High Court stops KCM liquidator from transferring assets into two companies

THE Lusaka High Court has stopped Konkola Copper Mines limited (in liquidation) provisional liquidator Milingo Lungu from transferring the company’s entire business and assets into two separate entities.

This is according to an ex-parte order granted to the Vedanta group of companies by justice Winnie Mwenda.

“It is hereby ordered that an order for injunction is granted restraining Lungu whether by himself, servants or agents whosoever from undertaking any reorganization of KCM or from transferring, disposing off, selling or dissipating the assets of KCM in any manner whatsoever and directing Lungu to preserve all the assets of the mine until determination of these proceedings,” said judge Mwenda. “KCM, agents whatsoever and its senior management have been restrained from undertaking or participating in any reorganization of the mine pending determination of these proceedings.”

Judge Mwenda has slated hearing of the injunction application for Friday January 22, 2021.

This is in a matter where three shareholders of Konkola Copper Mines limited (in liquidation) have sued Lungu over his decision to reorganise KCM by transferring the whole business and assets into two separate entities.

Vedanta Resources Holding limited, Vedanta Resources (Jersey II) limited, and Vedanta Resources limited have sued Lungu in his personal capacity as provisional liquidator of KCM.

The plaintiffs argue that Lungu has no authority to reorganise the business, assets and affairs of KCM in the manner proposed because it runs counter to his primary functions and duties as provisional liquidator to protect and preserve the assets of the company pending determination of the winding up proceedings of KCM.

They want a declaratory order that Lungu does not have the power or should not exercise the power to carry out the reorganisation of KCM business, assets and affairs in the manner announced on December 28, 2020.

In a statement of claim filed in the High Court commercial registry, the Vedanta group said on December 28, 2020 Lungu issued a management brief to the employees of KCM in which a proposed reorganisation of the mine was announced and described.

They said under the proposed reorganisation, Lungu proposed to restructure and reorganise KCM by transferring the whole of its business and assets into two separate entities.

“The proposed reorganisation of KCM will involve the transfer of the Process Business Units comprising, Nchanga smelter, Tailings Leach Plant, Old East Mill and Nampundwe to a separate company called KCM Smelter Co limited and the mining business including the Konkola Concentrator and New West and East Mills at Nchanga, the 500 TPD acid plant and Tailings Dams plus the hospitals, schools and corporate office of KCM will be transferred to a separate company called Konkola Mineral Resources limited. The large scale mining licenses and the mineral processing license will be transferred as part of the reorganization,” the shareholders explained.

They disclosed that Konkola Mineral Resources limited was incorporated on November 23, 2020 three days after the Court of Appeal judgment staying the winding up proceedings of KCM before the Lusaka High Court and referring the matter to arbitration.

The plaintiffs said the effect of the reorganisation would be to hollow out KCM completely and transfer all its assets into SmelterCo and Konkola Mineral Resources limited (KMRL), which would remove the business and assets of KCM, a company in provisional liquidation, from the custody and control of Lungu into the custody and control of boards of directors of SmelterCo and KMRL.

The shareholders of KCM said the proposed reorganisation of their company had not been sanctioned by any order of the court neither had it been approved by the security trustee or the shareholders of the mining company.

The plaintiffs said the proposed reorganisation was bad conduct by the provisional liquidator because it comes after the Court of Appeal judgment dated November 20, 2020 suspending the winding up proceedings of KCM.

“SmelterCo and KMRL are not in provisional liquidation and are not subject to the supervision of the court in any way that KCM is. The effect of the reorganisation will be to remove all of the assets of KCM from the supervisions of the court and put them into the hands of companies which will deal with them without any duties to the court,” the complaints said. “The reorganisation is designed to facilitate the sale of the business and assets of KCM to a third party in a way that could not be achieved by Lungu within his powers and without the scrutiny or supervision of the court.”

The Vedanta group said that Lungu, as an officer of the court, must act in good faith and should not do or seem to do anything which undermines the court or make the court appear impotent.

They lamented that if the reorganisation sought by Lungu was allowed, they would be prejudiced as they would be deprived of the assets of KCM as the owners, and that the outcome of the arbitration proceedings would be equally prejudiced.

The plaintiffs fear that as unsecured creditors of KCM Vedanta Resources (Jersey II) limited, Vedanta Resources limited would be prejudiced because the creditors of SmelterCo and KMRL would have the first call on the business and assets which formerly belonged to KCM, giving them priority over any creditors of KCM whose claims have not been novated to SmelterCo and KMRL.

They further lamented that as the beneficiary of the security, Vedanta Resources limited had not consented to the transfer of assets over which it had security and any such transfer would be a breach of its contractual and proprietary rights.

The shareholders of KCM emphasized that Lungu was prohibited by law from transferring or disposing of any assets of KCM by reorganisation or otherwise without the court’s authority.

They said owing to the proposed actions by Lungu, they have suffered loss and damage and want an order directing Lungu, whether by himself servants or agents, to immediately reverse any process of reorganization that has been undertaken with respect to KCM.

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