Poor economy: Banks plead with sick firms

via Poor economy: Banks plead with sick firms – New Zimbabwe 23/01/2015

THE Bankers Association of Zimbabwe (BAZ) has pleaded with debt burdened ailing firms to engage their financiers to find means of bailing them out instead of rushing for judicial management at the High Court to escape the wrath of creditors.

Harsh economic conditions characterized by the absence of cheap funds for recapitalization, stiff competition from imports and subdued consumer demand have seen hundreds of firms tinkering on the brink of collapse.

To escape attachment of their assets for failure to meet their obligations to creditors, the majority of stressed firms are seeing the courts as their saviour, giving them temporary relief from marauding creditors through the judicial management process.

So common have judicial management applications become such that the High Court has expressed worry on possible abuse by companies of the court sanctioned process, which allows beleaguered companies to pursue alternative survival routes to avoid liquidation without harassment from creditors.

But BAZ president Sam Malaba said ailing companies must approach their bankers first for assistance before applying for judicial management.

“Please do not rush for judicial management, talk to us before rushing to the courts. The courts won’t be your salvation,” he said, addressing captains of industry at an economic symposium on Thursday.

“Our solution is not to close your business.”

Malaba warned business people if they applied for judicial management and their businesses are liquidated, they would be red flagged for future loan benefits in any other projects they might venture into.

“If you close, remember the banks will still be there and we will remember you (when you come again to apply for loans),” he said.

Malaba said banks were cognizant of the challenging economic environment and would assist business look at alternative solutions.

“We know interest rates are high but talk to us, we are also human beings,” he said, adding loans offered by local financial institutions were at a premium due to exogenous factors such as the country’s high risk profile.

Official data shows that over 4 600 companies have closed shop in the last three years with hundreds of them going through the judicial management process.

While some have been rescued by judicial managers, managing to pay back creditors and resuming operations, some have failed to recover and were liquidated.

Banks, which in most cases are among the top creditors of most ailing firms, are week-in week-out besieging the High Court in an effort to recover funds from some of the companies that will have shut down operations.