Home » Business » David Whitehead to Resume Operations

TEXTILE firm David Whitehead will resume operations in the next two months after the completion of maintenance work and the procurement of working capital support, the company’s judicial manager Mr Knowledge Hofisi said in a report to creditors and shareholders.

However, before the re-start, the judicial manager has recommended the prosecution of two Elgate directors – Mr Andrew Toendepi and Mr Zivanai Mangena – for allegedly stripping off the company’s assets and fraudulently acquiring 51 percent stake in DW.

“It is anticipated that maintenance work will be completed in July 2014,” said Mr Hofisi.

“In Chegutu, 80 out of 96 runnable looms were refurbished by the end of June 2014, while in Kadoma, the Absorbent Cotton Wool plant which produces cotton wool is ready to commence production. Maintenance work is progressing well notwithstanding some financial constraints.”

DW, once the country’s largest textile company was placed under provisional judicial management in December 2010 before confirmation of the final order in March this year. Mr Hofisi was appointed final judicial manager, taking over from Mr Wensely Militala.

The company used to produce at least 20 million metres of fabric per year while directly employing 3 000 workers and thousands in down and upstream industries.

Mr Hofisi said working capital support would be raised from the disposal of non-core assets in conformity with recommendations set out in the business rescue plan.

DW has a huge asset base that is being under-utilised and, in a trading environment where the cost of borrowing would be prohibitive, the disposal of non-core assets will yield positive results, he said.

Debt capital is also being mobilised from local financial institutions managing the Distressed Industries and Marginalised Areas Fund.

Orders in excess of $1 million have been secured, with a big proportion being export orders.

“DWTL continues to make major inroads into the market through the deployment of penetration strategies that have seen a number of customers expressing keen interest to forge mutual alliances or offer reasonable payment terms.

“However, the diminished production capacity of DWTL remains a major impediment and limiting factor, in the short term.”

Mr Hofisi noted that with employees owed $8,4 million which translates to 71 percent of the total liabilities workers, as creditors, will be requested to convert their debt into equity.

“It is considered that the request will be accepted by most, if not all, the workers. The conversion of debt into equity resonates with the Government policy to empower workers.

“If that process is implemented successfully, DWTL will have a gly-capitalised balance sheet positioned for growth. Distressed companies such as Bindura Nickel Corp have recently and successfully implemented schemes of arrangement or reconstruction based on debt-equity swap.”

Restoration of operations will be attained through the operationalisation of short-term plans within a period of 12 months.

Medium to long-term strategies will also be implemented over a period spanning 36 months. The liquidation of claims will result in the discharge of the former Zimbabwe Stock Exchange listed firm from the bondage of judicial management.

On the fraudulent acquisition of the majority stake in DW by Elgate, Mr Hofisi established that during the first judicial management between May 2006 to April 2008 under Mr Cecil Madondo, a competitive bidding process was conducted to identify a preferred investor.

That resulted in Elgate winning the bid to acquire 51 percent shareholding in DW. At the time of the cancellation of the first judicial management order in April 2008, shares worth $3 million were allotted to Elgate, on the understanding that the balance of $2,4 million would be paid post judicial management.

However the process was subject to the supervision of the Master of the High Court who was “clothed” with residual powers by a High Court order.

Mr George Maulidi was subsequently appointed substantive CEO of DW by the Board of Directors that was constituted by Elgate.

Mr Maulidi subsequently confirmed to the Master that $2,4 million was purportedly paid by Elgate in respect of the outstanding consideration.

“The share acquisition agreement signed between DW and Elgate in December 2007 set out conditions precedent, which may have been partially complied with, but the fundamental question that requires determination is whether or not Elgate discharged its obligations in full.

“When the provisional judicial manager reported the matter to the police, the parties representing Elgate in DW could not be located in the country. The whereabouts of one of the directors, Mr Toendepi is not known. However, his absence, though deeply regretted, did not have a material impact on the process of ascertaining the consideration paid to DWTL.

“The admission by Maulidi that the $2,4 million was paid in cash is unacceptable. At that time, in an effort to curb money laundering activities the Reserve Bank of Zimbabwe imposed restrictive measures regarding movement of cash. Because of the local currency trading environment in 2007, the RBZ had to authorise the opening of a foreign currency account and there is no evidence that the RBZ did authorise a foreign currency account.

“In addition, the source and origin of the $2,4 million could not be traced. It is apparent that Maulidi, also a fugitive from justice, was working with Elgate to falsify material information regarding payment of the purchase consideration. In return, certain immovable residential properties in Kadoma and Chegutu were allegedly donated to Maulidi by DWTL.”

A verification exercise conducted by the first judicial manager after the issuing of shares worth $3 million revealed that consideration of $1,6 million was paid to DWTL, noted Mr Hofisi.

After the cancellation of the first judicial management and subsequent assumption of management of DWTL by Elgate representatives, DWTL had a total of 313 Sulzer weaving machines (looms) in the weaving shed. However, 147 of these looms, among other machines, were dismantled and disposed of, ostensibly as scrap material, in South Africa.

Consequently, the installed capacity declined significantly. The capacity replacement cost of those 147 looms with new ones is US$6 million. “In our opinion, economic subversion cannot be ruled out. The proceeds arising from the disposal of such important factory equipment could not be found in any DWTL bank account,” said Mr Hofisi.

“There was gross misappropriation of movable assets such as motor vehicles, omnibuses and factory equipment, resulting in the matter being reported to the police. The police in turn impounded those assets as exhibits. However, the criminal matter could not proceed because one of the accused persons is out of the country. A considerable amount of effort is being made to recover the assets pending the finalisation of the criminal matter.

“It is also alleged that Mr Toendepi and Mr Mangena had established a joint venture engineering company in Harare called Wheelmate (Private) Limited, using factory machinery taken from DWTL. The said company is allegedly run by one David Breakfast. Investigations are in progress.”

Mr Hofisi concluded there was no meaningful injection of capital into DWTL by Elgate. “Instead there was capital ejection.

If $5,4 million had indeed been injected, DWTL would not have been placed under judicial care within two years following the cancellation of the first judicial management order, nor would the directors have filed for voluntary liquidation in August 2009, one year after the cancellation of the first judicial management order.”

Source : The Herald

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