Textile firm Merlin faces liquidation

Source: Textile firm Merlin faces liquidation | Herald (Business)

Oliver Kazunga, recently in Bulawayo

BULAWAYO-BASED textile company, Merspin (Private) Limited is now exposed to liquidation after its shareholder, Maydeep Investments, successfully applied to the High Court for the removal of its subsidiary from judicial management.

In 2019, the Zimbabwe Textile Workers Union on behalf of the troubled company’s employees, filed a High Court application under case number HC 397/19 for Merlin (Private) Limited, a subsidiary of Merspin,  for corporate rescue in terms of the Insolvency Act (Chapter 6:07).

However, shareholders filed a chamber application under case number HC HC2724/18 for a declaratory order barring Merlin judicial manager Dr Cecil Madondo from handling the affairs of Merspin Limited.

This was on account that Merspin was not the one under judicial management because of the wrong citation. In an interview, the firm’s judicial manager, Dr Cecil Madondo said the removal of Merlin from judicial management exposed Merspin to its creditors.

One of the major creditors, Old Mutual, he said, took advantage of the High Court order and stripped some of the machinery at the Bulawayo-based factory.

“The company is now under the control of the shareholders, Maydeep Investments which is owned by Mr Lupepe and Mr Danisa Nkomo after the shareholders astonishingly applied to the High Court for its removal from judicial management.

“Some creditors took advantage of Merlin’s exit from judicial management and went on to cut off spinning and weaving machinery from the factory,” he said.

“The liquidation of Merspin is imminent but could have been avoided if Merlin remained under judicial management,” he said.

Dr Madondo said the Zimbabwe Asset Management Company (Zamco) could also not disburse US$5 million that Merspin required for recapitalisation.

Zamco is an independent asset management company established by the Reserve Bank of Zimbabwe to resolve the scourge of non-performing loans by buying out from commercial banks their collaterised loan books.

“Had Zamco acted and disbursed the funds as agreed during the meeting held on the 9th of August 2018, the company could have been saved from eviction and attachment of its assets by Old Mutual.” 

When this paper visited the Merlin and Merspin factory in Belmont Industrial site last week, the main entrance into the company’s premises was under lock and key with no signs of production activity taking place inside.

 Efforts to get a comment from Mr Lupepe and Mr Nkomo were unsuccessful as their mobile phones were not being answered.

Merlin Limited was established in 1954 as Sentex Textile Mills (Private) Limited, prior to changing name to Merlin Limited in 1974.

At its peak the company had a staff complement of about 1 200 employees including those of its subsidiaries.

“Merspin Limited was formed in 1988 as a subsidiary of Merlin Limited, however Merlin Limited faced some challenges and went into voluntary liquidation for the first time in 1996.

“The company was saved from liquidation through a reverse takeover deal which saw Merspin Limited acquiring the entire shareholding in Merlin Limited in 1997.

“In other words, Merlin Limited became a subsidiary company of Merspin Limited,” said Dr Madondo.

He said Merspin Limited, after assuming the debts of Merlin, was unable to service the debts leading to the company incurring more debts.

The debts, he said, were incurred through borrowings from financial institutions and this was unsustainable due to inflation and interest rates.

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