End of the road for DW

Dr Cecil Madondo of Tudor House Consultancy.

Elgate Investments, which acquired a 52 percent stake in the firm, applied for a second judicial management after the company plunged into financial crisis.
In the event that the former textile giant is liquidated, as recommended by Mr Militala, workers and other suppliers of goods and services are set to lose out.

Assets sold during liquidation do not normally fetch market values more so, when the property market is depressed.
According to a report by the provisional judicial manager, DW assets are pegged at US$6 million.
But analysts estimate they could be sold at a 20 percent discount.

Thus, the total amount that could be realised from the sale of assets would be US$4,8 million.
The cost of liquidation, which is payable prior to creditors receiving any payment on their claim, would be US$400 000.
The liquidator gets a statutory 7 percent of value realised from the sale of assets.

Order of Priority

The order of priority in paying creditors will see secured creditors ranking first, including the liquidator and these are paid from the proceeds of the sale of the secured assets.
Information obtained indicates that secured creditors filed claims worth US$3,8 million.

There is one creditor holding a special notarial bond on an immovable property in Kadoma that has been valued at US$2,4 million, according to the statement of financial position prepared by the provisional judicial manager.

We also understand that the other group of secured creditors constitutes a number of suppliers of goods and services that registered a special purpose vehicle before securing assets worth about US$800 000.

After secured creditors, there are preferential creditors who do not hold security for their claims, but rank above concurrent creditors. They are paid from the proceeds of unencumbered or bonded assets.

The preferential creditors include employees’ remuneration up to US$400 to each employee in terms of Section 103 of the Insolvency Act (Chapter 6:04) and statutory bodies such as the Zimbabwe Revenue Authority.

There are 902 workers that filed claims worth about US$7,8 million.
But DW employees, as preferent creditors, are eligible to receive only US$360 000.

The remaining amount is under concurrent creditors, the last ones to be paid.
They are paid from any proceeds of unencumbered assets that remain after secured and preferent creditors have been paid.
They are paid in proportions to the amounts owing to them.

If all creditors and the costs of liquidation are paid in full, any amounts remainingmust be distributed to the shareholders according to their rights and interests in the company.

Assuming that the assets are sold at a 20 percent discount, the estimated net realisable value of DW assets would therefore be US$4,8 million.
Liquidation costs, secured and preferent creditors would require a total of US$4,5 million leaving only US$240 000 for distribution to concurrent creditors.

Concurrent creditors filed claims worth US$8,8 million of which US$7,5 million belongs to the workers after removing US$360 000 which is classified as preferent creditors.
With US$240 000 available for distribution to concurrent creditors, it is clear that this class of creditors will be able to recover 3 percent of their claims.
In other words, concurrent creditors could be paid US3c in every US$1 owed by David Whitehead.

At the same time, once the liquidation order has been granted, contracts of employment will be automatically terminated and workers will lose employment.
Employees currently occupying company houses will face eviction as these properties will have to be sold as part of the liquidation process.

Although liquidation results in attainment of finality, the process will have adverse effects on workers and other suppliers of goods and services.
The former ZSE-listed company was once one of the country’s biggest employers, sustaining thousands of livelihoods directly and indirectly.

Formerly owned by Lonrho before a management buyout in 2001, led by former CEO Edwin Chimanye, it has three main plants in Chegutu, Kadoma and Gweru.