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in litigation at the High Court and civil courts this year.

According to analysts, borrowers are fai-ling to meet their debt obligations owing to sluggish economic activity and a choking liquidity crisis as the country emerges from a decade of economic instability.
Businesses have also failed to restructure to reflect the new economic design predominantly characterised by the use of the US dollar.

Most firms and individuals have failed to take a paradigm shift in managing their fi-nancial affairs considering the economy is now dealing with real costs and real currency, which require calculated decisions.
Loans have been largely short-term as ba-nks seek to minimise the risk of default and this means the credit facilities mature way before a business cycle is complete, resul-ting in defaults.

The loans are also extended at very high interest rates.
The rate at which companies and individuals alike are failing to pay back debts is astronomical.

Debt claims have inundated the courts with most creditors resorting to attachment of property in settlement of the debts.
Statistics from the High Court show that the number of civil claims has shot up from last year’s figures with debt claims dominating.

Last year, the Harare High Court’s legal year ended with around 7 000 cases, but now, well before mid-year, the figure has reached 6 000.
The same cases have made headlines in the local Press with companies and individuals losing property to creditors.

Over 500 people allegedly lost properties to Hamilton Properties Limited after sign-ing crucifying loan agreements.
The loan conditions were always stringent because the director of the firm, Mr Frank Buyanga, understood well the design of the economy and the possibility of defaul-ting on the loans.

Among the worst affected firms was Jaggers Wholesalers, which could be placed under judicial management, having defaul-ted on its liabilities to Delta Beverages and CBZ Bank among many others.
Jaggers – which had been acquired by indigenous businessman Mr Cecil Muderede – lost almost everything to creditors and the property was sold at various auction floors in Harare.

Its proprietor failed to recapitalise the firm as he had pledged when he acquired it from the previous owners.
But probably the most high-profile case of a loan default was the recent case of Renaissance Financial Holdings Limited.

Having struggled to raise funding to reca-pitalise its merchant banking, the firm approached businessman Mr Jayesh Shah.
Usually firms borrow from corporate in-stitutions.

The financial group failed to repay the US$5 million it had borrowed, resulting in an acrimonious dispute that in the end sucked in the Reserve Bank of Zimbabwe and the Ministry of Finance.
The intervention of the RBZ and the ministry will result in extensive management, board and shareholding changes.

Lobels Bakery, which is also on the verge of collapse, was not spared from the property attachments since last year and the battle is still raging with more creditors claiming substantial amounts of money from the bread maker.

Zimbabweans in the Diaspora, who borrowed money to buy houses around 2005 under Homelink’s housing project, are failing to pay back the money prompting the company to seek permission to dispose of the acquired properties and repay the loans.

The majority of the Homelink debtors are failing to pay back and the company, through its lawyers, has filed numerous claims at the High Court seeking to recover the money.
Poor business management and the general slow pace of economic recovery also resulted in Air Zimbabwe accumulating a multimillion-dollar debt it is struggling to repay.

The firm is making losses running into millions of dollars per month and was recently kicked out of the International Air Transportation Association’s electronic booking system after failing to pay US$280 000-membership fee.
Airzim, like Renaissance, had failed to obtain a loan from corporate institutions and turned to British business tycoon Mr Nick Van Hoogstraten, who declined to extend the loan.

Mr Van Hoogstraten was allegedly incensed by finance minister Tendai Biti’s comments that two “loan sharks”, of British and Indian decent, were taking advantage of the liquidity crisis to charge outrageous interest on loans.

AirZim had borrowed from the businessman several times in the past.
It therefore means the firm cannot participate on IATA’s Booking and Settlement System, which allows it to get proceeds of bookings handled by travel agencies scattered across the world on behalf of people wishing to fly on AirZim.

An economic analyst Mr Brains Muchemwa said liquidity crunch and mismanagement was the major factor causing defaults.
“Indeed many companies are failing to restructure their balance sheets to match the decency of keeping costs low and re-structuring operations to meet the expectations of normal business,” he said.

Most companies, he added, would need to guard against over-trading and shun excessively leveraged structures that compromise solvency since the money market has no sufficient depth to accommodate efficient leveraged transactions.

“Equally, the businesses need to understand and accept that the margins have significantly come down efficiency is what becomes the key to survival,” said Mr Muchemwa.
A lawyer Advocate Thabani Mpofu lamented the development saying courts were slowly being turned into debt collectors.

“Individuals and firms should honour their debts. Courts are being turned into debt collectors, which is an abuse of the court process.
“People should just meet their obligations and courts should only deal with claims for damages that need proof and quantification. Only unliquidated claims should be left for the courts,” he said.

Adv Mpofu said some people were borrowing and defaulting intentionally as a way of getting soft loans that are interest free.
“One borrows some money promising to pay in six months. The same person comes back to the creditor two days later saying his business partner or wife disapproved the deal.

“They request for two months to return money resulting in them defaulting. That would simply be a way of buying time.
“The lengthy court process starts, to recover the money. Since the process is very long the same person (borrower) would be investing the money and later pays back after a court ruling.

“Such persons would have gotten soft loans that are interest-free through abusing the court process,” he said.
Another lawyer Mr Wellington Pasipanodya of Manase and Manase Legal Practitioners said the increase in civil suits was necessitated by the introduction of the multi-currency system.

“Before 2009, people were not suing because of the diminished value of the Zimbabwean dollar, but now with the dollarisation of our economy, actually foresee better returns on instituting litigation. They now see value for money,” said Mr Pasipanodya.

However, to stay free of debt people should remember the shiny enticement that can lead them into debt trap and avoid them at all costs. Paying cash for everything is helpful to stay free of debt.
This rule governs your spending by setting a limit on how much you can spend. The trick is to stop spending before all of your money is gone. Set realistic goals for the lifestyle you live.