28 January 2013

Zimbabwe: Shake-Up Looms At Millennium

A BOARD and management shake-up is looming at Millennium Tobacco Limited with shareholders and creditors of the company set to meet to discuss the matter early next month. A scheme meeting

will be held on February 6 at the Rainbow Towers in Harare following an order passed at the High Court in accordance with provisions of the Companies Act for a re-organisation of the firm's board and management.

Chairperson of the scheme meeting Mr Sternford Moyo said the meeting also sought to approve other details of the scheme such as endorsing use of net income generated from operations to be shared among creditors of the company.

"The purpose of the scheme meeting is to consider and if deemed fit to agree (with or without modification) to the scheme, the basic characteristic of which is that there will be a board and management re-organisation and that the net income generated from operations will be distributed proportinately to the creditors," said Mr Moyo.

Millennium Tobacco, which only operated in the 2011 and 2012 tobacco selling seasons, is technically insolvent and was likely to be liquidated.

The company was facing serious viability constraints as its liabilities at US$4,3 million outstrip assets at US$1,8 million.

Millennium Tobacco is linked to former shareholders of Zimbabwe Tobacco Auction Centre.

With its financial state of affairs in a mess, Millennium was unlikely to get an auction licence from the Tobacco Industry and Marketing Board for the forthcoming tobacco selling season. TIMB chief executive Dr Andrew Matibiri recently said the board has already licensed three companies to auction the golden leaf during the coming marketing season.

Boka Tobacco Floors, Tobacco Sales Floor and Premier Tobacco Auction Floor, which operated alongside Millennium last season, have retained their licences.

However, the latest efforts to save the company from going under mean the company would be able to retain its licence and if it can return to viability and pay off liabilities to creditors.

According to the Millennium financial statement, the company's shareholders appeared not to have ever injected capital into the business and relied on borrowings to finance operations.

Liabilities as at October 31, 2012 stood at US$4,2 million which is made up of US$3,1 million owed to creditors and a bank overdraft of US$1,2 million. Correspondingly, the company does not have any assets to match its liabilities.

As such the company is unable to pay off its liabilities unless there is a capital injection from the shareholders. All suppliers have not been paid for more than 120 days, indicating severe cash-flow challenges.

Among those owed are statutory bodies such as the National Social Security Authority and the Zimbabwe Revenue Authority. Besides owing big institutions, the firm is failing to pay amounts below US$100.

The financial statement also shows that the company made a loss of US$1 million in its first year of operations and US$1,4 million in the 10 months to October last year.

This brings losses to US$2,4 million recorded in its books. The report is also showing high borrowing levels.

The company is heavily borrowed, to the tune of US$1,2 million. The levels of borrowings are not financing anything tangible on the balance sheet. All assets on the balance sheet are non-current.

Millennium has actually committed an act of insolvency.

This means the busines was a good candidate for liquidation or the other option is to look for an equity partner, said a source familiar with the developments.

A scheme of arrangement, or a scheme of reconstruction, is an agreement between a company and its shareholders or creditors normally used to execute arbitrary changes in the structure of a business and thus are used when a re-organisation cannot be achieved by other means.

They may be used for rescheduling debt, takeovers, and returns on capital, among other purposes.

In Zimbabwe, schemes of arrangement are approved by the High Court.

Despite Millennium financial distress, an executive said yesterday the company was currently working on meeting the TIMB requirements to retain its tobacco auctioning licence.

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