Workers at Hwange Colliery Company Limited — who are fighting to have the coal mining giant placed under judicial management to “prevent it from going bust” — have alleged that management and the board of directors mishandled eight contracts costing the firm millions of dollars
They allege that directors and management have allegedly been involved in a number of schemes to “siphon money” from the company.
This is contained in a High Court application, dated 15 February 2016, in which workers have added the Assistant Master of the High Court as the Second Respondent with Hwange Colliery Company Limited remaining the First Respondent as in the earlier application requesting judicial management of the company.
The employees represented by Mr Dumisani Dube of Mathonsi Ncube Law Chambers also want Hwange Colliery Company Limited to be given five days to respond to their application to have the company placed under judicial management or risk the court awarding a default judgment in their favour.
In the application, the workers allege that “current management has conducted cumulative practices which have impacted negatively on the performance of First Respondent (HCCL)”.
They allege that this is seen in the manner in which they handled some contracts involving the company. The maintenance contracts entered into by HCCL with Belaz Zimbabwe and Dozer and Dumper were “fraught with irregularities”, the employees contend.
“The two companies have no capabilities to maintain the equipment given that the vendors seconded some technicians to train staff,” reads the court application.
“These contracts are also part of the scheme to siphon money from First Respondent by the Board and Management. For example, Belaz Zimbabwe was registered by the former chairman of First Respondent (Mr Farai Mutangamira) as shown in the CR 14 which is part of Annexure ‘H’.”
Mtangamira and Associates are listed in the CR 14 as the company secretary of Belam Zim Investments (Private) Limited.
“The Chairman (Mr Mutangamira) violated corporate governance in incorporating a company and awarding a monthly tender for $164 450 and the same company outsourcing artisans from First Respondent,” according to the court application.
“The warranties of the contract required that the equipment shall be maintained by accredited staff of the First Respondent.”
The workers alleged that HCCL made a pre-payment of $414 862,50 to Chatterfly Enterprises for the supply of gearboxes.
“The supplier never delivered and the amount was never refunded,” according to the court application. “The company (Chatterfly Enterprises) has since been placed under Provisional Judicial Management.”
It is alleged that HCCL spent $20 million for the rebuilding of a Coke Oven but the contractors engaged to do the job in 2012, Otto Simon and Caves and Fosbel have reportedly failed to rehabilitate it.
“A total of $20 million was spent on the work and yet they are still not working,” read the court documents. “The amount outstanding and due to the contractors still stands at $13 million. Management has not made any claim on the company and have since accepted the liability when the company has not received any corresponding value.”
The company is also alleged to have been made to fork out $5 million for a screen plant that it could have bought for $500 000 had the contract with Palehouse been “properly closed” in 2012.
According to the court documents, the Board of Directors decided not to properly close the contract in 2012 whereby it would have bought the screen plant that was being leased to the company at a price of $500 000. A year later, the matter was taken to court, after Palehouse had made a claim of $7 million against HCCL. The matter was settled out of court and HCCL committed to buy the screen for $5 million.
“This surely shows negligence by the board members,” reads the court application. “As a result First Respondent has been obligated to this disproportionately high amount, resulting from the board’s decision when the machine could have been bought at a price of $500 000 as compared to the eventual amount of $5 million which was settled through arbitration.
“There is obviously lack of transparency in the transaction. How does a board chaired by a lawyer fail to make a correct decision which within a tear translates to a liability that is ten times what it should have cost the First Respondent.”
The workers also submitted that “new” open cast operations machinery and equipment bought particularly from India and referred to as BEML was actually “second hand” and consequently has been “grossly underperforming due to frequent breakdowns”
This is clearly reflecting poor due diligence on the part of management,” states the court application. “The equipment bought was second hand and First Respondent should have exercised its claim as per warranties on the purchase contract.”
HCCL employees also stated in their court application that management has retained Colbro Transport to move coal as opposed to attending to repairs of the conveyor belt that transports coal to the Zimbabwe Power Company owned Hwange Power Station nor servicing HCCL’s 30 tonne Volvo trucks.
“The coal hauled by Colbro is not being weighed as part of the controls by the First Respondent,” reads the court application. “Samples of coal moved should be weighed daily on a random basis to ensure that 1st Respondent is properly charged for the coal hauled. I am aware of this omission.”
Another example of financial imprudence by management is submitted in the court application as the export of 50 000 tonnes in 2012 of coking coal to Maputo, Mozambique on a “speculative basis”.
According to the application, the cost of producing the coal was $3 million translating to $6 000 a tonne and the railage costs of the product to Maputo came to $4,2 million meaning $84 per tonne with port fees finalised at $1 million.
“This coal was transferred to Maputo without any firm order to the First Respondent and was finally sold as distressed cargo,” according the court application.
“The company was committed to move coal without a firm order, it was a speculative move widely publicised in the Press. Under normal circumstances there would have been an order stipulating customer specifications and other conditions of sale. This was not considered and as a result the cargo stayed for a long time at the port thereby attracting very high port storage charges.”
The HCCL employees also express concern the company is saddled with “endless litigation claims”. They claim the managing director of HCCL, Mr Thomas Makore has signed acknowledgements of debts “against the advice from legal services and finance departments of the company”.
Examples given are of money owed to Barzem, Bell, Ventyx Proprietory Limited, PSMAS and Turbo Mining Private Limited.
The company owed Barzem $815 959 and Bell $2 182 116,27 but the debts had “effectively prescribed and the creditor did not have any recourse” but the managing director acknowledged the debts in full. A prescribed debt is old debt that has not been acknowledged or paid. Consequently, Bell wants all its money and is now pushing for the “liquidation of First Respondent”.
The HCCL employees also query how the managing director acknowledged the Ventyx (Proprietory) Limited debt of $1 278 063.15 despite the advice from the information technology department for which the company had been contracted to service.
“This debt had also partly subscribed and legal services highlighted that this creditor was supposed to charge for licences upgrade and not just licences as is the case now,” state the court documents.
“Ventyx (Proprietary) Limited have not done any upgrade to the licences in accordance with the contract with First Respondent. The concerned departments, that is, information technology legal services and finance refused to acknowledge charges. The managing director unilaterally went on to sign an acknowledgement of debt against advice and the company has since issued summons based on the acknowledgement by First Respondent who has since consented to the judgment of $1 278 063,15.”
The PSMAS debt is another one which has been bought under spotlight in the court documents.
“This particular creditor has been struggling for many years to substantiate their debt and was prepared to settle for $500 000,” reads the court documents.
“The First Respondent’s managing director (Mr Makore) went on to sign an acknowledgement of debt contrary to advice from the Legal Services Department and PSMAS has now instituted action for $214 million.”
In the case of the $2 806 668,28 Turbo Mining debt, HCCL acknowledged it for the value of assets as offered by the seller but an independent valuation has put them below $820 000. “The acknowledgement comes with an irrevocable payment instruction to Zimbabwe Power Company effective July 2015,” according to the court documents.
It is alleged that these actions have resulted in HCCL’s “liabilities being increased to unsustainable levels which have opened First Respondent to litigation” and the “pressure on the cash flows have been increased because of these actions”.
The HCCL employees also raised dust over the involvement of the board on purchase of mining equipment from India which is “underperforming and constantly breaking down”. The employees are owed salaries for 28 months amounting to $46,4 million.
However, the workers allege that fees of directors are reportedly always paid on time even if there are salary arrears with respect to the employees. The workers say the company can only be saved from sliding into bankruptcy by being placed under judicial management.
They say the company is “technically insolvent” and its published half year results for last year reflected a loss of about $20 million from a previous year of $7,6 million. The company had not responded to the court application at the time of going to press