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David Whitehead used to be the country’s largest textile company in the country. Due to financial and operational challenges, the company had been under care of judicial management during the past 10 years ago.
This week, The Herald Business (HB) spoke to the judicial manager, Knowledge Hofisi (KH) to share insights on situation at the company.
HB. Can you respond to the allegations made by Honourable Nduna, MP for Chegutu West, that the demerger and subsequent disposal of shares by Lonrho was tinged with illegalities?
KH. Before responding to the substance, it is imperative to highlight the following preliminary points. David Whitehead Textiles Limited is under judicial care. Hon Dexter Nduna is not a member or creditor of DWTL and at the same time, he did not engage the company. However, should Hon Nduna have positive contributions to make he is welcome to propose them in a manner that is constructive and nation building.
Meanwhile, we are consulting our legal representatives on a proper remedial action to take in light of the article by Hon Nduna. It is abundantly clear that Hon Nduna is portraying himself as championing the cause of workers yet he has known interests in DWTL as he has been invariably challenged even in Parliament to declare such interests and therefore we will ignore some of the unsubstantiated allegations made by him.
However, regarding the substance of your question, My response is as follows: The demerger was consummated 14 years ago in conformity with the listing requirements set out by the Zimbabwe Stock Exchange. Guscole Investments was a special purpose vehicle deployed by senior management to spearhead the acquisition of controlling stake in DWTL. As far as we concerned we are not aware of flaws that characterised the acquisition process. The allegation regarding the putative role of the workers is untrue.
HB. When was DWTL delisted from the Zimbabwe Stock Exchange and what necessitated such a move?
KH. The delisting took place in 2009 after the acquisition of controlling stake by Elgate Holdings which has since been rescinded. The delisting process was not compulsory. Before the placement of the company under judicial care in May 2006, DWTL had already been suspended from the ZSE for none compliance.
HB. Do you think that the relocation of the head office to Harare by the previous management was necessary.
KH. The Head Office has always been in Harare at Lonhro House which later changed hands.
HB. Before your appointment as final judicial manager, you were once involved as a financial advisor to the first judicial manager, Dr Cecil Madondo. Isn’t there any conflict of interest?
KH. Well, Section 272 of the Companies Act (Chapter 24:03) as read conjunctively with Section 70 of the Estate Administrators Act (Chapter 27:20) does not preclude me from assuming such a position and there is no conflict of interest whatsoever. Only auditors or corporate bodies are disqualified and I was neither an auditor of DWTL nor a juristic person.
HB. Can you confirm if Elgate Holdings paid $5,4 million for the acquisition of 51 percent shareholding in DWTL.
KH. My position is set out in the statutory report circulated and presented to creditors and members of DWTL in August 2014. There was no meaningful capital injection but rather capital ejection by Elgate Holdings in that numerous machines were stripped and sold as scrap. Accordingly, Elgate Holdings’ effective shareholding is significantly lower than 51 percent. The shareholding structure of DWTL will be reported in my statutory report that I am finalising.
HB. DW is a strategic entity and Government will certainly want to see it coming out of the woods. Are getting any help from the Government?
KH. We continue to receive tremendous support from the Ministry of Industry and Commerce and other Government arms. In addition, one of our major customers is Government. In fact, considering that DWTL is of strategic national importance, we plan to broaden and deepen our relationship with Government particularly in our quest to retool the company.
HB. Do you think that the current members have the capacity to inject meaningful capital to revive DWTL?
KH. DWTL members are predominantly individuals and may not have the capacity to inject substantial funding required in DWTL. Being mindful of that aberration, efforts are being pursed to secure equity investors. This will result in the acquisition of new infrastructure but because of certain sensitivities, only germane stakeholders are apprised of material developments.
HB. It has been said that the offer to acquire machinery from Japan expired. Is it true?
KH. That is not true. The offer is still on the table. In fact, to buttress that point the financiers made an effort to meet His Excellency, President Mugabe during his recent tour in Japan.
HB. There have been allegations that some members are not keen to take new investors on board?
KH. I am not aware of such resistance.
HB. Is it true that some of your senior executives acquired expensive vehicles?
KH. That assertion can not be associated with truth. In fact, the Toyota Vigo twin cab that is being used by the chief marketing officer has always been owned by the company.
The chief financial officer and chief technical officer are using personal vehicles which I believe were acquired before joining DWTL (under judicial management).
HB. Hon Nduna suggested that you should be removed as judicial manager?
KH. As a creature of law, I believe in constitutional equality but will rise slightly above Hon. Nduna’s averments. When I took over in 2014, DWTL had been dormant for four years but maintenance work was carried out before partial resumption of operations. We are now producing fabric for the Zimbabwe National Army, Airforce of Zimbabwe, Zimbabwe Prisons & Correctional Services and a host of other private sector players although admittedly, the company is still facing operational constraints owing to working capital challenges. Nonetheless, efforts are being made to address the working capital constraints, of course being mindful of the liquidity challenges in the economy.
It appears that banks are now cautious in lending to avoid non-performing loans. The fact that the company is under judicial management increases its perceived risk profile.
HB. Hon Nduna accuses you of having sold company assets for personal gain. Can you respond to that?
KH. Non-core assets were sold in accordance with Section 307 of the Companies Act that requires the judicial manager to obtain leave of court first and consent from creditors and members. Funds realised were applied towards initial working capital requirements.
HB. Are there any corporate governance deficiencies in DWTL?
KH. Corporate governance systems are sound. Besides reporting to the Master of the High Court, the judicial manager also reports to an oversight committee that is chaired by a retired judge. The executives report to the judicial manager.
HB. What is the company’s level of indebtedness vis-à-vis its asset base?
KH. The gearing ratios are sustainable in comparison to the underlying assets. Pre-judicial management liabilities are $12 million yet the total assets are pegged at $16 million.
Of the $12 million, about $8 million is owed to workers, leaving trade creditors of $4 million. In my opinion, once there has been restoration of normalcy and confidence, balance sheet reconstruction through conversion of such debt into equity in terms of Section 191 of the Companies Act will be possible and that will result in the statement of financial position improving significantly. It will be beneficial to the employees to save the company as they will remain in employment.
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