Attorney General Likando Kalaluka has given a legal opinion to the effect that the takeover of State-Owned Enterprises (SOEs) by the Industrial Development Corporation (IDC) and plans to privatise them contravenes the Minister of Finance Incorporation Act, the Zambia Development Agency (ZDA) Act and the Securities Act.
And Kalaluka, who is the Chief Government Legal Advisor, says the Zambia Forestry and Forest Industries Corporation (ZAFFICO) is illegally under the IDC, and as such, its proposed listing on the Lusaka Stock Exchange (LuSE) cannot be done without amending the law that vests ownership of all government companies in the hands of the Minister of Finance.
ZAFFICO wrote to Kalaluka on September 23, 2019, seeking his legal opinion over the IDC’s plans to list profitable parastatal entities on the securities market as a way of raising new capital.
According to correspondence obtained by News Diggers!, ZAFFICO was earmarked for listing in 2018 and a report to this effect was submitted to the Parliamentary Committee on Parastatals Bodies on the Management and Operations of the Industrial Development Corporation.
ZAFFICO cited Article 210 of the Republican Constitution, which states that “a major State asset could be sold, transferred or otherwise disposed of, as prescribed, subject to the approval of the National Assembly, signified by a vote of at least two-thirds of the members of parliament.
In his legal opinion dated October 18, however, the Attorney General cautioned that Article 210 of the Constitution could not be relied upon to sell ZAFFICO shares, arguing that an Act of Parliament had not been enacted to operationalise the provisions of the cited law.
“You indicated in your letter that attention was drawn to Article 210 of the Constitution… I wish to state that this Article uses the word PRESCRIBED, and the word ‘prescribed’ is defined in the Constitution as: ‘provided for in an Act of Parliament.’ The implication of the definition of the word ‘prescribed’ is that an Act of Parliament must be enacted in order to effect the provisions of Article 210. Therefore, Article 210 requires Parliament to enact legislation for it to be operational,” Kalaluka stated.
“In the instant case as already stated above, Article 210 has not been given effect by Parliament and, therefore, the status quo remains in terms of the legal framework that existed before the 2016 amendment. Therefore, the applicable laws are the Minister of Finance (Incorporation) Act, the Securities Act No 41 of 2016 and the ZDA Act No 11 of 2006.
He guided that the Minister of Finance was the corporation sole of government shares in any company as well as State Owned Enterprises, and only him could sanction the disposal of assets into private hands.
“I have looked at the Minister of Finance (Incorporation) Act, Cap. 349 of the Laws of Zambia and especially Section 3 of the Act, which provides: ‘(3) The Minister of Finance shall be a corporation sole by that name, with perpetual succession and an official seal, and with power to acquire and hold in that name lands, government securities, shares in any company, securities for money, and real and personal property of every description, to sue and be sued, to execute deeds, to enter into agreements binding on himself and his successors in office, and to do all other acts necessary or expedient to be done in respect of the above matters or any of them’,” Kalaluka explained.
“The proposal by government to sell some of its shares to the private sector amounts to privatisation, and Section 41 provides that the Board may recommend to the shareholders and directors of a State-Owned enterprise as follows: ‘41. The Board may recommend to the shareholders and directors of a State-Owned Enterprise, which is scheduled for privatisation and is not a public company, that such State-Owned Enterprise be converted into a public company, in accordance with the Companies Act.”
He stated it was clear that the ZDA Act applied to a company, which was scheduled for privatisation, like ZAFFICO, and as such, the case under review warranted the application of the ZDA Act.
“The Act additionally empowers the Minister of Finance to sign the final Sales Agreement for the transfer of shares. This is provided under Section 44 which reads: ‘44. (1) The Minister responsible for Finance shall sign the final Sales Agreement to transfer shares or assets to the selected bidder. (2) The transfer of shares or assets shall be in accordance with the Companies Act.’ The Definition of a State-Owned Enterprise includes a company owned by government as defined under section 2 of the ZDA Act. It is clear that the ZDA Act applies to a company, which is scheduled for privatisation, and as such, the case under review warrants the application of the ZDA Act,” Kalaluka stated.
“On the other hand, the Securities Act applies to a government-owned company as provided under section 3 of the Act. Section 75 of the Securities Act provides for the registration of the securities for the proposed issuance to the public… The meaning of ‘takeover’ as read together with Section 75 of the Securities Act is that shares are supposed to be registered before they are offered to the public. The public buys the shares at an agreed price through a registered issuer of shares. Arising from the above provisions of the law, it is my understanding that the ZDA Act and the Securities Act allow the Minister of Finance to transfer shares and to that effect, both Acts must be complied with.”
He went on the state that the proposed listing of ZAFFICO on the Lusaka Stock Exchange was unattainable, while the “alleged” takeover of government companies by the IDC was not done in conformity with the law.
“The proposed listing on the Lusaka Securities Exchange at the behest of IDC is untenable because it is at variance with the Minister of Finance (Incorporation) Act, which vests property of the government exclusively in the Minister on one hand and on the other, it contravenes the ZDA Act and the Securities Act. In this case, the listing of shares on the Lusaka Securities Exchange can only be at the instance of the Minister of Finance because the shares vest in the Minister and NOT the IDC,” Kalaluka explained.
“There is currently no legal framework under which IDC can ride on to properly assume ownership of the shares in the government-owned companies in the absence of the Minister of Finance (Incorporation) Act, ZDA Act and Securities Act being amended. The alleged takeover of the government companies by IDC may not have been done in substantial conformity with the above Acts, which are the applicable laws for the purposes of government property and transfer of property thereof.”
Kalaluka guided that for the listing of ZAFFICO to go ahead, there was need to amend the stated laws.
“In the context of the law, the inescapable conclusion is that there is need to amend the said laws in order to legally transfer the shareholding from the Minister of Finance to IDC in line with government policy so as to properly deal with listing of ZAFFICO and other companies in order to transfer shareholding into private hands. In the meantime, the Minister of Finance is the only legally recognised person at law who is empowered to deal with the transfer of shares to the private sector. It is my understanding that it will assist in avoiding possible future litigation on the matter,” stated Kalaluka.