The Sunday Mail
Taurai Changwa
Most people recognise that judicial management is a curative process that is meant to rehabilitate a business. In fact, it is meant to prevent company closures and the associated consequences that come with it.
Logically, this means that the law that governs the restoration of a business must, as much as possible, ensure that the business that is being rehabilitated has an opportunity to recover.
So, judicial management is a process dedicated to corporate renewal. It uses analysis and planning to save troubled companies and returns them to solvency. Judicial managers often try to identify the reasons for failing performance and fix them. Judicial management involves management review, root failure causes analysis, and SWOT analysis to determine why the company is failing.
Once analysis is completed, a long term strategic and restructuring plan are created. Apparently, Zimbabwe has a horrible perception about companies under judicial management and this must change. In developed countries, distressed companies are given maximum support by their governments.
For example, in the United Kingdom they have what they call the Finance (No 2) Act 2015, which gives huge benefits to distressed companies, including huge tax relief. Without such an exemption, a financially distressed company could be forced into insolvency because a transaction to relieve its debts is not viable. Without any doubt, most companies owed by Government or quasi-Government entities have either shut down or are under judicial management.
Therefore, it would be unfair for the same Government to formulate an Act that restricts companies under judicial management from participating in public tenders. Well, if Government cannot afford to open up the process, they might as well limit it to companies who, to some extent, are crippled by Government debts. This is only fair.
Put simply, Government should be prepared to trade-off its debt for concessions to affected companies to participate in public tenders. There is urgent need to save and create jobs in Zimbabwe. We need to save and create more jobs in Zimbabwe and it is time to be more flexible than being too rigid. Perhaps, tax laws and the new Public Procurement and Disposal of Public Assets Act (Chapter 22:23) has to be re-looked in order to consider this option.
There are a lot of companies with massive potential for growth but they are being hum strung by unfavourable laws. The public has high expectations for the Government, and bureaucrats should invest every possible option in order to ensure that the already existing companies are given room to recover and grow. There is no doubt that Government has the tools — both fiscal and monetary — that are needed to fix the predicament that companies under judicial management are finding themselves in right now.
It is grossly unreasonable to allow a company employing more than 400 people to fold simply because the tax authorities are insistent on recovering their dues, irrespective of the fact that there might be owed huge amounts of money by the same government. Honestly, this has to change.
Quite clearly, it is a reasonable expectation that Zimra might not be able to recover some of the money that is owed by struggling companies.
It therefore has to pursue soft and flexible alternatives that help both the institution and the affected company.
It is the same situation when a company liquidates. It will not help Government much.
At the end of the day, everyone loses. The best strategy on distressed companies is on restructuring the financial position by negotiating with creditors, minimising costs and boosting revenue.
In Zimbabwe, how can that happen if Government does not allow distressed companies to tender and will not give a relief on tax? This can be a mammoth task. It is incumbent upon everyone that cares for the Zimbabwean economy to work hard to ensure survival of Zimbabwean companies and improving the lives of our people. The minute people lose their jobs it becomes a socio-political risk. It is the same as creating another problem for the economy.
But obviously a blanket concession cannot be given to every company that is struggling. However, at the very least, it must be understood why the company is under judicial management and there must be adequate proof to justify the claim. The second issue to note is how many people this company employs and its historical performance. Indeed some companies may be distressed due to gross mismanagement of funds by management, but most companies in Zimbabwe were simply due to the harsh economic environment.
This matter should not be overlooked and ignored. Addressing this issue as soon as possible will save thousands of jobs in Zimbabwe and create a working environment conducive to everyone, including foreign investors. Without just focusing on local companies, it must be properly analysed why a lot of foreign-owned companies closed or downsized in Zimbabwe.
President Mnangagwa always say, “Capital goes where it’s comfortable”. Some of the issues mentioned above, in particular our harsh tax laws, will surely not make capital comfortable.
Judicial management does not mean that the company will obviously shut down but it is a process to turn it around. Financiers such as banks stigmatise companies under judicial management. Something as simple as getting a bank guarantee is perceived high risk, even if the cash flows and security of such a company are healthy.
Regrettably, such decisions are surely not good for business. Zimbabwe needs strategists and entrepreneurs to turn the economy around. Time to be rigid has come to an end, stakeholders should come up with practical solutions to build our country.
Taurai Changwa is a member of the Institute of Chartered Accountants of Zimbabwe and an Estate Administrator. He has vast experience on tax, accounting, audit and corporate governance issues. He is a director of Umar & Tach Advisory. He writes in his personal capacity and can be contacted at [email protected] or whatsapp on 0772374784.
