eBusiness Weekly
Business Writer
David Whitehead majority shareholder Elgate Holdings has lost its 51 percent stake in the struggling textile company after it failed to pay for the stake more than a decade after signing a share subscription agreement with the former ZSE listed firm under unclear circumstances.
The agreement was terminated early this month on the basis of “non-performance” by Elgate after High Court ordered the concession for the purchase of shares be revoked.
The agreement, entered in December 2007 — when the company was under provisional judicial management of Cecil Madondo, was on the basis that Elgate would inject US$5,4 million into the company to revive its operations. DW used to be Zimbabwe’s largest textile company, directly employing 3 500 people. The capital injection was expected to breathe new life into DW, whose operations include spinning and weaving. At the time of his resignation, Madondo confirmed that Elgate had failed to inject capital into the company, as per agreement.
It, however, remains unclear how the shares were issued before Elgate had injected capital.
A report produced by the final judicial manager Knowledge Hofisi in 2014, also highlighted the “anomaly” on the share transaction between Elgate and David Whitehead. Hofisi also recommended the prosecution of two Elgate directors — Andrew Toendepi and Zivanai Mangena — for allegedly stripping off the company’s assets and fraudulently acquiring stake in DW. The matter was reported to the police. It was established that during the first judicial management between May 2006 to April 2008 under Madondo, a competitive bidding process was conducted to identify an investor.
That resulted in Elgate winning the bid to acquire 51 percent shareholding in DW. The shares were allotted on the understanding that they will be immediately paid for. The share acquisition agreement set out conditions precedent, which were not complied with, resulting in the High Court ordering cancellation of the share purchase agreement.
At the time of the cancellation of the first judicial management order in April 2008, shares worth US$3 million had been allotted to Elgate while the ($2,4 million) balance was be paid post judicial management. The process subject to the supervision of the Master of the High Court who was “clothed” with residual powers by a High Court order.
Read part of court ruling: “The share subscription agreement entered between the applicant (DW) and the first respondent (Elgate) on December 3, 2007 is hereby cancelled due to non-performance by the first respondent. The issuance and allotment of shares made by the applicant (in terms of) the share subscription agreement is hereby cancelled and the shares are forfeited by the applicant.”
No comment could be obtained from Hofisi by the time of going to print yesterday.
Since 2010, the ailing textiles company, saddled with huge debts, had largely remained closed. Few attempts to re-open the factories over the past 10 years failed due to limited capital needed to run the business viably. The company requires as much as US$50 million for working capital and re-tooling, according to Hofisi.
DW is reported to be in serious negotiations with two unnamed investors seeking to inject fresh capital and revive the struggling textile firm. In a statement recently, Hofisi said “to-date, a considerable amount of effort is being made to ensure that David Whitehead will be removed from judicial management in 2019.
“As such negotiations with two serious potential investors, who have been introduced to the relevant stakeholders, including carrying out an external audit and conducting a business valuation, are in progress and at various stages of completion.”
The company used to produce about 20 million metres of fabric per year, while directly employing 3 000 workers and thousands in down and upstream industries.
