Source: Zimasco placed under corporate rescue | The Sunday Mail
Martin Kadzere
ZIMASCO has been placed under corporate rescue after Avim Investments, which became a major creditor due to the ferrochrome giant’s contract breach, successfully applied for its placement.
Last Wednesday, the High Court granted a corporate rescue order for the Kwekwe-based ferrochrome producer, with Mr Wilson Manase, a veteran lawyer with extensive corporate experience, being appointed the practitioner
This comes nearly 10 years after Zimasco, whose majority shareholder is Sinosteel of China, underwent a similar rescue, then known as judicial management, due to financial distress from 2016 to 2018.
Zimasco, alongside Afro Chine and Zim Alloys, is one of Zimbabwe’s largest producers of ferrochrome, a key input in the production of stainless steel and holds large tracts of unexploited claims.
A contractual breach by Zimasco involving its agreement with Avim for coal supply to its furnaces led to the current corporate rescue proceedings. The financial repercussions of the breach resulted in Avim becoming a major creditor, prompting it to initiate the rescue process.
Other creditors, including workers and statutory bodies, later supported Avim’s application.
The Insolvency Act defines corporate rescue as proceedings to rehabilitate a financially distressed company through temporary supervision of its management and affairs.
In the High Court application, Avim cited Sinosteel Zimasco Private Limited, the Master of the High Court and the Registrar of Companies as the first, second and third respondents, respectively.
According to the High Court papers, Avim and Zimasco entered into a six-year contractual agreement in 2017, under which the former would supply 4 000 tonnes of coke peas monthly at US$270 per tonne.
Zimasco was obligated to make an initial upfront payment of about US$1 million.
Despite repeated demands, Zimasco failed to make the payment, leading to substantial financial losses for Avim and impeding its ability to honour other contractual commitments.
Avim contends that Zimasco’s breach of contract resulted in US$50 million in potential lost earnings. Asserting Zimasco’s financial distress and inability to service its debts, Avim Investments petitioned for a corporate rescue order to restore the company’s viability and prevent its liquidation.
Financial distress occurs when a company is unable to pay its debts when due, and likely to be insolvent within six months.
According to Avim, Zimasco is in financial distress and commercially insolvent due to its prolonged failure to settle claims since 2017. While financially distressed, the firm is potentially viable and can be turned around, but its shareholders lack the capacity to recapitalise it and the current setup cannot attract funding, Avim Investments contends.
Furthermore, Avim claims it is evident that the Zimasco management has failed to develop essential growth strategies or explore potential corporate partnerships. Avim further claims the company possesses the necessary modern equipment and skilled workforce to resume operations. A corporate rescue practitioner can use various strategies, including securing post-commencement finance, engaging in joint ventures or attracting potential investors due to the increased demand for chrome, demonstrating the company’s potential for revival under proper management.
During corporate rescue proceedings, a legal moratorium is imposed to protect the distressed company and facilitate its rehabilitation. This means, generally, no legal actions, including enforcement, can be initiated or continued against the company or its assets.
However, this moratorium is not absolute and allows for specific exceptions. Legal actions can proceed with the written consent of the corporate rescue practitioner.
The court retains the power to grant permission for legal proceedings, subject to terms it deems appropriate, ensuring judicial oversight.
The corporate rescue practitioner is responsible for developing and implementing an approved plan. The plan will involve restructuring the company’s affairs, business, property, debts and other liabilities and equity.
With respect to Zimasco, the goal is to maximise the likelihood of the company continuing as a solvent entity.
Mr Manase is a longstanding member of the Law Society of Zimbabwe, a prominent businessman and chairperson of several companies. His qualifications include certifications as an estate administrator and insolvency practitioner. He is expected to convene a creditors meeting soon.
Zimasco’s position as one of the largest ferrochrome producers in Zimbabwe highlights its significant role in the national economy.
Its operations contribute substantially to the country’s export revenue, generating vital foreign currency and bolstering the trade balance.
Ferrochrome, a key component in stainless steel production, is a valuable commodity on the global market, and Zimasco’s output directly impacts Zimbabwe’s standing in the sector. Beyond its national economic importance, the firm is a crucial pillar of the Kwekwe community.
With the potential of employing over 2 000 people directly, the company provides essential livelihoods for numerous families in the region.
This employment extends beyond the immediate workforce, indirectly supporting a network of suppliers, service providers and local businesses that rely on its operations.
The company’s operations sustain a significant portion of Kwekwe’s economic activity, making it a bedrock of the town’s prosperity.
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