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CASES of company properties being attached and auctioned due to debts owed to banks and other creditors continue to increase as the liquidity constraints tighten in the country.
A survey by Business Post revealed that every week movable assets of several companies are being attached and auctioned.
In the sale of immovable property notices by Lardmail Laison Auctioneers (Pvt) Ltd in The Manica Post issues of October, there was on average at least three companies with movable assets up for auction each week.
As the slowing local economy continues to weigh on local companies, with revelations that more than 283 companies have been liquidated since 2009, economists are warning of further collapse if Government does not take measures to mend the economy. In 2009 only 11 companies filed for liquidation and the number has been gradually increasing with 149 companies filing for liquidation in 2012. From 2012, a lot of big companies have been going under judicial management in a bid to buy time from creditors and attempt to recapitalise to remain operational.
Big companies like Cairns Foods, Karina Textiles, David Whitehead, Road Motor Services, Belmont Leather, National Blankets and Lion Matches Zimbabwe have had a taste of judicial management.
While some like Karina Textiles have since been liquidated after failing to recapitalise, several small companies are currently closing down or suffering from legal action by creditors, losing properties worth thousands of dollars week in week out.
A corporate lawyer, Mr Chris Ndlovu, said companies were facing challenges owing to gross mismanagement, high levels of indebtedness and under-capitalisation.
He said in most cases companies had more liabilities than their assets and were failing to secure funding for daily overheads to stay afloat and repay creditors.
“The success of judicial management is measured by the ability to pay all creditors, address corporate governance issues, for instance, appointing auditors or court credible investors. A judicial manager must make sure that the company is up and running again, that it pays taxes to Government and is an employer.
“However, as long as there is no access to capital, all decisions, rescue plans and efforts the judicial manager makes will not work, which is the current state of affairs in Zimbabwe.
“This is disastrous and often pushes the company into liquidation or results in company assets being auctioned by various creditors,” said Mr Ndlovu.
Economist Mr Prosper Chitambara added that lack of capital was the biggest challenge for distressed companies, including those under judicial management. He said Government intervention was possible and necessary citing how Government introduced a motion to stop the liquidation of troubled lint processor David Whitehead in February.
“Many companies continue to battle with capital deficits due to liquidity crunch and low investor confidence. Government, private sector, banking sector and all stakeholders must come together and make a sacrifice for the manufacturing sector.
“A revolving fund will be helpful. Some companies do not require huge amounts to start operating viably again even at small-scale level until it grows back into a large entity,” he said.
Another economist, Mr Crispen Mukarakate, said local companies were struggling due to stiff competition from cheap imports flooding the market coupled by high premises rentals and high utility costs.
“We are facing a double-edged economic situation whereby those in business have to compete with an influx of cheap imports flooding the market.
“Present-day we are in an extremely competitive business environment controlled by market forces, so it is either you join the bandwagon or you eventually close shop after persistent losses,” said Mr Mukarakate.
In August, a snap survey by Business Post revealed that several long-established companies that were operating in the CBD in Mutare had closed shop between January and August 2014.
Several, companies among them Bhadella Wholesalers, which was one of the leading and oldest wholesalers in the city, closed shop during this period. In the hospitality industry another tragic closure was of the exquisite Penhalonga-based hotel, La Rochelle, that shut down early this year in January.
Other notable companies that closed shop between this period were the graphics design company, Coar Signs, Sakubva Spar, Wholesale Giants, Kappjack and Bhadella, Stax Restaurant, Portuguese food outlet, Mirasol, stationery and bookshop Book Centre and motor parts shop Mutare Parts, to mention a few.
With Government hoping to create 2,2 million jobs by 2018 under the guidance of the economic blueprint, Zimbabwe Agenda for Sustainable Socio-Economic Transformation, there is definitely a need for a multi-sectoral approach to curb the massive company closures and auctioning of properties at the expense of the private sector.
Online Reporter