Shareholders of Mutare-based gold producer Redwing, are challenging the validity of Probadek Investments’ joint venture agreement with the mine’s judicial manager Mr. Cecil Madondo, whom it has accused of fraud.
Redwing Mine, through its company’s secretary Mr. Hapson Makotore, has filed a criminal complaint against the corporate rescue practitioner alleging that he had assented to two other tributary arrangements with competitors, a development that prejudiced the company of nearly US$300 000.
In a court application, Mr Makotore said: “The applicant (King’s Daughter Mining Company UK Limited) is alarmed to note that the fifth respondent (Madondo) has unlawfully signed a joint venture with Probadek without discussing the terms with the shareholder and before corporate rescue plan has been published and approved.”
He pleaded with the court to either set aside the judicial management process or replace Mr Madondo as caretaker boss.
“I submit that it is illegal to enter into agreements with third parties without seeking the approval of shareholders.
“This is particularly so where the third party seeks to acquire equity in the company.”
He said there was no justification for Mr Madondo, who heads the Stone House Consultancy (SHC), to give preference to Mr Chitate’s company over others and the practice of negotiating advisory fees with external partners, which would be converted to shares, was prejudicial to the company’s real owners. Metallon Corporation-owned Redwing was placed under Mr Madondo’s control in July last year after an application by the Associated Mineworkers Union of Zimbabwe (AMUZ).
However, the Mzi Khumalo-led group has challenged the process, citing numerous procedural flaws.
The company argues that it had paid off US$20 million owed to creditors and had funds to restart operations.
Mr. Makotore and his British-based employer are seeking to nullify the interim administration process on the grounds that the SHC boss had not published a rescue management plan within 45 days as required by law and that he did not have the backing of the majority of creditors.
“The fifth respondent’s agreement (particularly clause 45,3 of the indefinite deal) with Probadek refers to transfer of shareholding. It is surprising that such issues appear when the shareholder was not consulted at all. Mr. Madondo has acted illegally by undertaking to transfer shares when there is no corporate rescue plan approved by creditors.”
The applicants argue that it was clear in the Insolvency Act that equity transfers must be okayed by the business owners.
“Even if one assumes that Probadek is entitled to acquire shares which is denied, the agreement creates a mess at the company in that there is no provision stating how the (purported) capital injection will be converted and how shareholders will relate,” said Mr. Makotore.
The Metallon subsidiary, meanwhile, says it has sufficient funds to pay off outstanding creditors subject to a verification process of the claims and an elaborate plan for Redwing’s revival, which will start with a dewatering process.
Salary arrears, it said, had also been paid to the employees’ legal representatives.
“The applicant will also appoint new management made up of qualified experienced professionals to spearhead the revival of mining operations.
“The first respondent (Redwing) is no longer distressed.
“The shareholder has committed to provide funding to meet working capital requirements.”
But AMUZ has countered this and said King’s Daughter’s push for a cancellation of the judicial management process was premature as the firm “was still in financial distress”.
Probadek, which has chosen to take a hard-line stance against Mr Madondo, was advised by the SHC principal in a letter late last year that it needed “to accommodate other interested parties”. The Sunday Mail