In Re: Tanzania Venture Capital Fund Limited vs In Re: Companies Ordinance (cap. 212) Section 56 (2) (Misc Civil Cause No. 3 of 2000) [2000] TZHC 320 (28 July 2000)

V. . , ' IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT DAR ES SALAAM • MISC CIVIL CAUSE NOOF.2000 IN THE MATTER OF V TANZANIA VENTURE CAPITAL FUND LIMITED .... .... PETITIONER V AND IN THE MATTER OF V THE COMPANIES ORDINANCE (cap.212) V SECTION 56 (2) . AND IN THE MATTER OF PETITION FOR REDUCTION V OF ISSUED SHAR CAPITAL • V V V V RULING. KALEGEYAI Tanzania Venture Capital Fund Ltd a Private Company Ltd by shares is befOre this Court armed with.a petition containing the following prayers: That this Honourable Court may be pleased to coilJIrm the V reduction of the issued share capital of the Company by 90% as V reflected in the special resolution set forth in paragraph 8 of this Petition as required by section 57 (1) of the Companies V V V • V V V V Ordinance. That this HonOurable Court may be pleased to approve the above Minute in paragraph 17 as required by the provisions of section V 59 (1) of the Companied Ordinance. :' V That this HOnourable Court orders that an office copy of the Order prayedfor in (i) above be delivered to the Registrar bf Companies together with a copy of the Minute. V (iv) That this Honourable Court orders that ntice of the registration V by the Registrar of Companies of the Order prayed for in (i) above

2 and the Minute be published twice in the Daily News and the Guardian newspapers after such registration." The petitioner is represented by Dr. Sinare and Mr. Mwandambo Advocates. The petitioner was incorporated under the laws of this Country on 31 September 1993. It is a Company limited by shares. On incorporation the authorised share capital was TShs.5,000,000,000/ (five billion) divided into 500,000 shares of TShs.10,000/ each. Out of those shares, 304,240 were issued and fully paid while 195,760 shares remained unissued. The share holders, with their respective shares in bracket were as follows: COMMONWEALTH DEVELOPMENT CORPORATION [CDC] (100,000); DEG - DEUTSCHE INVESTITIONS UND ENTWICKLUNGSGESELLSCHAFT MBH (94,240); NEDERLANDSE FINANCIERINGSMAATSCHAPPIJ VOOR ON TWIKKELINGSLANDEN N.y [FMO] (40,000); NATIONAL SOCIAL SECURITY FUND [NSSF] (20,000); PROPARCO (20,000); SWEDFUND INTERNATIONAL AB [SWEDFUND] (20,000) and TANZANIA DEVELOPMENT FINANCE COMPANY LTD [TDFL] (10,000). On 10th November 1999, by an ordinary resolution, the Petitioner sub-divided each existing share into ten shares of TShs. 1000/= each, thus creating 5,000,000 shares of 1000/= each out of which 304,240,000 shares were fully paid. On the same date, by a special resolution, the petitioner restructured its capital by, reducing the issued capital of304,240, 000 shares of Tshs. 1000 each by ninety per centum (90 0 1o) to 304,240 shares subject to court approval; reducing the amount credited to the Petitioner 's share premium account; and issuing each shareholder loan on terms and conditions contained in the Shareholders' Capital Restructuring Agreement."

With the above proposed restructuring 304, 240 shares will be issued and paid up while 4,695,760 shares will be unissued. By this petition, the petitioner is seeking for the Court's confirmation of the proposed reduction of the issued capital as is required under S. 56 (2) of the Companies Ord. Cap. 212. In their supporting submission, the Counsel vigorously impressed that the proposed issued capita reduction is necessary to enable the petitioner carry on the business of venture capital and be able to return capital to its investors by 2008, the scheduled time when it liquidates its portfolio. They insisted that the petitioner had departed from the ruling practice by similar entities. The gist of their argument on this is clearly reflected in para. 5 of the petition, "That the capital structure of similar venture capital funds or companies is of 5% equity and 95% shareholder loans thus guaranteeing a return of capital to shareholders whereas the capital structure of the Petitioner is 100% equity which departs from the capital structure of similar funds or companies." They further seek support from the facts that the Petitioner's Articles of 0 Association permit such reductions, and, more specifically that no one will be prejudiced as the only Creditor, MIS TM Express Ltd, has consented to the restructuring. The only question is whether petitioner has sufficiently made out its case. I should start by stating that what the petitioner is praying for is allowed under the law. S. 56 (2) of the Companies Ordinance Cap 212, provides, "(2) Subject to confirmation by the court, a company limited by shares or a company limited by guarantee having a share capital may, ifso

rd authorized by its articles, by special resolution reduce its share capital in any way, and in particular, without prejudice to the generality of the foregoingpower may - extinguish or reduce the liability on any of its shares in respect of share capital not paid up; or either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost or unrepresented by available assets; or either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company, and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly." In the case at hand the Petitioner's Articles of Association permit a course of action taken. Article 52 thereof provides, "The Company may by Special Resolution reduce its share capital, any capital redemption reserve fund or any share premium account in any manner and with, and subject to any incident authorised and consent required by law. S. 56 of Cap 212 places the decision of confirming proposed reductions of share capital and related entirely in hands of the Court and does not provide conditions or guidelines for whatever decision that may be arrived at. However, the Court is expected to scrutinise carefully the circumstances leading to the proposition, and more particularly, to ensure that the rights and interests of all classes of shareholders and those of creditors are fully protected. The Court has to make sure that the Scheme is, fair and equitable; that it does not unfairly prejudice any present or future shareholder or creditor, and indeed, a scheme hatched in good faith would meet the above tests.

& Having carefully read the petition and annexture which include affidavits of Mr. George Mbowe, the Chairman of the Petitioner, and Mr. Huw Williams, the General Manager of First Capital Partners Ltd which Manages the investment portfolio of the Petitioner; the proposed 'order' and "Minute", the Petitioner's Articles of Association; the "resolution for reducing share Capital" passed at an Extra ordinary meeting of 10th November, 1999, and having heard the petitioner's Counsel, and one Rajesh Morj aria, a principal officer of the "Sole" Creditor, I am satisfied that this petition should be allowed. I see no prejudice whatsoever in the proposal. The sole creditor has consented to the scheme. The shareholders are the ones who passed the resolution. Capital venture businesses generally operate along similar lines. In the premises, the Petitioner's prayers are granted with a qualification that the proposed "Order" is rephrased as shall be reflected. Th\ L.B. KALEGEYA JUDGE L .. o Certify that this is a true ani Correct co'linerclat Court On es $zolaaLu Dated 5 ( J