The Sunday News
Thulani Ndlovu Business Correspondent
THE High Court has discharged troubled Bulawayo-based textile company, Merlin, from provisional judicial management leaving it prone to litigation by its creditors.
Merlin owes its creditors more than $4 million and needs $14 million to fully recapitalise its operations.The latest ruling allows creditors to sue and execute judgments against Merlin.
“In the event, on the totality of the foregoing considerations it appears to the court that there exists no reasonable probability that Merlin, if placed under judicial management, will be enabled to become a successful concern and it is not just and equitable to grant such an order in the circumstances,” said High Court Judge Justice Andrew Mutema.
The cancellation of provisional judicial management was necessitated by an application brought by Old Mutual Life Assurance (Old Mutual). Old Mutual which is owed more than $1 million sought the discharge the provisional judicial management order on the basis that judicial management could not change the fortunes of Merlin.
When Merlin fell on hard times Zimbabwe Textile Workers Union, the umbrella body representing the interests of the workers in the textile industry approached the court and applied for and obtained, a provisional order placing Merlin under provisional judicial management on 8 December, 2011.
Cecil Madondo of Tudor House Consultants, who was appointed judicial manager, was quoted widely in the media in the past months saying that there were in talks with a potential South African investor. However, Justice Mutema said Madondo had failed to breathe “fresh ideas into Merlin” and judicial management was only adopted when the court was satisfied that there was a reasonable probability that, if placed under judicial management a company which is unable to pay its debts would be enabled to become a successful concern.
The judge said the philosophy behind the rescue plan of financially distressed enterprises was that the effects of insolvency were not limited to the private interest of the insolvent debtor and his or her creditors.
“There are in general five groups of stakeholders affected by the financial distress of a company, vis-a-vis shareholders, creditors, employees, directors and the local community. Company law should consequently provide a means for the preservation of viable commercial enterprises capable of making a useful contribution to the economic life of the country.
“In the instant case Merlin, via Madondo, put out its tentacles in an endeavour to secure new equity investment to finance working capital so as to resume production which ceased in October, 2010. The courted potential investors include both local for example Sino Zimbabwe and Dimaf (Distressed Industries and Marginalised Areas Fund) and foreign. None of these efforts bore fruit,” said Justice Mutema.
The judge also revealed that in July 2014, Madondo engaged a textile technologist. “It yielded that a large number of machines were not in a running state; provided the needed repairs were carried out the plant could still be viable. There was need to streamline production flow based on a viable business model dictated by ability to respond to current market requirements. The state of air compressor was worrisome.
“Two 1 000 KVA transformers were no longer ideal and no power sources were fitted on them or any of the spinning machines. There is no possibility, at least in the foreseeable future, of these repairs or adjustments being carried out in view of the lack of investment capital,” added Justice Mutema.
He added that Madondo’s view is that a total of $14 587 750 is required to capitalise business operations for the short, medium and long term. Justice Mutema also said Madondo had failed to fulfil the promises he made to the creditors.
Said Justice Mutema: “He (Madondo) had told creditors that working capital would be available before end of August 2012, creditors would be paid before end of December 2012 and $480 000 should be available for distribution.
“Now two years on nothing is there to show for it. No payment has been made, no production has resumed as we speak and no fresh ideas have been breathed into Merlin. The equipment is obsolete, technology has overtaken Merlin’s machinery, competition for the same products from Chinese and Indian markets is even stiffer.”
Furthermore, Jutice Mutema refused to grant an order of liquidation to the company because Merlin failed to comply with all requirements of the Companies Act.
