On the 4th of September 2013, Polyfoil was placed under voluntary provisional liquidation due to the difficult economic environment prevailing in the economy.
However there were additional challenges unique to Polyfoil;
- The company was technically insolvent and was incurring recurring losses.
- The core raw materials used in production are not produced in Zimbabwe and as a result of lack of competitive pricing and an inability to finance the procurement of raw materials, the entity lost export markets that provided a significant portion of its revenues.
- Due to import competition and antiquated equipment the company failed to meet its obligations. The business’s cost structures were not in tandem with the level of business and economic activity prevailing.
- Polyfoil’s major banker froze the company’s overdraft accounts on or about 15 July 2013 due to the company’s inability to adequately service its debt. The company was thus unable to trade through the utilization of the credit limit availed by their banker.
I had been initially requested to perform the duties of the Liquidator of the company. After establishing the reasons for the failure of the business and engaging with the major creditors, it was resolved that the company could be rescued. Consequently the company was placed under Judicial Management (Business rescue) on the 24th of October 2013.
The following measures have been implemented since then;
- Reduction of staff compliment to suit the size of the business
- Restructuring of debt and restoration of relationships with customers, suppliers and business partners
- We have managed to secure a foreign investor who has committed to invest an initial $1,5million worth of machinery and equipment over the next six months. There is precedence in the Zimbabwe market of foreign investors being given as long as ten years to fully comply with the country’s indigenization laws. Being aware of this and following my discussion with key personnel at the relevant ministry, I have been able to embark on a process that will enable the foreign investor to have sufficient time obtain a secure and fair return on their investment, prior to dilution in the future, should it be required.
Though the company is still to be discharged from judicial management, it is safe to conclude that it will become a successful concern. It is currently profitable, achieving revenue of approximately US$200,000 a month, and projecting a payment to its Creditors in 2015. Given the difficult economic environment prevailing in Zimbabwe, the Polyfoil story is an encouraging testimony of the perseverance, hard work and dedication of the entire polyfoil team. It’s hard to imagine that just over twelve months ago, this business was due to be liquidated.
Indeed, it’s not over until it’s over.
By Tapiwa Chizana
Business Rescue practitioner and Partner at Deloitte Zimbabwe