will be able to derive the desired benefits from the implementation of the new Strategic Plan. T 2 he 4th quarter of 2014 provided the Institute with a springboard for the future. Significant outcomes during the period included the hosting of the second edition of the Excellence in Corporate Governance Awards in November. The awards were bigger than the inaugural awards held in November 2013. The Institute intends to build on these awards and make them even better in future. Other notable activities or outcomes during that period were the registration of the Institute as a Pan African Federation of Accountants member, the completion of the Institute’s 2015 to 2017 Strategic Plan and the accreditation of the Institute’s IBAS course. These outcomes are significant as they will provide the platform for the Institute’s future. will use our membership of PAFA to make appropriate contributions to the accounting profession. Pan African Federation of Accountants For some years now the Institute has been pursuing membership of critical accounting federations. To this end the Institute applied for membership and was accepted as a member of the Pan African Federation of Accountants (PAFA). Membership of PAFA is part of our building blocks to enhance the ICSAZ brand in the accounting field. PAFA membership means that ICSAZ is now recognised as an accounting body, not only in Zimbabwe but in Africa as well. We Strategic Plan In 2014 the Institute was involved in the process of establishing a Strategic Plan for the next three years. In this regard, the Institute produced a Strategic Plan to take it to 2017. The outcome of the Strategic Planning Process was a modification of the Vision, Mission and Core Values of the Institute. The new Strategic Plan focuses on the key goals of revenue diversification, cost containment, e-business or technology, improving the education and training process, influencing the course of events The Chartered Secretary Farai Musamba IBAS Part of the Strategic Plan’s focus has been to enhance the Institute’s presence at the technician level of the accounting profession. This dovetails with the Institute’s IBAS qualification. As readers may be aware, the Institute runs the Institute of Business and Accounting Studies (IBAS), which provides a course that is junior to the ICSAZ qualification. In order to fill the void in the market for accredited Accounting Technician courses in Zimbabwe, the Institute embarked on the upgrading of the IBAS course. It worked with the Ministry of Higher and Tertiary Education, Science and Technology Development to upgrade the course, resulting in its accreditation by the Ministry. It is our hope that the Institute will make a meaningful contribution to the country and profession through this course. Farai Musamba Chief Executive and Secretary Institute News H Mayor appeals to businesses and residents to assist City arare’s Mayor, Councillor Bernard Manyenyeni, has urged businesses and residents to play their part in helping the City Council overcome its service delivery challenges. Speaking at an Institute of Chartered Secretaries and Administrators in Zimbabwe luncheon at Cresta Oasis Hotel in Harare, Cllr Manyenyeni said resident participation was critical in service delivery “Ask yourself what you can do to assist your city and not what Harare can do for you. Together we can achieve satisfactory service delivery,” he said. Acknowledging that the City Council was having difficulty in providing adequate services, he pointed out that one of the major ways in which businesses and residents could contribute to better service delivery by the Council was by paying their rates and water bills. “The cornerstone of successful municipal service delivery is having rates compliant residents. If you pay you are more likely to enjoy the services in perpetuity,” he said. However, he also called on businesses to partner the Council or make donations to it in respect of some of the services that the Council provides. “My appeal to you is to give back to the community that propelled you to dizzy heights. The city is facing challenges in refuse collection because it does not have adequate resources such as refuse compactors, skip bin trucks and enough bins to line our streets. “This is an area where business can come in full force and assist the local authority. Once that area is resourced we can be guaranteed that the quality of life in Harare will improve and, of course, public confidence in the Council will also improve,” he said. He pointed out that some of the people who criticised the Council for inadequate refuse removal services themselves contributed to the problem by littering the streets once they reach the city centre. “I challenge you to take notice of the Councillor Bernard Manyenyeni environment in the Central Business District at around eight in the morning and then two hours later. There happens a drastic change as soon as people get into town. People tend to randomly throw away garbage. These are the same people who complain, the very moment they throw away their garbage,” he said. At the moment each ward of the city has a dedicated refuse compactor that services it, the Mayor said. However, the trucks were susceptible to breakdowns, which resulted in Council failing to collect rubbish on schedule. “Ideally we would want a situation where every ward has at least two refuse compactors. At Council we have now agreed that refuse trucks and all other ward-based service delivery items should stay at the district offices and be managed by the district officer. “This, we hope, will enhance accountability and subsequently service delivery,” he added. Cllr Manyenyeni said Council was aware that the roads in Harare are in poor shape. “We are looking for partners or investors to come and assist us redo the city’s 5 500 kilometres of road. The road network is the nerve centre of the development of any society, Harare included. “Once our road network is up to standard, we are most likely going to attract quality investors and tourists. “Our major constraint, which is not unique to us only, is the lack of adequate infrastructural funding. Our sincerest appeal is that Government should see sense in our argument that motor vehicle licences for vehicles registered in Harare should be paid to Council for the maintenance of the city’s roads,” he said. He said the Council would like to collect its own funds and repair its own roads. Stop gap measures were not helpful. “Pothole patching in the long run becomes a waste of resources. We are currently repairing city roads using our own resources amounting to US$2.6 million and support from Zinara (Zimbabwe National Roads Authority) amounting to US$1.5 million,” he said. He said the Council had made great strides with regards to water provision, utilising a US$144 million Chinese loan facility. However, he said, even at full capacity of 614 million litres a day, the water plant will not be able to adequately service Harare and its surrounding towns with potable water. To overcome this, he said, Council was proposing the construction of Mazowe, Musami and Kunzvi dams and the Muda Dam to supply water to Chitungwiza. He said some parts of Harare that had not received water for up to 10 years were now accessing it, although for less than seven days a week. Health service delivery was the one area that the Mayor was able to report on completely positively. He claimed that health service delivery at Council health facilities was second to none. “Council operates health facilities in almost every suburb in the city. While services may differ per facility, our health care covers family health, primary care, ante-natal and post-natal care, opportunistic diseases and dental services. “We are establishing health committees at all health centres as a way of entrusting health delivery to the recipient communities. We want to page 4 The Chartered Secretary 3 Institute News Institute donates groceries, stationery and television to Khayelihle Children’s Village he Institute of Chartered Secretaries and Administrators in Zimbabwe handed over to Khayelihle Children’s Village groceries, stationery and a television purchased with the proceeds from the ICSAZ Annual Charity Golf Tournament and the Institute’s Annual Conference raffle. The groceries included rice, flour, cooking oil, salt, soap, detergents, floor polish and toothpaste. The stationery included exercise and counter books, book covers, sellotape, pens and pencils. The donation was handed over to the children’s village in October last year by Institute President Richard Summers, who was accompanied by ICSAZ Vice-President Simbarashe Dziva, Chief Executive and Secretary Farai Musamba and Bulawayo Branch Committee Member Fradreck Mutongi. Khayelihle Children’s Village is located on a 270 acre farm in Matabeleland North province. The home was established in March 1992 by a group of people from Bulawayo who were determined to address the acute plight of orphaned, abandoned and destitute children in Zimbabwe. It was registered as a non-profit making organisation by the Department of Social Welfare in 1994. The children’s village currently has 94 children and young people living there. Its Board of Directors hopes that the village will, in time, care for up to 250 children. One of the children is a baby. Four of them are in pre-school, 49 in primary school and 37 in high school. Three of the young people being looked after are at university. The village also established a pre-school at the farm which currently has an enrolment of 17 children. In addition, the village has two Community Orphan Care Programmes (COCP), which assist 150 children with food, clothing and educational expenses. These children are in the T Mr Dziva (left) and Mr Summers (second from right) with some of the children and staff at Khayelihle Children’s Village after handing over the donation care of their siblings, grandparents, other caregivers or single parents who can no longer be gainfully employed for health reasons. The village runs a dairy project to raise funds to support those who live in it. Other fund raising projects include cattle rearing and a vegetable garden. The village also grows maize and groundnuts for sale. The village hopes to eventually achieve self-sufficiency with more commercial and subsistence agricultural projects. Other beneficiaries of the ICSAZ Annual Charity Golf tournament funds include Kutenda Children’s Home in Mashonaland Central, Chingele Children’s Home in Chiredzi, St Francis Children’s Home in Bulawayo, Marondera Child Care Society in Bulawayo, Matthew Rusike Children’s Home in Epworth, Chinyaradzo Children’s Home in Harare, Chitenderano Children’s Home in Rusape and Kadoma School for the Blind. Mayor appeals to businesses and residents to assist City from page 3 the residents to take charge of their health needs through active participation,” he said. Cllr Manyenyeni said Council had tried to reduce congestion in the city centre by commissioning the Coventry Road Holding Bay for commuter omnibuses. More such holding bays would be established. However, it was not only commuter omnibuses that caused congestion. Apart from the one way system, other measures were required, he said. The provision of more housing depended on the availability of land and 4 The Chartered Secretary the Council’s ability to service it. “We have engaged the Government to provide us with more land and expand our boundaries so that we can give people houses. Currently there is little land to give. “Council is itself unable to service land and we have resorted to giving available land to cooperatives who then service it on their own. We have also entered into partnerships with the private sector to provide housing for the people,” he said. The Mayor reiterated his call upon residents to play their part in helping the Council provide them with the services they need. “Resident participation is critical in service delivery provision. Most residents don’t want to participate but are quick to criticise. Your participation in the initial identification of infrastructural projects, project development and council operations is important. “Harare is working towards achieving a World Class City Status by 2025. That achievement will only be successful with your full and undivided attention,” he said. Board Evaluation F Board must be evaluated to justify re-appointments By Pious Manamike ocus on the performance of board members and individual directors has increased, making it necessary to re-evaluate board members. Evaluating board members is necessary to measure and justify their re-appointment as individual directors and as the entire board. Worldwide there are records of high profile cases of scandals emanating from poor corporate governance. Shareholders are still concerned about in whose hands they entrust their companies. A constant evaluation of the board is recommended, with the 2009 King III code stating that the evaluation of the board, its committees and individual directors should be performed every year. The 1992 Cadbury Report (UK) first recommended conducting an annual assessment of the board’s performance as a best practice. Conducting a board assessment is one of the guidelines in the modern UK Code. Further, since 2003 the New York Stock Exchange has required all listed companies to conduct an annual assessment of the performance of the board and its committees. Some of the techniques that could be used to evaluate the performance of a board are surveys, confidential interviews and focus groups, where sub-groups of board members participate to discuss key elements of the effectiveness of the board. The confidential interviews could be conducted by the Board Chairman, Chairman of the Nominations Committee or the Company Secretary. Alternatively, different techniques could be used to complement each other. Once the research has been done, it is important to analyse the findings to help determine the strengths of the board and areas of improvement. It is also important to talk about it and create an action plan. High performing boards have members Pious Manamike with the right portfolio of skills, experience and gender diversity. They are engaged and there is a positive contribution from all members. Some of the characteristics of an effective board include time management, leadership skills, key processes, board dynamics and effective committees. A board with good time management focuses on the most important issues. It balances presentation and discussion on agenda items and engages at an oversight level. With leadership skills, an effective board has different perspectives of all issues. It keeps meetings focused and is decisive on key issues. The board and individual directors lead from the front and are exemplary. A board with key processes as a trait means it is involved in overall strategy formulation, prepares a succession plan for the Chief Executive Officer (CEO), performs a board and directors evaluation, performs an evaluation of the CEO and is actively involved in risk management. Board dynamics play an important role in how effective a board is. The dynamics of an effective board would be characterised by respect for different views and perspectives, an ability to reach a consensus and make decisions and positive energy and engagement. An effective board has effective committees that interface with the board. The committees are well resourced in terms of skills and good leadership. Chief Executive Officer engagement is important for an effective board. The board ensures that there is constructive engagement with and critique of the CEO. It plays a supportive role in its interactions with the CEO and resolves tough challenging issues. It motivates and rewards outstanding performance. There are several types of boards, which could be characterised as the passive board, certifying board, operating board, engaged board and intervening board. A passive board functions at the discretion of the CEO, who typically is domineering. It ratifies management’s actions and has limited accountability. The certifying board certifies to shareholders that the CEO is doing what the board expects and emphasises its independence. The operating board makes key decisions and management implements them. This board is common in new businesses. The engaged board partners with the CEO to advise and support the CEO and management on key decisions. This board plays a crucial role in guiding and supporting the CEO and judging the CEO. Board meetings with this type of board are characterised by two-way communication. An intervening board typically becomes active in a crisis. It becomes actively involved in discussion of key issues and has frequent and intense board meetings. This article is based on a presentation by Pious Manamike at an ICSAZ Company Secretaries Workshop. He is the Group Company Secretary for COTTCO and a past president of ICSAZ. The Chartered Secretary 5 Corporate Governance Management decisions require complete, accurate and timely information G By Richard Summers overnance activities ensure that critical management information reaching the executive team is sufficiently complete, accurate and timely to enable appropriate management decisions to be made. They provide the control mechanisms to ensure that strategies, directions and instructions from management are carried out systematically and effectively. Risk management is the set of processes through which management identifies, analyses and, where necessary, responds appropriately to risks that might adversely affect realisation of the organisation’s business objectives. The response to risks typically depends on their perceived gravity. It involves controlling, avoiding, accepting or transferring them to a third party. Compliance management means conforming to stated requirements. At an organisational level, it is achieved through management processes that identify the applicable requirements, defined, for example, in laws, regulations, contracts, strategies and policies. These processes assess the state of compliance and the risks and potential costs of non-compliance against the projected expense of achieving compliance, as a result prioritising, funding and initiating any corrective actions deemed necessary. Governance, risk management and compliance management is a discipline that aims to synchronise information and activity across governance, risk management and compliance in order to create efficiency, enable more effective information sharing and reporting and avoid wasteful overlaps. In an environment where the global economic recession, demise of major financial institutions and changing business landscape has led to stricter regulations in major industries and countries around the 6 The Chartered Secretary Richard Summers world, regulatory compliance has become an all-important buzzword that can make or break an organisation and its directors. In achieving effective compliance management within an organisation, the integrated roles of key management functions, mainly compliance, risk and internal audit, must be understood and enabled. It is the responsibility of the compliance officer to stimulate and train the board and management on legislation pertinent to the organisation. The core responsibilities of this function span the compilation and maintenance of a legislative register for the organisation. New requirements arising from new legislation or amendments to existing laws should be identified, analysed and communicated to both management and the board. The officer should lead and coordinate investigations into alleged unsatisfactory conduct or misconduct of employees or consultants and third parties such as suppliers and, where appropriate, recommend disciplinary or corrective action, if this is deemed necessary. The officer should also deal with, lead and coordinate investigations into issues of conflict of interest by non-executive directors, management and staff, cases of alleged corruption and complaints received with regard to the organisation’s operational methods. He or she should consider ways to measure compliance risk and use such measurements to enhance compliance risk assessment. In addition, the compliance officer should assess the appropriateness and consistency of the organisation’s regulatory framework (statutory documents, policies, strategies, guidelines, rules, regulations and procedures in force) related to compliance issues, promptly following up any identified deficiencies in the policies and procedures and, where necessary, formulating proposals for amendments. He or she must ascertain compliance with the provisions of the organisation’s code of conduct and review and propose amendments to the organisation’s code of conduct and other policies and procedures, as necessary, to reflect ethical standards in all areas. The officer must ensure that the compliance function is carried out under a risk-based annual compliance programme that sets out its planned activities, subject to oversight by the head of compliance to ensure appropriate coverage and co-ordination among risk management functions. He or she must report on a regular basis to the audit committee. The reports should refer to the compliance risk assessment and testing which has taken place during the reporting period, any identified breaches and/or deficiencies, the corrective action taken and any compliance matters that should be brought to the committee’s attention for information or action purposes. They should also contain information about compliance training. to page 7 Corporate Governance Corporate Governance rhetoric must be turned into reality By Slava Grace Chella ffective board governance is not about either systems, structures, processes, theories, practices, culture or behaviours. It is about all of them. It is about turning corporate governance rhetoric into reality. Corporate governance is growing as one of the more important aspects of business conduct and development. The concept helps explain proper business management and governance practices and offers recommendations on the best path towards success within any company’s business culture. If we are going to get a handle on stopping misconduct, we need to look more closely at what creates the environment that encourages bad behaviour in the first place. Boards ought to think hard about whether the culture practised within the company is the same as that which they espouse, particularly under pressure. Good corporate governance makes bribes harder to give and harder to conceal. It also contributes to the broader climate of transparency and fair dealing. Weak corporate governance has been linked to the inability of countries to attract investment, financial collapses, persistent corruption, privatisation failures, weak property rights and many other development challenges countries around the world face. Bad corporate governance causes loss of ethics, which results in loss of reputation. Lack of internal trust leads to weak compliance, the bending and eventual breaking and flouting of rules, misuse of company assets, abuse of company powers, victimisation of wellmeaning people, loss of strategic direction and loss of capable leaders. This normally leads to external mistrust, loss of business, loss of funding support, loss of profit, runs on the company and eventually total collapse. Positive impacts of corporate governance include bringing stability to markets through strengthening competitiveness, both among companies and economies, and strengthening institutions. E Slava Chella Good corporate governance improves risk mitigation, promotes investment, lowers cost of capital and weakens corruption, while strengthening lending. Corporate governance also promotes reform of state-owned enterprises and successful privatisation, while at the same time building transparent relationships between businesses and the state. Corporate governance has been used as a tool to combat poverty. Companies are beginning to look at corporate governance as something that can give them a competitive edge. The challenge remains, however, in channelling this increased attention into reforms that actually improve governance practices. Good corporate governance standards are now established and well-recognised as an ideal to which companies aspire. The challenge lies in implementation, in turning rhetoric into reality. Slava Grace Chella is a Fellow and a past president of the Institute of Chartered Secretaries and Administrators. This article is based on a presentation that she made to an Institute workshop in March 2015. Management decisions require complete, accurate and timely information from page 6 The compliance risk management officer should be utilised for on-going monitoring and report-back to both management and the board and should identify and report any non-compliance issues. The compliance function should have a formal status within the organisation to give it the appropriate standing, authority and independence. This may be set out in the organisation’s compliance policy or in any other formal document. The document must be communicated to all staff so that they are aware of their obligations and responsibilities. Risk management in the context of compliance should support the compliance office with the risk rating of the relevant legislation, once such legislation becomes operational in the business. This article was adapted from a presentation by ICSAZ President Richard Summers to a Company Secretaries workshop. The Chartered Secretary 7 Judicial Management Government should review By Crispen Mwete udicial Management is a temporary court-supervised rescue plan for companies that are in distress but show signs of coming back to life if they are given a chance. Judicial Management proceedings are governed by the Companies Act (Chapter 24:03). Where the Companies Act is silent, it is proper for the courts to use the Insolvency Act in some areas. The main objective of Judicial Management is to give companies which are in crisis a chance to rehabilitate themselves and be restored to profitability. The courts take many factors into consideration before granting an order for Judicial Management. It is normal, therefore, for courts to start by granting a provisional order to give those opposing Judicial Management a chance to be heard first before a final order is granted. There are two rehabilitative procedures for companies in crisis, namely Judicial Management or a Scheme of Arrangement. The alternative to these procedures is Liquidation. Schemes of Arrangement are wide ranging and include many forms of compromise or give and take agreements between debtors and creditors. They assist companies to come up with an overall plan to deal with creditors at the same time. They overcome the difficulty of obtaining individual consent of every creditor or shareholder to a compromise or arrangement of their debts or rights against the company. Parties to a Judicial Management are members, directors, creditors and employees. Application for a Judicial Management court order may be made by the company, its directors or its creditors. J 8 The Chartered Secretary A Judicial Manager may be appointed where this is likely to achieve the survival of a company that is unable to pay its debts or the survival of part of its operations and the approval of a compromise or arrangement between the company and its creditors or a more advantageous realisation of the company’s assets than could be effected by winding up the company. The Provisional Judicial Manager is nominated by the applicant but is subject to the approval of the Master of the High Court. Power of appointing a Provisional Judicial Manager is vested in the Master of the High Court. However, the tradition has been that the applicant’s nomination is accepted subject to the confirmation by the first creditors meeting. In Zimbabwe, for a person to qualify for appointment, he or she should be a member of the Council of Estate Administrators in Zimbabwe. However, non-members have also been appointed. Creditors may, at the first meeting, oppose the nomination and nominate a person of their choice or ask for the Judicial Management to be managed by the person nominated by the applicant and their new nomination. Upon the Judicial Management order being granted, the board of directors becomes “functus officio”. The existing directors of the company are divested of their powers and authority as directors and these powers are transferred to the Judicial Manager. A statement of affairs should be submitted by the board of directors, signed in the presence of a commissioner of oaths, within 21 days of the granting of the Judicial Management order. The Judicial Manager is expected to “The Government needs to play a serious role in issues of Judicial Management or scrap it. It is now almost a game of buying time as funding becomes a serious challenge for any company under Judicial Management.” secure the value of the assets in his charge by a bond and to obtain a letter of appointment from the Master of the High Court. The Judicial Manager is also expected to present a statement of proposal and a report within 60 days of appointment at a Judicial Management creditors meeting or where the date has been extended to the date given by the court. At each meeting, creditors must have first lodged proof of debt claim forms at least 48 hours before the meeting, which the Master will go through at the meeting and approve or disapprove if they do not meet the requirements. The requirements include: • an affidavit for the proof of an open account etc. (Companies Act Chapter 24:03 Section 232 and Winding Up Regulation Rule 18); • supporting documents for the amount being claimed – statements, invoice, receipt or some other form of document as proof of claim; and • power of attorney for companies and organisations or individuals who may not be able to attend the meeting but send a representative to attend it on their behalf. A creditor must first lodge a proof of debt to be able to vote. A secured creditor is not allowed to vote unless he or she surrenders the security or unless part of the debt is unsecured. At the meeting, the business plan or proposal may be modified as creditors see fit before it is approved, as long as the Judicial Manager agrees with the modifications. The Judicial Manager also has the duty to manage the company’s affairs in accordance with the approved proposal or business plan. The proposal may sometimes need the court’s approval in writing in the form of an order. The Judicial Manager must always take into consideration the local knowledge of the business and directors in dealing with them. In Zimbabwe, the Judicial Management order remains in force for as long as the potential to turn around the company is present and the chance to pay back creditors exists. Some other countries will allow 180 days, subject to a fresh application for an extension of the order to be granted by the courts. In Bulawayo, some companies have been under Judicial Management for more than 10 years, which in my view is stretching it too far and grossly unfair to creditors. There should be a provision in the legal system for a cut-off point. The court (Master of the High Court) has power to adjourn creditors meetings to allow amendments to the proposal and to make interim provisions. In the process of considering proposals, the court may grant relief to any member from “unfair prejudice”. For minorities, 15% and below, the courts will apply relief in terms of the Companies Act where they will get a “buy out scheme”. With our current economic problems, Judicial Management is an industry on its own and should have government attention if our economy is to be turned around. Too much reference to the court sometimes renders the Master of the High Court and the Judicial Manager useless and unable to function effectively. The directors, in the majority of cases in Zimbabwe, are also members of the company and can choose which jacket to put on and use the power that they have to the detriment of the Judicial Manager. Where directors have signed personal guarantees on some loans, the creditors will go for the director once a Judicial Management is granted to the company, thus making it difficult for the directors to function, especially in terms of raising working capital. They will be busy trying to pay personal debts as it were. Banks do not take kindly to companies under Judicial Management asking for help. Creditors and finance houses do not differentiate between the old board and the Judicial Manager. In some cases, the Judicial Manager is sometimes asked to get the board to sign documents. This is okay if the Judicial Manager was appointed by them but, if it is the creditors who nominated the Judicial Manager, they will generally be hostile and will not help. The Government needs to play a serious role in issues of Judicial Management or scrap it. It is now almost a game of buying time as funding becomes a serious challenge for any company under Judicial Management. Government should set up a structure to look at Judicial Management in the hope of coming up with a solution. This article is based upon a presentation by Crispen Mwete, Partner with Softgate Management, to a Company Secretarial Workshop. The Chartered Secretary 9 Ethics Ethics provides foundation for good corporate governance By Bradwell Mhonderwa he country’s corporate community has, since the turn of the century, been through an arduous period characterised by scandals ranging from abuse of depositors’ funds by senior bank executives and shareholders to the salarygate scandals in parastatals and local authorities. There have been rampant cases of rent seeking and endless reports of corruption in the public services sector. Attempts to improve corporate governance processes have tended to focus mainly on improving governance structures, without giving due attention to the ethics of such Bradwell governance processes. Ethics is the foundation upon which good corporate governance can be built and through which it can be realised, a position the King III report articulates eloquently. While corporate governance is basically about rules and procedures, ethical standards speak to the value system of the corporate governance paradigms, thus forming the building blocks of a firm’s ethical culture. An ethical foundation is decisive for corporate governance because it helps to build enduring corporate governance processes that thrive even in the most difficult of circumstances. It ensures ethical rectitude even when times become tough. Strong ethics intrinsically police the behaviour of every member of the firm, from company directors in the boardroom and senior executives to employees at shop floor level. Corporate ethics provide a platform for staff members to raise the red flag when they observe misconduct being perpetrated within the firm. A good and practicable code of ethics should be a key element of a sound business strategy. Company leaders need to go beyond merely mentioning ethics in a corporate governance policy document. They need to ask themselves some tough questions. Do we model ethical behaviour in the workplace? Do we have clear company structures to manage ethics in the workplace? Did we assign a senior person to be responsible for the ethics function within the organisation? Do we have a hotline to help employees report observed malpractices and seek help on ethical matters? Have we embedded ethics in our reward management systems? Do we monitor and evaluate the company’s code of ethics? Do we audit implementation of our code of ethics, in the same way as we audit other management systems within the firm? T 10 The Chartered Secretary These are some of the tough questions that senior managers and directors need to ask themselves. It is not possible to lay down corporate governance rules to address every possible breakdown in moral leadership. Imposing more governance rules without creating a strong ethical culture will not increase responsible behaviour either. It is when leaders embrace sound corporate ethics standards that governance processes become more meaningful and behaviour changing. Good corporate governance is driven by sound ethical performance. Lasting Mhonderwa governance imperatives become a reality only when leaders exhibit a genuine commitment towards growing an ethical culture right across the firm. When leaders embrace ethics as the basis for good corporate governance, they become good communicators of responsibility and professionalism to their staff. Personal modelling of ethical behaviour and exhibiting accountability and transparency in one’s dealings with the business of the organisation are visible elements that will make the leader more appealing to staff. Globally, ethical leadership has become a key competency for impactful boards. The Ethical Leadership Quotient (EQL) of an organisation is the new notable indicator for the firm’s bottom line success and sustainability. The high standards of ethical behaviour that leaders must exhibit are not simply a matter of good morals that are a result of one’s good upbringing. Ethical leadership goes beyond a good upbringing to involve the acquisition of ethical skills through ethical leadership training and development. It means exemplifying ethical behaviour and making sure the firm has ethics management infrastructure and measurable ethics objectives. It is ethical leadership that makes all the difference, not simply having a corporate governance charter in place. The best-written set of corporate governance principles are bound to fail if ethics is not embedded and taken seriously. Company leaders must build corporate governance charters and processes but these must be grounded on a strong ethical foundation. Bradwell Mhonderwa is the founder and Managing Director of Business Ethics Centre. Profile PSC Senior Paymaster appreciates role ICSA played in his career s Senior Paymaster at the Public Service Commission, Brighton Chiuzingo is responsible for the payment of salaries to Zimbabwe’s civil servants. He began his career in November 1986 as a Payroll Clerk at the Salary Services Bureau, which is an Agency of the Public Service Commission. The bureau administers the payment of civil service salaries but it is the PSC which employs all civil servants and has ultimate responsibility for ensuring they are paid and that income tax, pension contributions, medical aid subscriptions and other deductible payments are collected from their earnings. Mr Chiuzingo was advanced to Senior Payroll Clerk in 1990 and to Payroll Administrator in 1993. In 2000 he was appointed Principal Accountant. His move from the Salary Services Bureau to the Public Service Commission, where he was appointed Chief Accountant, came in August 2005, the same year in which he obtained his Institute of Chartered Secretaries and Administrators (ICSA) qualification. In 2007 he was appointed the Commission’s General Manager responsible for finance, personnel and administration. In November 2010 he was appointed Paymaster. Four years later he was appointed to his current position of Senior Paymaster. It was his ICSA qualification which opened up to him, the possibilities of advancing his career to higher levels within the Public Service Commission. “I had always wanted to become a practising Public Accountant. I always had a passion for financial management. I had completed the Southern African Association of Accountants Higher National Diploma and the Institute A Brighton Chiuzingo of Administration and Commerce Accounting Diploma, attaining full membership for both, but at the time neither of these diplomas was as yet recognised by the Public Accountants and Auditors Board (PAAB) – yet the Institute of Chartered Secretaries and Administrators, with its ICSA qualification, was already a constituent member. I wanted to become a practising public accountant so I decided to study for ICSA,” he said. “When I joined the Salary Services Board, it was a financial institution. Even when I rose through the ranks it was all within the finance sector. When I did a survey within the public sector I realised that the ICSA qualification was one of those qualifications that Government considered to be relevant for the rise to the level of finance director. It was one of the qualifications that were highly regarded as a professional qualification within the country,” he said. Once he obtained his ICSA qualification, doors opened up to him, he says. “Armed with that I was now complete on the finance side. My qualification was like a stepping stone. I decided to move from SSB to PSC head office, where I could use my professional qualification. Promotion at PSC head office was on the basis of good performance, experience and what qualifications one had,” he said. “Having done the ICSA qualification and experienced what one goes through on the ICSA course, I would say that for someone to be complete in financial management that is the course to go for,” he added. After qualifying, he applied for membership of the Institute of Chartered Secretaries and Administrators in Zimbabwe (ICSAZ). He was awarded Associate Membership in 2007 and was able to register with PAAB. In 2010 he was made a Fellow of the Institute. Considering himself complete on the finance side, after qualifying as a Chartered Secretary, Mr Chiuzingo decided to enrol with the University of Zimbabwe for a postgraduate Diploma in Management for executives. He went on to study for an Accounting degree and a Master of Business Administration (MBA) degree with the University of Zimbabwe, which he said was made easy because he had already covered most of the subject matter while studying for his ICSA qualification. “For me, to study for the MBA appeared somewhat easy because most of the courses I had already come across when I was doing my ICSA,” he said. Mr Chiuzingo intends to pursue a PhD degree before the end of the year. “As I go higher I am realising that competition is slowly getting stiff and I need to move a step further,” he said. However, he still believes that it was to page 12 The Chartered Secretary 11 Profile PSC Senior Paymaster appreciates role ICSA played in his career from page 11 the ICSA qualification that helped him most. “Looking back at colleagues I went to school with, I would like to think I am professionally better positioned than most of those I have been able to get in touch with,” he said, adding that “The ICSA course is structured in such a way that it addresses the current economic situation. It is somewhat practical. It puts you in a position to be able to apply the programme to the real work situation. It is a practical programme that equips you with skills that enable you to deliver. It is not theoretical,” he said. Turning to the issue of corporate governance, CROWE HORWATH WELSA INTERNATIONAL CHARTERED ACCOUNTANTS which the Institute of Member of Crowe Horwath International Chartered Secretaries and Administrators places great emphasis on, Mr Chiuzingo said the PSC as a whole advocates transparency, integrity and accountability. “As a Government pay point, we want to pay someone who has genuinely rendered services to the Government WHO WE ARE of Zimbabwe and ensure Vision Ÿ Professionalism; he or she is paid the right Ÿ Excellence; To be the preferred provider of professional amount of money at the Ÿ Commitment; accounting, auditing, taxation and related Ÿ Creativity and innovativeness; right time,” he said. services in Zimbabwe, Africa and the Globe. Ÿ Confidentiality; Ÿ Objectivity; and He said history would Mission Ÿ Teamwork. show that ever since To serve our market with integrity, Core business independence, civil servants professionalism, independence, excellence and become one of the top eight firms in Zimbabwe Our core business is to provide quality service in had generally been paid on within the next five years from 2012. auditing, accounting, corporate finance, taxation, their expected pay days. company secretarial and corporate recovery Corporate values services to our clients. This is achieved by recruiting, Mr Chiuzingo is an active training, retaining and mobilizing the best people for CROWE HORWATH WELSA INTERNTATIONAL our market. member of the Institute. He CHARTERED ACCOUNTANTS believes in providing assists in mentoring some personal attention to clients as pivotal to CONTACT DETAILS: CROWE HORWATH WELSA understanding their unique business challenges. students undertaking the CHARTERED ACCOUNTANTS That way, the Firm is able to give better advice 1964 Katsande Way ICSA programme. He does and client-specific solutions, making it a New Marlborough preferred business partner in the marketplace. the same for some MBA P.O.Box E140, Harare, Zimbabwe In order to achieve this, the Firm cultivates a Tel: 04 – 300135/8 or 04 - 2933540 - 3 culture of unity of purpose, inspiring and students at Midlands State Cell: 0772 294 913/0779 504 341 investing in its people so that they realize their full Email address: info@welsainternational.com University. potential and achieve personal growth. Website: www.welsainternational.com In his spare time, he Our corporate values can be summed up as follows: enjoys going to the gym Ÿ Integrity; and watching soccer. He is married and has three The unique alternative to the big four AUDIT | TAX | ADVISORY children. 12 The Chartered Secretary this was due chiefly to his decision to study for the ICSA qualification. “I have done it and I encourage the youngsters to take that route too. It will equip them with various skills that are critical for someone to perform well in real working life. International Companies House error costs £9m after ruining a business A spelling error in recording a company’s winding up order has cost a United Kingdom Government agency around £9 000 000 after the agency was sued for ruining a business. Companies House was sued for recording that Taylor & Sons, based in Cardiff, Wales, was in liquidation. It was found guilty of negligence by the High Court. The actual company being wound up was Taylor & Son based in Manchester. However, the government agency inserted an erroneous ‘s’ at the end of the company name when registering the company as in liquidation. The High Court found that Companies House had been negligent. It owed a duty of care to each company on the register and could be held liable for mistakes it makes relating to those companies, the court ruled. However, the court added that the government agency was only liable for mistakes made in-house. It was not responsible for verifying third party information it receives. Following the distribution of its newsletter, creditors and suppliers began to pull out of deals with and financing of the Cardiff-based company, leading to the collapse of the 124-year-old engineering firm. Two months after the error was made, Taylor & Sons was in administration. Despite Companies House rectifying the mistake within three days, it failed to notify its distribution list, which includes suppliers, credit agencies and investors, that it had made an error. As a result, news of Taylor & Sons’ supposed liquidation continued to circulate. Speaking to Governance + Compliance, Matthew Walker, an associate in the dispute regulation department at Burges Salmon LLP, said this was an important decision as it establishes the principle, which many probably suspected was the case, that Companies House can in the right circumstances be liable for errors on the Register of Companies. “The mistake that led to Taylor & Sons’ administration appears, thankfully, to have been a rare oversight. Nonetheless the Court’s decision ensures that such mistakes will not go uncompensated.” Source: www.icsa.org.uk Investigations continue into fraudulent ownership of UK property A report from Transparency International exposing the use of corrupt capital to purchase United Kingdom property has captured the attention of the media. Researchers examined data from Metropolitan Police investigations along with Land Registry records of corporate holdings. Transactions investigated in the UK since 2014 total £180 million but United Nations figures on money laundering practices suggest that detection rates could be as low as 1 percent. This problem is magnified in London because overseas investors often purchase luxury flats and houses. The average price of property under investigation by the Metropolitan Police’s Proceeds of Corruption Unit (POCU) is £1.5 million. The use of trusts and companies help conceal the identity of the beneficial owner. This involves the use of complex or ‘layered’ ownership structures or offshore companies; nominees to hold property; and complex loans structures and credit finance. All the overseas companies currently under investigation for grand corruption are registered in offshore financial jurisdictions, rather than major markets. Director of Operations at POCU, Detective Chief Inspector Jon Benton, said the lack of access to beneficial ownership information about offshore companies that hold property in the UK is a major barrier to their investigations. A key feature of the UK Government’s transparency and trust consultation is to make public a central registry of information on the ultimate beneficial owners of a company. However there is currently no provision to extend this requirement for offshore companies investing in UK property. Peter Swabey, Policy and Research Director at ICSA, commented that the new UK Government requirements for companies to hold a register of ‘Persons with Significant Control’ is an enormous step forward in terms of corporate transparency. However, he said people must not be complacent and the more that can be done to increase the visibility of ownership, particularly of overseas companies, the more difficult it will be for criminals to prosper. Source: www.icsa.org.uk The Chartered Secretary 13 Student Supplement Examination question highlights procedures C orporate Secretaryship is a subject that requires a practical approach. It is the subject that gives Chartered Secretaries their identity. The practical treatment of a notice of an Extraordinary General Meeting (EGM) and the advantages and disadvantages of cumulative redeemable preference shares over debentures was the subject of a recent examination in the Corporate Secretaryship examination. Question a) Prepare the notice of the Extraordinary General Meeting (EGM) of Finance Bank shareholders stating clearly the resolutions that need to be passed thereat. b) The share capital of Finance Bank is made up of ordinary shares and preference shares which are cumulative and redeemable. What are the advantages and disadvantages of the cumulative, redeemable preference shares over debentures? The question was based on the following case study. 1. Restructuring of Finance Bank by establishment of a holding company, Corporate Holdings Limited, that will own Finance Bank as a wholly owned subsidiary. Finance Bank is a public company incorporated in Zimbabwe as a commercial bank under the Banking Act (Chapter 24:20). The bank holds a commercial banking licence and is listed on the Zimbabwe Stock Exchange (ZSE) as a company with no investments or shareholding in any subsidiary or associate company. The Bank offers a full comprehensive range of banking services, including inter alia Personal Banking Facilities, Corporate and Institutional Banking, Treasury and Investment Banking Services. The major revenue drivers for Finance Bank include a significant deposit base, availability of key skills, an excellent reputation and world class service delivery. Revenues for the retail banking and corporate banking divisions are mainly driven by interest income from lending activities. Balance sheet size strongly influences the performance of the Treasury and International Banking divisions. Treasury and Investment Banking divisions attain leverage from their ability to structure lucrative deals, hence requiring creative skills and generation of new business. Changes in the local financial environment and also in the capacity and scope of the Bank’s internal operations have prompted the directors to review the current corporate structure of Finance Bank. The directors have consequently recommended the establishment of a new corporate structure, which is similar to that used by banking groups both locally and externally. The directors believe it is desirable to restructure the listed entity from Finance Bank to a holding company, Corporate Holding 14 The Chartered Secretary Limited (CHL). This will have the effect of separating the functions and capabilities of the holding company from the banking operations. Finance Bank would benefit from the opportunities that CHL would have in the wider financial sector. Hence, either independently or through CHL, the Group will be able to offer a diversified product range. The proposal to restructure Finance Bank will be effected through the swap by CHL of the entire issued ordinary share capital of Finance Bank in exchange for the issue to Finance Bank shareholders of ordinary shares in CHL, which on implementation, will result in Finance Bank becoming a wholly owned subsidiary of CHL. Immediately after the implementation of the proposal, the shareholders of CHL will be made up of former shareholders of Finance Bank. The proposal will allow Finance Bank to concentrate on its main business of commercial banking. CHL will grow into a holding company of a large group of companies in the financial services sector. However, it should be noted that CHL’s core business will remain the banking subsidiary, Finance Bank. Emphasis will be placed on building on this strength through enhancing service delivery to customers. Delisting of Finance Bank from ZSE Subject to fulfilment of the conditions precedent applicable to the proposal, an application will be made to the ZSE for the termination of the listing of the Finance Bank shares on the ZSE, which termination is expected to take place at a date to be determined by the directors and published in the Press. To facilitate the listing of CHL, a prelisting statement, for which the directors of CHL will be responsible, will be prepared and sent to shareholders of Finance Bank together with the circular detailing the transaction. Share capital The authorised share capital of Finance Bank is $35 000 000 (thirty five million dollars) divided into 3 000 000 000 (three billion) ordinary shares of $0.01 (one cent) each and 500 000 000 (five hundred million) redeemable cumulative preference shares of $0.01 (one cent) each. The issued share capital of Finance Bank is $20 000 000 (twenty million dollars) divided into 2 000 000 000 (two billion) ordinary shares of $0.01 (one cents) each. All the issued shares in the capital of Finance Bank are of one class, ranking pari passu in all respects and are listed on the ZSE. CHL is not a shareholder of Finance Bank. Information relating to CHL CHL is a financial services group which was formed and incorporated in 2009 as the first stage of creating a diversified for establishing a holding company group. Its authorised share capital is $80 000 000 (eighty million dollars) divided into 8 000 000 000 (eight billion) ordinary shares of $0.01 (one cent) each. The issued share capital of CHL is $40 (forty dollars) divided into 4 000 (four thousand) shares of $0.01 (one cent) each. The shares are held equally by two directors who are the subscribers to the Memorandum of Association of CHL. Pursuant to the proposed transaction, 250 000 000 (two hundred and fifty million) CHL shares were placed under the control of the Directors of CHL to be utilised by the directors of CHL specifically for the future acquisitions by CHL. The Directors approved the appointment of the following to guide CHL in its start-up phase: S. Shava, M. Marios, J. Ngwenya, F. Muzanenhamo, N.B. Moyo and L. Cains. 2.Acquisition of the entire issued share capital of Bees Insurance Company Limited by CHL in exchange for the issue to Bees Insurance Company shareholders of 250 000 000 (two hundred and fifty million) ordinary shares in CHL. Pursuant to its strategy of becoming a fully diversified financial services group, CHL, the holding company, intends to acquire the entire issued share capital of Bees Insurance Company. Bees Insurance Company was incorporated in June 1994 and started trading on 1 January 1995. Bees Insurance Company is a company involved in the underwriting of short-term insurance business, although it is licensed to underwrite long-term (life) business. The company was established with the objective of providing insurance services to both local and external markets. In terms of international business, the company currently operates mostly within Africa excluding South Africa. CHL has proposed to acquire the entire issued share capital of the insurance company. The acquisition of Bees Insurance Company will be in the form of a scheme of arrangement which requires the approval of a majority in number, representing not less than threefourths in value of the votes exercisable by the insurance company shareholders present and voting in person or by proxy at an Extraordinary General Meeting (EGM). In the event that the acquisition of the insurance company is approved by the shareholders, the company will be delisted from the ZSE and become a wholly owned subsidiary of CHL. Share capital The authorised share capital of Bees Insurance Company is $5 000 000 (five million dollars) divided into 500 000 000 (five hundred million) ordinary shares of $0.01 (one cent) each. The issued share capital of Bees Insurance Company is $2 500 000 (two million five hundred thousand dollars) divided into 250 000 000 (two hundred and fifty million) ordinary shares of $0.01 (one cents) each. All the issued shares in the capital of Bees Insurance are of one class, ranking pari passu in all respects and are listed on the ZSE. CHL is not a shareholder of Bees Insurance Company. Other Information The shareholders of CHL will ultimately be made up of the former shareholders of Finance Bank and of Bees Insurance Company. CHL is expected to become a leader in the financial services sector with the capacity to be a key player in the Zimbabwean financial services market and in the region. It will derive strength from a network of strong shareholders with converging interests and rigorous financial skills. CHL, as a group, will be able to offer a diversified product range from banking through to insurance services. The proposed transactions will also enable the Group to venture into other activities which would not be possible under the Banking Act such as Bancassurance. In addition, the insurance arm will benefit from the group balance sheet, which will enable it to increase capacity to underwrite more business. Above all this, there is an expectation of an improved profitability and better return to the shareholder. Suggested Solutions FINANCE BANK NOTICE OF AN EXTRAORDINARY GENERAL MEETING a) Notice is hereby given that an Extraordinary General Meeting (EGM) of Finance Bank will be held in the Boardroom, Finance House, 45 Broad Street, Harare, on Wednesday 11 August 2002 at 0900 hours for the purpose of considering and, if deemed fit, passing, with or without modification, the following ordinary resolutions: 1. THAT the proposed restructuring of Finance Bank’s shareholding, as detailed in the Circular to Shareholders dated 8th July 2002, which is to be effected through the simultaneous acquisition by Corporate Holdings Limited of all the issued ordinary shares in Finance Bank in exchange for the issue to Finance Bank shareholders of ordinary shares in Corporate Holdings Limited on the basis of one new ordinary share of a nominal value of $0.01 in Corporate Holdings Limited for each one ordinary share of a nominal value of $0.01 in Finance Bank, be and is hereby approved. 2. THAT, subject to the passing of Resolution 1, on effecting the Proposed Restructuring and on being effective, Finance Bank be de-listed from the Zimbabwe Stock Exchange. to page 16 The Chartered Secretary 15 Student Supplement Establishing a holding company from page 15 3. THAT the Directors of Finance Bank be and are hereby authorised to do all such things that they consider necessary or desirable to give effect to or pursuant to or in connection with the proposed restructuring. By Order of The Board F Danda Company Secretary Date 2nd Floor Finance House 45 Broad Street HARARE Note: In terms of Section 129 of the Companies Act (Charter 24:03), a member entitled to vote at the EGM is entitled to appoint one or more proxies to attend and vote and speak in his stead. A proxy need not be a member of the company. Proxy forms should be completed and returned so as to reach the registered office of the company in Harare not less that 48 (forty eight) hours before the time fixed for holding the meeting. ADVERTISING: M. Jojo ICSAZ Email: ics@icsaz.co.zw Tel: 086 4412596-9 b) Advantage and Disadvantages of Redeemable Preference Shares over Debentures Disadvantages A capital redemption reserve fund must be created and maintained when preference shares are to be redeemed out of profits. The profits are thus permanently capitalised. Since the return on redeemable shares is dependent upon the company making profits, it is not as secure as the return on debentures, which must be paid whether the company makes profits or not. A higher rate of dividend must be offered in redeemable preference shares than the rate of interest payable on debentures in similar circumstances. Provision must usually be made for redemption at a premium in order to attract the class of investors who wish to invest for a medium term and to obtain a steady return with the advantage of preferred capital. Advantage Redeemable preference shares have the great advantage over debentures that there is no shadow of foreclosure hovering over the company. In lean times,the company will be in a better position to weather a downturn in the economy or any adversity. Email: cis@icsaz.co.zw Website: http://www.icsaz.co.zw CHIEF EXECUTIVE AND SECRETARY: Farai Musamba (Dr) PRESIDENT: Richard Summers VICE PRESIDENTS: Lovemore Kadenge Simbarashe Dziva 33,000 Governance institute of Australia Safron House 6 - 10 Kirby Street London EC1N 8TS Tel: (44207) 612 7006 info@icsa.co.uk www.icsa.org.uk info@governanceinstitute.com.au www.governanceinstitute.com.au Chartered Secretaries Southern Africa PO Box 3146 Houghton 2041 South Africa Tel: (011) 551 4000 Fax: (011) 551 4028 www.chartsec.co.za 16 The Chartered Secretary Pious Manamike, George Mahembe Paradza Paradza (Dr) Charles Nhemachena Loice Kunyongana (Ms) Ferida Matambo (Mrs) Letitia Nyama (Mrs) BRANCH CHAIRMEN Harare: Albert Nxongo Bulawayo: Sithembile Ncube (Mrs) Midlands: Godfrey Nyika Mutare: Shepherd Chinaka Masvingo: Joseph Bemani (Dr)