Harare — EFFORTS to turn around ailing textile giant David Whitehead Textiles Limited have failed over the past few years despite massive capital injections and an apparent discord between new investors and the firm's judicial manager Mr Cecil Madondo.

It has emerged that Elgate Investment, which bought a controlling stake in the textile firm started injecting funds just after winning the bid in 2007. The company was suspended from the Zimbabwe Stock Exchange in April 2005.

Investigations by The Herald Business have revealed that Elgate initially injected US$3 million sometime in October 2007. This was however, well before exchange control approval was sought from the central bank.

In total Elgate was to inject US$5,4 million via an FCA with the Reserve Bank of Zimbabwe. However, the funds had already been released to DWTL by the time the need to deposit the money into the FCA was raised.

The central bank wrote to DWTL agreeing in principle to the proposed acquisition of a 51 percent stake in DWTL by Elgate upon fulfillment of conditions required to obtain formal approval.

This was a month after Mr Madondo admitted in his submissions to the High Court that he had already received some of the funds from Elgate.

The central bank route could then not be followed because funds had already been used to pay creditors, wages and raw materials. This explains why there was never any deposit into an RBZ FCA.

Elgate and DWTL had agreed that the funds would be injected in such a way that the former directly meets the financial obligations of the company. The balance of the funds was also injected in the same way.

Herald Business understands that all parties involved considered the route as efficient considering the economic environment prevailing then.

Part of the money was used to pay a US$400 000 loan that the judicial manager had got from FBC Bank to purchase cars for the company and a compressor for the Chegutu factory.

According to the agreement between the two, the judicial manager was supposed to leave the company after injection of the initial capital.

But it was his continued stay at the company that ignited a discord between him and the new investor. Elgate was no longer happy with the continued involvement of Mr Madondo in the company. Sources said Elgate had at one point stopped providing more funds.

The situation almost reached boiling point after Elgate demanded back the money it had injected "if the judicial manager refused to go".

Mr Madondo then succumbed to pressure and only applied to the High Court for the cancellation of judicial management six months later.

He said: "My continued presence as the judicial manager is now incompatible with proper corporate governance at David Whitehead."

Prior to the application, Herald Business can reveal that some workers at his company had phoned DWTL workers requesting a petition for his continued stay.

The judicial manager was earning himself 6 percent of gross revenue, which might have been sufficient motivation for him to stay on.

Sources indicated that the same judicial manager has been recommended for reappointment, hence the new uproar at the company.

"It is unexplainable how the company failed to turnaround after injection of such amounts and the wisdom of proposing to re-appoint the same judicial manager who has failed," said one source.

The company is exposed to various creditors. It has also emerged that there were a lot of liabilities that were not listed in the books, which were only revealed sometime in 2008 by the new management.

For instance, the Parrogate debt was not disclosed in the company's financials of the year ended September 2006 and six month ending March 2007.

Parrogate is owed nearly US$2 million. Details obtained also show that the company has failed to deliver fabric that had been paid for by Zimbabwe Prisons, the Air Force of Zimbabwe, Paramount and others customers.

DWTL, the country's oldest fabric producer is in the process of averting liquidation by rationalising labour and going into payment arrangement with creditors.

The rationalisation process will see the company downsizing its work force from the current 1 400 workers to 600 in a retrenchment exercise expected to gobble not less that US$2,5 million.

The company recently filed a High Court application for liquidation as the company plunged into serious liquidity. It has since shut down its three processing plant in Chegutu, Kadoma and Gweru.