via Cottco applies for judicial management | The Herald 6 November 2014 by Conrad Mwanawashe
THE Cotton Company of Zimbabwe has applied to be placed under judicial management as the company has failed to turn around its operations even after a capital injection from the sale of its Seed Co stake.
In an application made by the company at the High Court yesterday, Cottco through its company secretary Mr Pious Manamike said the business was technically insolvent and this could trigger foreclosure at the instigation of creditors.
Group operations have been over the years affected by unfavourable lint prices on the international market measured against an immense upward pressure on the local producer price. Cottco is presently suffering from sub-optimal capacity utilisation.
According to the application, the company’s board believes that there is reasonable probability that if Cottco is placed under judicial management, it will be enabled to pay its debts or meet the obligations and become a successful concern.
The board believes that it would be just and equitable in the interests of all creditors and debtors that the Cottco be placed under judicial management.
“The Applicant has, by Board Resolution, resolved that it be placed under Judicial Management by this Honourable Court. The applicant has ascertained that Mr Tapiwa Steven Chizana of Deloitte and Touche Chartered Accountants is willing to act as judicial manager,” the court papers say.
A board meeting held on October 27 and attended by Dr Douglas Ncube the new chairman, Ms Rufaro Maunze, Mr Ayooba Adam, Mr JP Maposa, managing director Mr Collins Chihuri, financial controller Mrs Nyaradzo Mushangwe, treasurer Mr Maduviko Mubaiwa and company secretary Mr Manamike — noted that the company is now not in a position to meet its immediate financial obligations with creditors.
“Consequently having sort legal advice, the board resolved to put the company under judicial management on a scheme of arrangement to allow for the implementation of a turnaround strategy and recovery without pressure from creditors.”
Total borrowings are in excess of $48 180 886 owed to local and external creditors. Its liabilities exceed assets.
Some of the creditors such as BancABC have instituted summons against the cotton company. BancABC has issued summons in the sum of $5 million plus interest for the recovery of the loan. Cottco has only paid $200 000 of the instalments of $1,3 million.
Cottco has ginning capacity of 150 000 tonnes. The industry has ginning capacity in excess of 700 000 tonnes. However, the national crop is less than 140 000 tonnes of which Cottco’s share of the national crop is only 45 000 tonnes. Its share is not adequate to cover its current overhead structure.
“Regrettably the applicant’s “going concern” status is threatened by a number of major challenges, namely; technical insolvency which could trigger foreclosure at the instigation of creditors; unproductive and unsustainable debt overhang despite the repayment of a significant portion of the debt as part of the restructure that occurred in early 2014,” court papers say.
It is also noted that unfavourable lint prices on the international market measured against an immense upward pressure on the local producer price were having a negative effect on the company’s performance.
Cottco chairman Mr Freeman Kembo resigned recently and the company is the subject matter of litigation instituted by various creditors. The new chairman, Dr Ncube recently assumed office.
The company’s board of directors believes that certain measures can be adopted to counter its challenges. The board says that the company needs to restructure its operations and align costs to the new levels of lower cotton production, that is, 40 000 tonnes.
The company needs to find both a suitable technical and financial partner.
The company/industry needs to lobby for the adoption of the GMO crop to be competitive and improve yields.
The company/industry need to lobby for a pricing mechanism that allows the ginners to adopt a fixed pricing margin model where a pricing strategy such as the six month average cot look price can be used.
Simple value addition needs to be incorporated into the company’s business plan.
COMMENTS
Zanupf criminals have yet again destroyed a once thriving Rhodesian institution. Pamberi regime change
It was only a matter of time that this company succumbed to continous looting just like many other parastatals. Infact its a miracle that this company managed to survive up to now. Everyone knows that it has been the feeding trough of the gvt esp during the hyperinflation period.
Surely someone must be held to account for this heinous crime.
What’s Nguni got to say on this lot?
The “successful” land reform programme has created the total demise of anything, any business or anything related to agriculture. We end up with a handful of greedy weekend squatters who have absolutely no intention of making a living out of commercial farming. Rape and sell any moveable equipment and worry about what to get rid of next. Makes me sick.