AS creditors of collapsed Trust Bank Corporation gathered for a second meeting on a cloudy Tuesday morning in the capital, they looked more of a congregation uniting to hope against hope that the liquidator will somehow work a miracle to repay them their money.
For sure, the Depositors Protection Corporation (DPC) – which was appointed the liquidator after the bank had its licence withdrawn on December 6, 2013 – will have to be a miracle worker to raise more than US$10 million that is needed to settle outstanding claims.
It is now more than three years since the bank closed, but only US$4,6 million has been raised as at December 31 last year.
Claims worth US$9 million have so far been provisionally accepted by the Master of High Court, which means an additional US$4,4 million is still needed. But the DPC is chasing a moving target.
Claims are still growing.
On Tuesday, the National Social Security Authority (NSSA) filed a US$4 million claim, while several other creditors followed suit.
To date, only 42,6 percent of insured deposits – those belonging to vulnerable account holders who are entitled at law to receive at least US$1 000 – have been paid. Trust Bank’s gross loan book currently stands at more than US$18 million.
Pinning down the assets that have to be sold in order to get the required amounts is proving to be difficult. For example, the DPC is having difficulties recovering 11 cars belonging to Trust Bank, seven of which are reportedly with former employees.
Lawyers have since been engaged to collect the cars on behalf of the liquidator.
It is not only Trust Bank creditors who are fretting. Creditors of the other six banks – Allied Bank, AfrAsia Bank Limited, Interfin Bank, Tetrad Investment Bank, Genesis, and Royal Bank – shut by the Reserve Bank of Zimbabwe (RBZ) since 2012 are also feeling the pinch.
Overall, central bank statistics show that depositors lost more than US$209 million in the failed banks. In Allied Bank, for example, the DPC has only managed to recover US$1 million to cover claims worth US$15,7 million.
Allied Bank was closed in January 8, 2015.
It will take nothing short of a Herculian task for the same liquidator to pay more than US$61 million that is provisionally owed to AfrAsia Bank creditors after the bank surrendered its licence on February 24, 2015. Only US$4,8 million – US$2,9 million to preferred creditors such as NSSA, Zimra and Zimdef; and US$1,9 million to secured depositors – has been paid. Preferred creditors are those that get a preferential right to payment upon then debtor’s bankruptcy under applicable insolvency laws.
If the DPC’s task in AfrAsia seems difficult, it is almost impossible for Interfin Bank.
At the time Interfin Bank closed in 2014, it owed depositors more than US$139 million.
But by December 31, 2016, the DPC had managed to pay creditors US$248 000, while preferred creditors got US$521 000. Prospects of recovering meaningful amounts from a loan book that stands at US$167,3 million are doubtful as more than US$91 million is owed by the bank’s former executives and directors.
However, there is still hope for Tetrad Investment Bank which is under judicial management.
Decisive action on troubled banks
DPC chief executive officer Mr John Chikura told The Sunday Mail Business last week that the framework governing the resolution of troubled banks has to be reviewed to ensure that depositors’ funds are protected before directors and executives strip the bank’s assets. “As DPC, we would like to reimburse depositors 100 percent of their money in the bank, but it is a function of the fact that by the time the Reserve Bank closes a bank, how are the assets in the company like?
“If the Reserve Bank takes time to close the bank, managers and shareholders will be stripping the bank. Only a shell remains. The challenge that we have had in this country is that the Reserve Bank has not been taking action in that (regard).
“So you can’t blame the Deposit Protection Corporation. You blame the supervisor (for failure to quickly conclude liquidation),” said Mr Chikura.
He noted that the regulator (RBZ) had to ensure that most of the bank’s assets could be easily liquidated in the event of bank failure in order to expeditiously pay depositors. While most of the affected commercial banks purportedly complied with the minimum capital threshold of US$25 million, it later turned out a huge chunk was anchored on illiquid assets. Such anomalies became glaring in Allied Bank. On June 24, 2015, Dr Cecil Madondo – who was appointed as the agent of the DPC in liquidating the bank – announced that the new investors in the former ZABG (Zimbabwe Amalgamated Banking Group), Trebor & Khays, had actually paid part of the amount required (US$22,5 million) using properties worth US$16,7 million in 2012.
As part of the deal, the investor was supposed to surrender the land and buildings to the bank but this was never done. It was later discovered by independent valuators that the value of the properties was actually less than US$5 million.
The DPC also feels the RBZ has to act in haste in dealing with struggling banks as allowing them to continue operating makes them vulnerable to greedy directors. Interfin Bank went into curatorship in 2012 and was only closed on December 31, 2014 after failing to trade out of critical liquidity and solvency challenges.
Going after directors
In order to pursue every avenue possible to bring raise funds to pay affected depositors, DPC is now going after culpable former bank directors.
The directors are being sued in terms of Section 318 of the Companies Act.
Mr Chikura however noted that once cases have been referred to the courts, the onus in on the justice delivery system to conclude them on time.
“. . . we have a popular saying in the country that says, ‘why pay a lawyer when you can buy the magistrate’. What that means is that the courts have to play their role as well.
“They have to start playing it straight, if they engage in corruption, it means the cases we file there won’t succeed,” explained Mr Chikura.
Government plans to introduce Commercial Courts that will resolve commercial cases swiftly.
Some creditors speculate that liquidators and judicial managers deliberately take long to find closure to cases they handle so that they rake in more money.
However, Mr Chikura dismissed the claims saying liquidators get only three percent of the total they recover. Initially, the rate was pegged at 6 percent but it was reduced by half early last year.
“You are aware that Government itself reduced liquidators’ payments from six percent to three percent of recoveries. So where are they benefiting?
“And it is a success fee because you are paid from what you have realised. You are not just paid, you have to recover money,” he said.