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Minister Bimha

Happiness Zengeni recently in Vumba
Industry and Commerce Minister Mike Bimha has called for the strengthening of the Companies Act and the Insolvency Act to make them more efficient to deal with the current economic challenges.
Many local companies in both the industrial and commercial sectors as well as households, are saddled with debts accumulated since the adoption of multi-currency system in 2009. Companies have closed down while some have been placed under judicial management.

Economists have pointed to greater financial challenges for local businesses, suggesting that one way of dealing with such conditions is through the use of an insolvency regime. This is a formalised procedure that allows a debtor to adjust the ownership and creditor claims against it.

Zimbabwe’s regime to deal with such companies consists of specialised judicial procedures, court personnel and private professionals who serve as liquidators or judicial managers.

Manufacturing companies have been the worst hit as evidenced by the current 39,6 percent capacity utilisation in that sector.
Many large corporate entities, like Cairns, David Whitehead, Steelnet, Jaggers, Wallace Laboratories, Blue Ribbons and Phoenix Consolidated Industries have been placed under judicial management.

Speaking at the permanent secretaries’ workshop organised by the Competition and Tariff Commission on the prevention of insolvency in Vumba last Friday, Minister Bimha acknowledged that Zimbabwe does have a solvency regime under the Companies Act (Chapter 24:03) and the Insolvency Act (Chapter 6:04).
“However the regime needs to be upgraded to make it more efficient.

“Company closures result in market exits and therefore adversely affect competition through the increase in anti-competitive industry and market concentrations. The benefits of competition are therefore eroded.

“The problem of company closures through bankruptcies requires a well defined insolvency prevention policy.”
According to a study commissioned by the Competition and Tariff Commission and Zeparu with the assistance of an expert mobilised by the Usaid funded Strategic Economic  Research and Analysis, an effective insolvency resolution regime can contribute to a country’s economic competitiveness and performance.

“In particular a well functioning regime enhances financial stability and reduces the risk of creditors and investors. It also reinvigorates viable companies and recycles assets so that they can contribute to growth and competitiveness,” said  Daniel Fitzpatrick, the consultant hired with the support of Usaid-Sera
In order to improve the insolvency resolution infrastructure, the study calls on the deepening of judicial management through the creation of specialised courts as the technical nature of these cases and the increasing number of cases support the need.

Fitzpatrick who was presenting the results of the study said the country needs to encourage earlier use of insolvency resolution regimes as most companies usually get under judicial management late.

“There is need to clarify the risks that managers face in continuing to do business when insolvent and also incentivise unsecured creditors to initiate cases.”
According to Hope Nyandoro from Zimnat Asset Management while the requirements for application of provisional judicial management are clearly spelt out, the timing as to when such a tool should be considered should be relooked at.

“Should relevant stakeholders watch the entire capital being eroded away before the emergency button is pushed?
“Phoenix was recently added to the list of companies under judicial management, whilst still apparently having a positive Net Asset Value but was hounded by one of its banking creditors. Whether this is the correct timing and if it will resurface on the stock exchange is yet to be assessed.”

Fitzpatrick also said there was need to establish time limits on insolvency resolution procedures. “Some companies have been under judicial management forever.”
He also said schemes of arrangement proposals should be made an early requirement in judicial management cases.

“The country should also allow creditors to cast an early veto over rescue procedures where there is likelihood of success.”