BY MELODY CHIKONO
JUDICIAL management in Zimbabwe is failing to give confidence to shareholders with most cases spilling into court as distressed firms battle high costs and allege corruption by judicial managers while banks are shunning such entities.
Companies go under judicial management due to failure to service debt; a route that is usually the last measure to protect a company’s assets. It’s done to curate the company and navigate it out of debt.
However, several companies that were placed under judicial management in Zimbabwe have failed to come out of the woods.
In 2015, Delma Lupepe, the major shareholder of the struggling Bulawayo-based textile firm Merlin, alleged judicial manager Cecil Madondo of Tudor House was “lying” to the nation that the company was struggling to attract investors.
In the same year, Tetrad Bank, which had been placed under judicial management, made an application to fire Winsley Militala as its judicial manager for failing to comply with the provisions of the Companies Act.
Militala was accused of allegedly producing a flawed judiciary management report to mislead creditors and shareholders.
Businessman James Makamba, in 2019, appealed to the High Court seeking the removal of his investment vehicle Kestrel Corporation from judicial management after the manager allegedly failed to fulfill a share purchase agreement.
The latest case involves David Whitehead (DW) and its judicial manager Knowledge Hofisi where DW shareholders have filed an application at the High Court, challenging Hofisi’s decision to remove it from judicial management on the basis that its fortunes have been successfully turned around.
New information gathered by the Zimbabwe Independent shows that despite the challenge, Hofisi had secretly filed an application to remove the company from judicial management without citing any of the interested parties and ignoring objections from workers.
DW major shareholder Edwin Chimanye last week told the Independent that Hofisi had been filing applications allegedly with different lawyers.
“We just found out today. He is applying using different lawyers, as if that changes his identity, without citing the very people he is telling lies about.” he alleged.
As more of these problems emerge, Tichafa Mujuru, a major shareholder in National Blankets, which was also placed under judicial management in 2012 for viability concerns, last week said there was a huge funding gap for distressed companies with judicial manager fees being the last nail in the coffin.
Mujuru said the law gives the judicial managers too much power which removes transparency and accountability while demand for accountability by shareholders is viewed as interference.
“From my observation, we expect judicial managers to perform miracles. The financial state of the business does not change by simply appointing a judicial manager. The business still needs to be funded. Sadly, access to rescue capital in Zimbabwe is not easy. Judicial management fees might just be the last nail in the coffin. The history of judicial management in Zimbabwe does not give confidence to shareholders.
“While I have no stats, my general observation is that it generally ends up in fights. Shareholders and directors should try to wriggle out of debt rather than place companies under judicial management. The cost of judicial management ends up contributing to final collapse,” he said.
Mujuru implored the RBZ,the Industry and Commerce ministry and the Finance and Economic Development ministry to establish a rescue fund for ailing business especially during the Covid-19 pandemic.
“I wouldn’t place the blame on judicial managers. The rescue method needs to be funded. Generally, banks have shied away from companies under judicial management. For National Blankets, it’s correct to say it is back in production, although I wouldn’t say it’s out of the woods yet.
“We have asked our shareholders to fund us and we will rebuild the business slowly within our self-funding capacity. This is in response to the clarion call by all national leaders to revive industry in Bulawayo. We are also in the market scouting for equity investors who have an appetite for textile assets,” he said.
Other companies that have been placed under judicial management include Karina Textiles, Air Zimbabwe and Penhalonga Mine, among others.