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DW shareholders demand sacking of judicial manager

David Whitehead (DW) Textiles shareholders have moved to fire judicial manager Knowledge Hofisi for failing to produce financial statements, alleged misappropriation of asset disposal proceeds, conflict of interest, overcharging for services and general management failure.

BY CHRIS MURONZI

In a letter dated June 20, 2019, from Tamuka Moyo Attorneys, representing the shareholders, to Hofisi, shareholders say their move was necessitated by grave failures in how the judicial manager conducted himself in his duties.

“The reason for the application relates to grave failings in the conduct of your duties as judicial manager and these are: you have failed, neglected and/or refused to prepare and furnish the shareholders with detailed financial statements for the period commencing 2014 to date,” the letter says.

“You have failed to account for the proceeds of the disposal of the DW non-productive assets that you sold in order to raise capital for DW. You further failed to invest such proceeds into the business of the company, notwithstanding your receipt of said proceeds.”

Hofisi says funds from the sale of nonproductive assets were not abused.

“That averment is disputed. All the funds realised from the disposal of assets were received by the company and payments were lawfully, and this was reported to creditors and members,” he said in emailed responses to businessdigest.

According to the letter, the shareholders say Hofisi exhibited what they described as “lack of judgment” when he made his alleged girlfriend and assistant Gina Jana, a signatory to the David Whitehead bank accounts.

“You were obviously conflicted by virtue of your relationship with Gina Jana. Gina Jana was not appointed assistant judicial manager by the High Court of Zimbabwe and said bank accounts have been closed without them having been audited and transaction reconciled and the nature of the transaction that were signed off by Gina Jana disclosed to the shareholders.”

Hofisi denies the charge he was in an appropriate relationship with Jana.

“The JM (Hofisi) was never involved in an inappropriate relationship with Aurifin Capital’s former business development officer who left the organisation in September 2015. In any case, a judicial manager is not precluded from appointing other signatories to sign against his or her clients’ bank accounts,” he said.

The shareholders added that Hofisi had consistently “overreached” himself and had charged excessive fees for services rendered.

In the financial year to December 31 2015 (FY 15), Hofisi levied fees amounting to US$150 000 against an annual turnover of US$800 000, the shareholders said. In FY 16, he levied fees amounting to US$200 000 against annual turnover of US$180 000.

“You deliberately exceeded the set fees which should have been determined by the Master in terms of Section 308 of the Companies Act (Chapter 26:04),” the letter says. “In some instances, your fees exceeded the total turnover of the company, which creates the inescapable conclusion that you ceased to act in the best interests of DW, its shareholders and its creditors.”

Hofisi says the amounts he is said to have received are not correct.

“A judicial manager’s fees are a percentage of fees based on consultancy work done. In the case of DWTL, due to working capital constraints, which made trading intermittent, a lot of consultancy was charged,” he said. “DWTL was also charged shared costs in the form of rent, utility bills as the company was and still accommodated at the JM’s office. The amounts indicated are incorrect.”

According to the shareholders, Hofisi has caused the company to be in breach of contractual arrangements with its clients even in instances where the company received prepayment on some orders.

The Air Force of Zimbabwe in December made a payment amounting to US$46 000 as deposit for camouflage fabric. Of this amount, US$39 000 was withdrawn from the account during holiday period and was not used for procuring raw material to supply the order, according to the shareholders’ letter.

The Zimbabwe Defence Forces also prepaid for the supply of 60 000 metres of camouflage fabric.

“To date, the delivery of that fabric has not been completed and in May 2018, the Zimbabwe Republic Police prepaid the sum of US$368 000 for 60 000m of fabric. To date, 40 000m of fabric is yet to be delivered,” the shareholders added in the letter.
Hofisi denies causing contractual breaches with clients.

“The averments are denied in toto and in any case, it is the company policy not to discuss transaction of its customers in public,” he said.

The shareholders said Hofisi’s actions defeated the very purpose of judicial management.

Among other things, the shareholders expressed displeasure at his failure to call for statutory meetings as required by Section 306 of the Companies Act (Chapter 24:03, his decision to sell 51% equity stake of the company “arbitrarily, unreasonably and without having reflected on company financial statements and gross undervaluation of the business”.

“The value of ZW$5 400 000,00 is grossly undervalued (US$650 000 at the time of the purported sale) being slightly above the tenth of the previous offer made for DW shares which was US$5 400 000,00, is sufficient to settle the claims of creditors,” the letter reads.

Hofisi did not obtain shareholder authority for the sale as is required by Section 183(1)(b) as read with Section 306(g) of the Companies Act (Chapter 24:06), shareholders added.

The purported sale to PK Ganediwal presented conflict of interest concerns, the letter notes.

“It is shocking to our client that a creditor would purchase a majority shareholding in DW for less than the value of the debt owed by him and still a lodge a claim as a creditor,” it reads.

Hofisi maintains he acted lawfully and there was no conflict of interest when he sold DW to Ganediwal.

“Our position is that the JM acted lawfully. There was no conflict of interest. However, kindly refer to the judicial manager’s latest report,” he said. “You have disqualified yourself to act as Judicial Manager by reason of the fact that you have failed to act transparently, honestly and independently and have thus brought the office of judicial manager and indeed the court into disrepute.”

The shareholders added that it was in the interest of justice that Hofisi should tender his resignation by June 27 2019.

“Our clients expect you to tender you resignation with the master by close of business on 27 June 2019, failing which an application, in terms of Section 273 of the Act, for your removal as judicial manager will be lodged with the High Court of Zimbabwe,” they said.

Hofisi denied the charges that he had abdicated from his position and was now self-serving.

“The judicial manager denies these allegations. However, as captured in his latest report, the JM wishes and anticipates exiting DWTL once legacy or pre-commencement debts have been dealt with,” he added.

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