THE Deposit Protection Authority has recommended litigation against directors of Trust Bank Corporation Ltd, for fraudulent conduct of business. KPMG, an agent of Depositors Protection Corporation, proposed in the first report for creditors, that the corporation institute proceedings against the past and present directors of Trust Bank for fraud in terms of Sections 318 and 319 of the Companies Act.
According to Section 318, if it appears that any business was being recklessly run with gross negligence or with intent of fraudulent purpose, the court may declare that the directors of the company be personally responsible, without limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.
Where the business of a company is carried on with such intent, every director of the company shall be guilty of an offence and liable to a fine, a two year imprisonment or both. Trust, which is wholly owned by Trust Holdings Limited, closed in December 2013 after facing liquidity challenges. It had seven directors — five non-executives and two executives.
The closure of Trust Bank in 2013 was for the second time after the Reserve Bank of Zimbabwe closed the bank in 2004 as it faced liquidity challenges. The assets of the bank were merged with those of Barbican Bank and Royal Bank both of which had, at the same time also been placed under curatorship by the central bank to form ZABG.
However, shareholders of the merged banks challenged the amalgamation, resulting in the central bank re-issuing individual licences to the three banks in 2010. Trust Bank resumed operations in September 2010, but still faced serious liquidity constraints.
When the bank resumed operations, inadequate liquid capital was injected, according to the report. Most of the capital introduced was non-monetary in nature (properties). In a transaction which did not benefit the bank, Transtobac a company co-owned by Trust and Stroll Investments was used as security to obtain a loan from NSSA. Trust then entered into an agreement with Stroll where it would share the proceeds from the loans issued using the NSSA facility.
The agreement required Trust to pay Stroll from accrued revenue instead of collected revenue and this arrangement worsened the liquidity position of the bank. Trust also ceded security, which they held on their loans and advances to Stroll, further limiting the bank’s capacity to collect outstanding debts. Another investment ceded by THL, a shareholding in Newlands Bypass in January 2012 did not improve the liquidity position.
The cession to the RBZ minimum was in response to the central capital requirement adjustments of $12,5 million. As concerns were raised on the valuation of the investment, the investment was revalued at $4 million in January 2013 from $10,2 million. By the time the bank’s license was closed, almost $1,3 million of RTGSs requested by clients could not be paid.