Rescue plan for David Whitehead

declared the company insolvent and recommended it be placed under liquidation.
The company’s shareholders and creditors are expected to meet today at the High Court to decide its fate and that of its more than 2 000 workers.
The shareholders may opt for liquidation, as recommended by Mr Militala, or final judicial management.

But it is understood that the rescue plan by Aurifin, premised on conversion of debt into equity, disposal of non-core assets to raise working capital and restart factories, as well as bringing in a strategic partner, could receive support.

The rescue plan has already been placed before the Master of the High Court.
According to the plan, Aurifin is proposing “a scheme of compromise” to avoid liquidation.
The report says workers and other creditors, who are owed about US$8 million, can be persuaded to convert part of their debt into equity, but only on condition that the company will be subsequently re-listed on the Zimbabwe Stock Exchange.

Capital and reserves would increase by US$8 million while liabilities will decrease by the same amount, thereby strengthening the company’s balance sheet.
Workers will be guaranteed job security while other creditors, such as suppliers of goods and services, would continue doing business with the company.

“A scheme of arrangement in which workers will receive shares resonates with the Government’s indigenisation and empowerment programme,” says Aurifin.
The proposed scheme of arrangement saved Bindura Nickel Corporation from liquidation.

Aurifin is also proposing the sale of the company’s non-core assets to raise working capital.
“In our opinion, the sale of non-core assets, such as the Gweru factory to mobilise working support,will receive prime consideration,” according to the rescue plan.
“The balance sheet will become attractive after the removal of huge debts,” says the plan. It adds that thereafter “capital raising initiatives, either through the disposal of non-core assets and debt equity could be pursued”.

Debt-equity could be mobilised but this may be difficult, owing to the liquidity challenges obtaining in the economy.
At the moment, DW will score low marks on credit rating because of its well-documented challenges.

Production would be expected to start in phases. It is envisaged that production would start at the spinning division in Kadoma. Spinning involves the conversion cotton lint into yarn that could be sold on the local or export markets.

Other production divisions such as weaving, dyeing and hosiery require intensive refurbishment of machinery and equipment before resumption of production.
It is then expected that proceeds generated from the spinning division in Kadoma would be used for the refurbishment of machinery at the weaving, dyeing, and hosiery divisions in Chegutu over an estimated period of six months.

Upon restoration of normalcy, the process to identify an investor with textile expertise, financial capacity and willingness to re-list on the ZSE would start.
The company has nearly 1 000 members whose investments were made redundant when it was de-listed from the ZSE. These members and creditors who would have converted their debt into equity should be given the opportunity to redeem their securities.

Listed shares are liquid and easily transferable.
The company will also have access to cheap finance available on the capital markets.
“Oversights that may have been made during the first judicial management in identifying an institutional and credible investor should be avoided at all costs,” says the plan.
A DW shareholder said yesterday: “The plan has the support of all shareholders and the majority of creditors. Nobody has ever benefited from liquidation except the liquidator.

The allegations (he has raised) will be investigated while the company is running.”
In 2001, Lonrho Africa disinvested from the textile industry and a management consortium of senior managers took over an 88 percent stake.
DW was suspended from the ZSE in April 2005 after failing to publish its financial statements within the stipulated time and corporate governance shortcomings.

A year later, the company was placed under judicial management, which resulted in the appointment of Dr Cecil Madondo of Tudor House Consultants as the judicial manager.
During the first judicial management, a significant restructuring took place that resulted in the sale of 51 percent shareholding for US$5,4 million to Elgate Investments.

In May 2008, Elgate Investments took over the management of the company, following the cancellation of the judicial management order. The company was subsequently delisted from the ZSE. In December 2010, DWTL was placed under judicial management, for the second time, resulting in the appointment of Mr Winsely Militala of Petwin Executor & Trust Company as provisional judicial manager.

At the time of writing, the company had been under provisional judicial management for more than two years.
According to Mr Militala, the company’s liabilities at about US$14 million far outweigh assets at US$6 million.