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Vedanta contests KCM liquidation

VEDANTA Resources Holdings Limited is now seeking to join in the matter in which government is seeking an order to have KCM wound up claiming that it was not given a chance to be heard. Vedanta fears that if it is not joined to the proceedings, it will suffer great prejudice as it holds 79.4 per cent shares in the mining company. On May 21st, the provisional liquidator of KCM Milingo Lungu, who is PF legal affairs committee deputy chairperson, took over operations of the mining firm after High Court Judge Anessie Banda-Bobo granted ZCCM-IH an order to appoint a provisional liquidator of the defendant.

ZCCM-IH wants the mining company to be liquidated because it had engaged in massive tax evasion through transfer, mispricing and other unscrupulous means, and that it was technically insolvent as it had failed to pay the outstanding invoices to suppliers and contractors when they fall due. Vedanta wants to join the proceedings as the second respondent pursuant to provisions of order 14 Rule 5(1) of the High Court Act, chapter 27 of the Laws of Zambia as read with order 15 Rule 4(1) of the rules of the Supreme Court.

According to an affidavit in support of ex-parte summons for an order for joinder of a party to the proceedings, Hermien Uys of Stellenboach in South Africa, who is a representative of the respondent, stated that ZCCM-IH and Vedanta were shareholders in the mining company holding 20.6 per cent and 79.4 per cent shares, respectively. Uys contended that Milingo Lungu has since assumed the responsibility of a provisional liquidator and is demanding that some personnel in KCM’s senior management should prepare handover notes for him.

“The intended 2nd respondent has invested millions of United States dollars in KCM with a view to realising a return of the investment over a period of time and that it is within the intended 2nd respondent’s interests that the respondent should continue as a going concern,” Uys stated.

Uys contended that the intended joinder had an interest in the matter as majority shareholder in KCM and stood to suffer great prejudice if the court ordered that the mining company be wound up without hearing it. Vedanta wishes to make submissions on the appointment of Lungu as provisional liquidator when the matter comes up on may 24.

“It is in the interest of justice that the intended second respondent be joined as a party to the proceedings herein so that Vedanta may make representations on this matter,” the representative stated.

Uys stated that it was crucial and of utmost urgency that Vedanta be joined as a party to the proceedings.

“I, therefore, humbly seek the indulgence of this honourable court to join the intended second respondent to make its representation relating to the winding up of the respondent without which joinder, the intended second respondent suffer great prejudice,” he said.

In a winding petition filed on May 24, ZCCM-IH stated that KCM was being managed and administered in a manner detrimental to the interests of government. ZCCM-IH contended that since the company commenced operations in 2004, it had on declared total dividends of US$58 million out of which it has refused, neglected or ignored to pay around US$10 million, which was declared in 2013 despite the sum having been accounted for in the financial statements. The petitioner accused the respondent of failing to develop the mining areas in Chingola and Chililabombwe as well as carry out mining operations with due diligence in accordance with the programme of mining operations in breach of section 35(1)(b) of the mines and minerals development Act of 2015.

“The company has failed to carry out mining operations in accordance with approved mining operation plan, the gross proceeds of sales of minerals from mining areas are less than half of the demand turnover applicable to the mining license for more than three successive years and liable to the revocation of the licence under the Miners and Minerals Development Act,” said ZCCM-IH.

ZCCM-IH also accused KCM of engaging in massive tax evasion through transfer mispricing and other unscrupulous means. ZCCM-IH stated that KCM was insolvent and had failed to pay outstanding invoices to suppliers and contractors when they fall due.

ZCCM-IH added that KCM’s operations were not environmentally friendly or sustainable and had polluted or continued to contaminate water sources in the vicinity of the mine, especially the Kafue River. In an affidavit verifying the winding up petition, ZCCM-IH chief executive officer Mabvuto Chipata stated that in November 2004, the Zambian government entered into an agreement with Vedanta Resources Holding Limited, an Indian owned company listed on the London Stock Exchange, to sell 51 per cent shares of KCM to Vedanta.

It was agreed that Vedanta shall subscribe to ordinary shares equivalent to US$25 million representing the 51 per cent of the shares. Zambia Copper Investment (ZCI) and ZCCM-IH would have their pre-emptive subscription rights and (ZCI) was to receive a deferred consideration of US$23.2 million from Vedanta payable over a period which would commence upon the completion date of the investment ending December 31, 2008.

He stated that KCM had evaded tax for the past five years without justification.

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