FINANCE Bank Zambia (FBZ) has lost a US$3 million loan facility it gave to the defunct Zambian Airways on grounds that it flouted banking regulations.
Finance Bank sued the Development Bank of Zambia (DBZ) for failing or neglecting to take up an equity stake in Zambian Airways and breached the agreement to indemnify the plaintiff in the sum of $3,000,000 in 2008.
The dispute between the two banks arose over the indemnity which DBZ discharged after Finance Bank had already loaned Zambian Airways $3 million before the defendant gave the plaintiff original security documents and a duly executed and sealed memorandum of discharge and satisfaction as required under the Companies Act.
Kitwe High Court Judge Catherine Makungu in her judgment stated that there was nothing to enable DBZ to sell its loan commitment to Finance Bank because there was no loan transfer agreement or certificate between the plaintiff and the defendant, making the issue of ovation non-existent.
“Applying all the authorities on burden of proof cited by DBZ, I finally find that Finance Bank has failed to discharge its burden of proof. I, therefore, dismiss the case with costs to be taxed if not agreed upon,” Justice Makungu.
She said it was not DBZ’s fault that Finance Bank did not register a debenture for the $3 million facility in question and found that there was no proper consent or approval by the other syndicate banks on that aspect.
Justice Makungu further found that both the plaintiff and defendant acted impetuously and made a lot of mistakes in the process and that the risk taken by FBZ was huge because they knew that Zambian
Airways was getting bankrupt.
The judge said that taking up equity in Zambian Airways would not have enabled DBZ to totally discharge securities held in respect of the syndicated loan because securities were to be shared among the syndicate banks.
“I further find that the defendant decided to overlook some of the conditions precedent to obtaining equity participation in Zambian Airways in order to enable DBZ to quickly grant the facility required by the plaintiff,” she said.
She said Mine Air Services, trading as Zambian Airways, had already borrowed $4,300,000 from DBZ and $500 million from other banks, making it reach a stage where it should not have been allowed to borrow any more money from DBZ as it had no more assets free of encumbrance to pledge as security for any debt.
According to the syndicated loan agreement, Investrust loaned $3,292,000, Intermarket K500,000,000 (unrebased) and DBZ $3,000,000 to Zambian Airways and the three banks also entered a security sharing agreement.
Based on that, the plaintiff later agreed to pay the defendant the $3 million provided that the relevant security documents that the defendants were holding were discharged and released to the plaintiff.
DBZ then informed Finance Bank that it no longer had a claim in the security assets of Zambian Airways and that the contract for indemnity had been discharged with immediate effect but at that time the plaintiff had not received the securities and did not know the value.
“The security assets in issue were attached to the syndicated loan agreement and the security sharing agreement but the syndicate banks were not parties to the new debenture registered at the companies’ registry by Finance Bank. The debentures registered earlier were expected to be discharged by the syndicate banks before a new one could be registered,” the judgment read.
Justice Makungu stated that the plaintiff had not offered an explanation as to how it purportedly took over all the assets and that it was wrong to register a debenture to secure the old loans instead of the loan in issue.
times of Zambia