CLOTHING retailer Truworths Limited owes its creditors approximately US$2 million and is now technically insolvent as a result, businessdigest has learned.
About two weeks ago, Truworths announced that it had entered corporate rescue under Section 122 of the Insolvency Act, a move triggered by severe financial distress.
The provision allows companies with a reasonable prospect of recovery to seek relief through restructuring.
Professional services firm Crowe Zimbabwe has been appointed to manage Truworths’ corporate rescue process.
Crowe’s immediate assistant, Raymond Sibanda, confirmed in an interview that the retailer is grappling with significant financial challenges, prompting the decision to seek corporate rescue.
Crowe lead partner Oliver Mtasa will spearhead the proceedings.
“Truworths currently owes plus or minus US$2 million to its creditors, a situation that would have been manageable during its peak years but has now pushed the company into insolvency,” Sibanda said.
“The company’s recent struggles have made it necessary to voluntarily enter corporate rescue as its liabilities now exceed its assets.
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“I might not have a figure now, but the process is underway. We are working on an actual figure in terms of the insolvency.”
The insolvency may result in job losses, as some employees have already been retrenched following the closure of several Truworths stores last year in an effort to cut costs.
“Of course, workers might be affected but I don’t have full information on that. As I said, we are still undergoing the due diligence process,” Sibanda said.
“We will see the numbers and see what will be the outcome for employees. But so far, as far as the matter is concerned, employees are categorised as affected persons in terms of corporate risk.”
The decision to enter corporate rescue was made by the Truworths board after assessing the company’s financial performance.
The rescue plan provides a moratorium period, during which no legal actions can be taken against the company, allowing it time to restructure and strategise for the future.
“This process is intended to give the company breathing space for the next 90 to 180 days, during which we will work to reorient the business,” Sibanda explained.
“Truworths is still a significant asset, and this period will allow us to chart a path back to market viability.”
Crowe Zimbabwe is expected to conduct its corporate rescue investigation over the next three months, after which a detailed recovery plan will be presented to creditors for approval.
“Our primary duty is to protect the interests of creditors, while also working to resuscitate the business and safeguard employees,” Sibanda said.
“We are currently developing a model that will offer the best prospects for the company’s future operations and profitability.”
He said once the due diligence process is complete, potential investors may be invited to submit bids to assist in Truworths’ recovery.
“We will pick one model which we believe will give positive future prospects for the business,” Sibanda said.
“So, to say this is the way that Truworths is going to go, or this is the way that Truworths is not going to go, I might not be able to say it now.”
It is understood that several investors have already expressed interest, and the corporate rescue team is evaluating these offers.
