CAPS Pharmaceuticals Trust (CPT), the majority shareholder in CAPS Private Ltd, has filed an urgent chamber application seeking to interdict the recently appointed board members by Government from carrying out any activities, arguing the appointment was irregular.
According to court papers (case number HC6683/20 and lodged at the High Court on November 13, 2020), CPT claims that it owns 51 percent in CAPS, one of the largest manufacturers of medical drugs and supplies while CAPS Holdings owns the remainder.
The shareholding in CAPS Holdings continue to be mired in controversy as one of the major shareholders, Fred Mutanda, has persistently disputed claims by the Government that it owns 68 percent stake.
Mutanda argues that while he entered into an agreement with the Government to dispose of his 68 percent around 2015, the shareholding was never paid for, leading to the cancellation of the agreement.
Last week Industry and Commerce Minister, Dr Sekai Nzenza, announced a five-member board for the pharmaceutical firm as part of plans to turn around the firm.
Pharmaceutical quality assurance specialist, Ian Matondo, is the chairman of the new board, whose other members include Tapiwa Mashingaidze, Sinikiwe Gwatidzo, Arthur Manase and Bothwell Nyajeka.
Their appointment, which was approved by President Mnangagwa, was in line with the Public Entities and Corporate Governance Act [Chapter 10:31] and is effective November 4, 2020.
CPT is citing Dr Nzenza as first respondent, while CAPS Holdings, CAPS Private Ltd and Industry and Commerce Permanent Secretary are being cited as second, third and fourth respondents respectively. All appointed directors are also cited as respondents.
CPT argues the appointment of the board violates the shareholder agreement, which stipulates the right of parties on the appointment and number of directors.
In addition, it violates the Health Profession Act Chapter (27:19), which provides that the majority of directors in a pharmaceutical company must be registered pharmacists.
As such, the appointment has set CAPS Private Ltd on a collision course with Medicines Control Authority of Zimbabwe and Pharmacist Council of Zimbabwe, as this would inevitably lead to cancellation of its license.
“Suspension of the third recipient’s (CAPS Private Ltd) drug manufacturing license forebodes irreparable harm as that will drive it into insolvency with associated woes of loss of market share, inability to settle debtors and virtual extinction,” reads part of chamber application.
“In any event, the invocation of Public Entities and Corporate Governance Act (10:34) by the first respondent (Dr Nzenza), effectively means that she has expropriated and nationalised the third respondent.
“This has been done unlawful and without compensation and in violation of provision of 71 (3) set out in the Declaration Right of the Constitution.
“The third respondent is a private company held as such by private individuals. The purported conversion thereof into a public entity cannot withstand constitutional scrutiny.
“In any event, while the persons appointed to board are highly skilled in their own right, none of them are pharmacists or have at any level been associated the specialised tasks of drug manufacturing.”
Last week, Mutanda wrote to Dr Nzenza, challenging the appointments, arguing only shareholders have the right to do so in terms of the Companies Act.
“I refer to your press statement of November 6, 2020 on the appointment of CAPS board,” said Mutanda.
“The CAPS board can only be appointed by the shareholders in accordance with the Companies Act (Chapter 24:03) and in terms of the provision of the Memorandum of Articles. Government is not a shareholder in CAPS.”
Mutanda claims he is the current majority shareholder in CAPS Holdings through his vehicle CAPS International.
“The RBZ failed to pay for that shareholding in terms of the agreement,” Mutanda said.
Confirming his claim is a letter dated December 10, 2018 by the Attorney General’s office that while the Government had shown interest in purchasing the stake through negotiations conducted on its behalf by the RBZ, it later decided to the contrary.
“Government is not interested in acquiring your shareholding in CAPS International and will accordingly not enter into a negotiated settlement,” reads part of the AGs letter.
CPT said an untenable situation has been created where an appendage of a minority shareholder has without any legal basis arrogated itself power to appoint all directors and disregarded multiple restrictions on its power as a shareholder to act in a specific way on specified matters.
“The mere fact that the first responded has an interest in the shareholding of second respondent does not give her power to interfere with the operations of the third respondent,” CPT further argues.