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149 companies file for liquidation
06/12/2013 00:00:00
by The Source
Companies in distress ... Industry minister Mike Bimha

AT  least 149 companies filed for liquidation at the High Court in 2012, failing to keep up with high operational costs a local think tank said on Friday, and more are seen going under in 2013 as economic conditions worsen.

Companies are battling with high financing costs, with banks charging as much as 20 percent interest and the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) said most of those that applied for liquidation were on the basis that they could not pay their debts.

Labour costs in Zimbabwe are among the highest in Southern Africa while the electricity costs remain prohibitive and most companies are stuck with aged machinery that is expensive to maintain.

The number of companies seeking liquidation has progressively increased since dollarisation in 2009.  In 2010, 50 companies, almost five times more than the prior year applied for liquidation. The number increased to 73 in 2011 and more than doubled in 2012 to 149.

The number could be higher in 2013 as the economy is stuttering in the aftermath of a disputed July 31 election that extended President Robert Mugabe’s 33-year rule and a cash squeeze that has reduced consumer demand.

Cecil Madondo of Tudor House Consultants who has managed 25 companies in nearly two decades, said most companies were placed under judicial management or liquidation due to gross mismanagement, lack of effective corporate governance structures and high level of indebtedness.

“You find a company technically insolvent sometimes with more liabilities than assets regardless of its viability,” he said.

He said undercapitalisation was a major challenge facing most companies under judicial management resulting in them failing to buy basic material required to revive them.

“The major problem we face as judicial managers is lack of access to capital in order to address these problems,” he said.

Another judicial manager, Reggie Saruchera of Grant Thornton said the empowerment law requiring foreign owned companies to be 51 percent owned by local blacks was making it difficult for potential investors to put their money in distressed companies.

“There must be a difference on how the company is being bailed out,” he said.

He called for a legislation that forces shareholders of distressed companies to relinquish power for the benefit of creditors.

“They don’t want to relinquish shareholding, they don’t have money to put into the business and at the same time the depositors and creditors are suffering, where do we draw the line?” he said.


He also complained about the country’s labour laws which were not favourable to employers making it difficult for a judicial manager to retrench where necessary in order to revive a company.

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