Judicial managers mourn capital crunch

Judicial managers mourn capital crunch
Published: 09 December 2013
Judicial managers are calling for the establishment of a well capitalised business rescue fund as they are struggling to access funding to rejuvenate distressed companies from banks.

Most local companies are hanging by the thread as liquidity challenges are hitting hard on their bottom line, while loans from local financial institutions are not only scarce but expensive. The number of companies placed under judicial management and have been liquidated has been on the rise in the past five years. Judicial management is a process facilitated by the High Court which allows experts to try and rescue a troubled company, failure of which it winds up operations.

In 2012, 149 companies filed for liquidation up from 73 the previous year, 50 in 2010 and 11 in 2009. Renowned judicial manager Dr Cecil Madondo said companies placed under judicial management failed to get bail out packages from financial institutions as they were deemed risky.

"Judicial managers must by all means try to avoid liquidation," he said.

"The major problem we face as judicial managers is lack of access to capital to address these problems."

Madondo said all stakeholders including government and the private sector must join hands to establish as well as contribute to the business rescue fund.

Government has established two such funds namely the Zimbabwe Economic and Trade Revival Facility and the Distressed and Marginalised Areas Fund to assist struggling companies.

But the initiatives have only managed to provide around $100 million, a small chunk compared to the $2 billion the local industry requires.

Most local companies are being put under judicial management as a result of gross mismanagement, under capitalisation and high levels of indebtedness.

Madondo said failure by judicial managers to access revival capital had resulted in most companies winding up operations. Another judicial manager Reggie Saruchera said it was also critical that other laws are flexible to allow judicial managers to effectively play their roles.

He said laws such as indigenisation and labour presented challenges for judicial managers. "Labour laws must be flexible when it comes to insolvent companies," he said.

"In hostile set ups, you have workers going up against the judicial manager.'

Commercial law reform expert, David Fitzpatrick said the challenge for most judicial managers was that banks were reluctant to lend to companies placed under judicial management.

"Zimbabwe has a sound foundation to improve insolvency resolutions," he said, while concurring on the need for flexibility of laws when dealing with companies placed under judicial management.

- New Ziana


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