David Whitehead Textiles Ltd (DWTL) judicial manager Knowledge Hofisi is in the line of fire from both shareholders and creditors for failing to produce financial statements for the company since his appointment in 2014. He is also in trouble for not meeting his end of the Zimbabwe Asset Management Corporation (Zamco) bargain when he sought US$2 million in funding, it has emerged.
By Chris Muronzi
Major shareholders — Daphne Ritson, James Ferguson, and Edwin Chimanye — and creditors of the textile company are up in arms against the company’s judicial manager for, among other things, failing to produce financial statements for the company since his appointment in 2014 and what they said was general “unsatisfactory conduct”.
Documents made available this week to businessdigest show that Zamco is also unnerved by Hofisi’s conduct at DWTL.
Zamco provided DWTL US$2 million working capital facility. In a letter dated May 17, 2019, addressed to Additional Master-Insolvency and Guardian Fund Reuben Mukavhi, Zamco chief executive Cosmas Kanhai said Hofisi has not heeded his various requests. “We are concerned at the absence of demonstrable value addition following our injection of US$2 million working capital to resuscitate the company which the government classifies as a company of national interest,” he said.
“We have on several occasions requested information relating to the financial position and operations of the company, which was a precondition to the disbursement of the facility, which information the judicial manager has refused or neglected to provide not just to ourselves but to all creditors in general.”
Kanhai said there was need for detailed management accounts and a full set of financial accounts covering the tenure of the judicial manager. In the absence of historical financials, he said the veracity of the management accounts would be in serious doubt. As part of the conditions for the US$2 million facility, there was need to form an oversight Committee to review DWTL’s operations. “Again despite several requests, the judicial manager has refused or neglected to convene meetings, for nothing more than just to update us on how the facility has been used or the status of operations at David Whitehead . . . We are also concerned with the continued and often unjustified postponement of creditors’ meetings without proper communication to the constancy,” he said.
“The judicial manager points to the necessity of the unaudited accounts as a prerequisite for the creditors’ meetings. However, at the last meeting of creditors we had requested for detailed financial accounts even unaudited which should be ordinarily at the disposal of the judicial manager.”
Kanhai also questioned why Hofisi believes that the valuation of the company’s assets was a major impediment to the external audit. He argued that valuation of the assets was a “small component of the audit assignment” given its reliance on the expertise of other professionals.
“A judicial manager occupies a position of trust towards creditors and is therefore required to act in the best interests of all interested parties,” Kanhai added. “However, given the unsatisfactory conduct above, strongly doubt the judicial manager’s capacity to handle the affairs, let alone turning around the fortunes of big institutions such as David Whitehead. He has lost the confidence of both creditors and shareholders.”
Other documents made available this week to businessdigest show that Hofisi was also taken to task at a statutory meeting of creditors and members on September 28, 2018 by one of the creditors, PK Ganediwal, the head of Parrogate, a company that controls one of Zimbabwe’s largest cooking oil producers under the ZimGold brand.
Minutes show that Ganediwal, a major creditor to the textile company, vigorously pushed for detailed financial statements for the company.
The meeting was adjourned after members and creditors demanded, among other things, detailed annual financial statements from 2014, when he was appointed.
The members also wanted Hofisi to include in the financial statements how funds raised from authorised Asset Disposals were utilised. Members and creditors also questioned how Hofisi had accumulated a debt of US$5 million, the minutes show.
Shareholders — Ritson, Ferguson, and Chimanye — also raised concerns on Hofisi’s conduct. In a letter signed by the three shareholders to the Master of the High Court dated 11 March 2019, the shareholders expressed dissatisfaction over the conduct of the judicial manager. Among other things, they also demanded invoices lodged by Hofisi for his services since appointment as judicial manager. “That the said financial statements are to especially detail how the Authorised Asset Disposal Funds were used, which would be naturally demonstrated in detailed accounts,” the letter reads.
“Of specific interest to creditors and members at the meeting and now, was and is how the judicial manager has accumulated a debt of over US$5 million during this unusually long tenure of now five years. This is, especially, given the fact that the law stipulates that a judicial manager is required to prepare and keep such records as the directors of the company would have been required to.”
In a letter dated March 22, 2019, Hofisi said he had been unable to produce financial statements owing to “financial constraints.”
“The completion of the external audit has been delayed owing to financial constraints, which also had an adverse impact on us carrying out an asset valuation as required by the auditors. However, the asset valuation is now set to commence on April 1, 2019 culminating in the audit being undertaken in May and June 2019,” Hofisi wrote.
He said once the process is completed, he hoped the meeting would be reconvened in July of this year. He also advised that negotiations with a potential investor were progressing well. Shareholders this week told businessdigest that while they supported the judicial manager’s efforts to court investors, the process must be above board.
In the absence of financial statements, shareholders say they are unable to arrive at a valuation of the business.
“We are fully supportive of the plan to bring in an investor or investors at DWTL. However, we want the judicial manager to produce financial statements. We believe that financial statements are the starting point as they allow us to arrive at a valuation of the company,” a shareholder said this week.
Mukavhi this week refused to comment on the affairs at David whitehead, referring all questions to Judicial Services secretary Walter Chikwanha.