The Sunday Mail
| Tetrad slapped with US$145 000 bill for 1 month work
| Management questions “inflated and unreasonable invoice”
| David Whitehead undergoes management thrice
Darlington Musarurwa and Africa Moyo
THE essence and justification of judicial management as a process to rehabilitate ailing enterprises is increasingly being questioned, especially in the wake of the current controversy surrounding the “hefty” bill that Tetrad Investment Bank received from its former provisional judicial manager, Mr Winsley Militala.
David Whitehead is now back to making quality fabrics at the right price
Though judicial management is supposed to be a court-supervised rescue plan meant to give viable companies in financial trouble a chance to recover, curiously in the local context, companies that have gone through the process — particularly giant textile manufacturer David Whitehead — still remain largely on life support.
Cosmetic manufacturer Wallace Laboratories, however, had the misfortune of being eventually liquidated in 2013, three years after being placed under judicial management.
By invoking a judicial management process, ailing companies can duly afford a reprieve through a moratorium on winding up the company.
Also, legal proceedings or execution of judgments against the company cannot be commenced or continued unless there is prior leave of court.
The drama of judicial management processes in Zimbabwe mainly centres on a cast of three personalities — Dr Cecil Madondo of Tudor House, Mr Winsley Militala of Petwin Executor & Trust Co and Mr Knowledge Hofisi of Aurifin Capital – and questions continue to be raised on the selection criteria and the controversial remuneration of the managers.
The Tetrad Debacle
Tetrad was caught up in a financial mess after its project to transform its stockbroking firm into a commercial bank hit a snag.
Barely a year after being granted a commercial banking licence by the Reserve Bank of Zimbabwe (RBZ), Tetrad was suspended from all banking activities on November 11, 2014.
As at December 31, 2014, the bank had a negative shareholders’ funds position of US$19,8 million, while its net loss stood at US$47 million.
Though it was linked with a Russian investor Horizon Capital, which was reportedly interested in financially propping-up the bank, the deal failed to materialise in time.
The lender was subsequently placed under judicial management in February 2015.
Mr Militala was appointed the provisional judicial manager.
His reign did not last. He resigned after falling foul with creditors and investors for “prematurely” pushing for the bank’s liquidation, but not before slapping the struggling entity with a US$145 000 bill for work ostensibly done in February alone.
The viability of relying on cotton is now being questioned as global manufacturers are now biased towards synthetics. In the picture, Mrs Monica Sibanda of Matutsa village, Gokwe picks cotton from the family’s two hectare plot recently. The cotton price wars remains a major worry to cotton farmers in Gokwe — Picture by Kudakwashe Hunda
The bank protested the “inflated and unreasonable” interim invoice and duly sought the intervention of the High Court.
In a letter dated 24, 2015 addressed to the Master of High Court of Zimbabwe, Tetrad indicated that “the fees requested and invoiced by the provisional judicial manager are too high by the application of any reasonable tariff to the work undertaken”.
“The bank’s monthly collection from debtors have fallen considerably since the advent of the order for provisional judicial management which is evidence in itself of the ineffective and inefficient performance of the statutory duties.
“The demand for payment of US$144 900 for services carried out over a period of one single month is unacceptable in the circumstances, particularly when such amount exceeds the collections made . . .
“RBZ guidelines require certain statutory meetings to be held to ensure smooth running of the bank. None of these meetings have been held since the PJM (provisional judicial manager) suspended the acting MD (managing director) and the finance executive’s contracts. The PJM is therefore derelict in the performance of his duties under the governing rules of the regulatory authority,” noted Tetrad.
While interrogating the contentious costs that had been billed by Mr Militala, the troubled bank managed to pick out several “discrepancies” that it deemed as irregular.
It is believed that between February 4 and February 7, 2015, the judicial manager personally travelled to Bulawayo and Victoria Falls to witness the handover of some branch assets.
The assets, according to the bank, were valued at less than US$7 500 but Mr Militala went on to bill the lender US$4 000 for this trip though an asset register had been provided.
Even though the judicial manager was prepared to travel to Bulawayo and Victoria Falls to merely supervise the transfer of assets, Tetrad alleges that he was never available for key discussions and all management meetings took place without his key input.
Instead, the PJM sent his employee only identified as Vimbai “who seemed only skilled in secretarial and administrative work” for such crucial discussions.
“As such, she never had input in discussions,” said the bank.
In all material respects, Tetrad felt that it was being billed to sponsor the inefficiency of the judicial manager.
For example, there are allegations that it took close to three days for the judicial manager to sign a letter that had been drafted by the bank instructing Econet to transfer contract lines that were in Tetrad’s name but had been cancelled due to non-payment.
All this came at a cost, a “heavy” cost.
According to the invoice, Mr Militala charged US$200 per hour for work done, while hired consultants were being paid at a rate of US$160 per hour.
Fees for the clerks were invoiced at US$50 per hour. Cumulatively, the amount due to Mr Militala for February alone was pegged at US$32 000.
The consultants and the clerks are owed US$48 000 and US$10 000 respectively.
All this burden was being laden on a bank that was deemed to be under stress.
However, the Additional Master (of the High Court)-Insolvency, Mr Rueben Mukavhi, overruled Tetrad’s recommendations to reject the interim invoice.
The Master of the High Court has powers to fix remuneration for PJMs in line with provisions of Section 308 (1) and (2) of the Companies Act (Chapter 24: 03).
The requirement in subsection (1) is that the remuneration for PJMs be “reasonable” while subsection (2) requires the Master to fix the remuneration after taking into account the manner in which the PJM has performed his functions and any recommendations made by members.
In a letter dated June 25, 2015, Mr Mukavhi ruled that the recommendation to reject the Mr Militala’s invoice was both unreasonable and unfair.
“Firstly, it asks the Master to reject the whole fee note, as if to say the PJM is not entitled to any remuneration. This is clearly unreasonable and unfair. Secondly, because of the blanket rejection proposed by members, it does not suggest what level of remuneration would have been reasonable in the circumstances. It is unreasonable for the members to just say the fees are too high without suggesting and justifying a different level of fees. . .
“The next issue is whether the hourly rates levied by the PJM for himself and his staff are reasonable. The staff comprised two directors, three consultants and two clerks, The hourly rate levied in respect of directors is $200, while consultants and clerks have $150 and US$50 respectively.
“Though there is no prescribed tariff for estate administrators, it is still possible to determine the reason-ability of the PJM’s hourly rates by comparing them to the tariffs in other professions. . . a lawyer with 0-1 year 11 months experience can charge up to 75 per hour for general services. Lawyers with up to 19 years’ experience can charge up to $270 per hour. These rates are general professional services, not specialised services. . .
“I hold that these rates are reasonable,” read parts of the letter.
Critics, however, argue that notwithstanding the rates that apply in other professions, the charges of the judicial manager should be made within the context of fostering an environment that is conducive for the affected entity to survive.
There is a market perception that judicial managers tend to feast on companies before they collapse.
Contacted for comment last week, Mr Militala told The Sunday Mail Business that each case must be assessed on its own merit.“When we come in as judicial mangers, cognisance should not be left of the fact that matters of this nature are quite critical to all the stakeholders (creditors and members) and ought to be handled with a great deal of propriety, professionalism and substantial compliance of the governing laws.
“More often than not, when a PJM assumes office, the members or management will have done everything in the book to instil life into their dying business without success.
“Some businesses are placed into JM when there are no prospects or plans whatsoever of turning it into a profitable concern. . .”
“It (judicial management) is an expensive process and the unsuspecting creditors could be funding it indirectly. In some instances, a liquidation can be a better evil.”
But even after suggestions and intimations that Tetrad might not be able to operate as a going concern, the Deposit Protection Corporation was appointed the new provisional judicial manager in terms of Section 57 (1) (b) of the Banking Act effective July 1, 2015.
Mr Ngoni Kudenga of BDO Zimbabwe Chartered Accountants was then appointed the provisional judicial management agent.
There is hope that the suitor that has been identified to take over the business will be able to rescue the entity.
The David Whitehead saga
Again Mr Militala, who had an abortive reign at Tetrad, features prominently in the judicial management of Chegutu-based David Whitehead.
His stint was sandwiched between the tenures of the current judicial manager Mr Hofisi and Dr Madondo, who tried to resuscitate the business between 2006 and 2008.Worryingly, the former giant textile manufacturer remains on the precipice.
Market watchers at one time cynically noted that David Whitehead was literally the playground of judicial managers as it has been placed under judicial management thrice since 2005.
Dr Madondo of Tudor Consultants was the first from 2006 to 2008 followed by Mr Militala, who took over from December 1, 2010.
The textile manufacturer ceased operations on August 7, 2010
But it is Mr Militala’s 24-page report that was presented to the High Court on February 2, 2011 that continues to raise eyebrows.
“DWT and its subsidiaries should simply be liquidated and the assets advertised for sale to the highest bidder. As has been indicated, the creditors of the company must be consulted before any such disposal is agreed to,” explained Mr Militala.
Section 306 (m) of the Companies Act suggests that judicial management can be discontinued subject to a competent report that a business can no longer continue as a going concern.
In fact, Section 306 (m) says: “If at any time he is of the opinion that the continuation of judicial management will not enable the company to become a successful concern, apply to the court, after not less than fourteen days’ notice by registered post to all members and creditors of the company, for the cancellation of the relevant judicial.”
But despite Mr Militala’s adverse report, Mr Hofisi of Aurifin Capital took over in April 2014.
Operations resumed in November last year. By April this year, David Whitehead was operating at 40 percent capacity, translating to 40 000m of fabric every week.
This is against an installed capacity of 100 looms or 100 000m per week.
According to a 2014 report from David Whitehead, the company has only processed about 200 000m of fabric since resuming operations.
In an interview in April this year, Mr Hofisi said David Whitehead would require US$1 million to double output.
Operations have since been reportedly stopped.
However, Mr Edwin Chimanye, who owns 20,18 percent of the business and has since been roped in as the chief operating officer under the new judicial manager, disputed claims that the company has stopped operating.
Said Chimanye: “. . . if you want to verify the fact that this company is now back to making quality fabrics at the right price, you can speak to some of the customers who are of importance to the country such as ZNA (Zimbabwe National Army), ZPCS (Zimbabwe Prisons and Correctional Services) and some of our other customers. We can even give you a list and you can phone them and find out about the quality of the fabric and the pricing of the fabric. . .
“We are trying to restore industry and we have got this nonsense to contend with, it is actually despicable. I am a textile expert, for 30 years. . . why would he (the judicial manager) take someone who is a shareholder and put him next to him and watch if he is trying to lead the company away? (sic)
“Why would I be party to something that is going down?”
Mr Hofisi weighs in
However, Mr Hofisi said he only gets 2,5 percent of the revenues generated by David Whitehead as payment.
He however could not be drawn into revealing how much he has so far earned from the struggling company since he took over.“We are not saying we are not being paid but there are some months that we are not paid by David Whitehead because it just cannot afford and we make the necessary disclosures when we collect any payments.
“So David Whitehead as it stands is struggling big time and once we have successfully turned around the company, that is when we are going to make … and its going to be a win-win arrangement. But as it stands, I want to be honest with you, there is nothing we are getting from David Whitehead.
“The shareholders are there, some of the shareholders are also part of the management, not just Mr Chimanye, but also the marketing manager Mr Tafadzwa Gwaku,” he said.
Dr Madondo weighs in
Council of Estate Administrators board member and judicial manager Dr Madondo said judicial management should not go beyond two years.
He denied that David Whitehead has been under judicial management for 10 years.
“You see, even at international level, companies must not take more than two years under judicial management.
“What happened with David Whitehead is that I was the first judicial manager; I ran it from 2006 to 2008 and finished. Someone also came in and I can’t recall for how long he ran it and now it has someone.
“So don’t take it as continuous judicial management because a judicial manager can do their job and someone messes what has been done. Honestly, you can’t say he is the one who started (when others come in), can you really say that?
“If a judicial manager realises that the company is not recovering, he should use section 306 (m) of the Companies Act,” said Dr Madondo. In German, the court declined an application to place Asia Pulp & Paper Co under judicial management in 2003 after it was considered that the costs to be incurred by the court-assisted process was going to be very high and would deplete assets.
