COTTCO under receivership

STAFF WRITER

The Cotton Company of Zimbabwe Limited (COTTCO) has been placed under corporate rescue following mounting allegations of financial mismanagement, including the suspected misuse of more than US$70m and growing dissatisfaction from its shareholder, the Mutapa Investment Fund, with both the board and executive management.

The intervention, effective April 28, marks a critical escalation in the company’s deepening financial crisis, with authorities now openly questioning governance practices at the firm.

Appearing before a Parliamentary portfolio committee this week, Mutapa Investment Fund chief executive Dr John Mangudya indicated that that the sovereign wealth fund had lost confidence in the company’s leadership.

“We’re not happy with the board and management. It’s not a weakness to go on voluntary corporate rescue, it’s a strength,” Dr Mangudya said.

His remarks come amid revelations that more than US$70m in funding may have been misapplied within a single year, raising red flags over internal controls and financial discipline at one of Zimbabwe’s most strategically important agricultural entities.

Mangudya told legislators that COTTCO had been receiving approximately US$60m annually in government-backed input support, supplemented by an additional US$11m disbursed last year to settle legacy obligations.

Despite this substantial financial backing, the company reportedly failed to meet obligations of about US$25m, leaving farmers, workers and creditors unpaid.

“This points to serious financial mismanagement,” Dr Mangudya said, signalling potential governance failures at both board and executive levels.

He further revealed that of the US$11 million extended by Mutapa, about US$6.6m, initially earmarked for farmer payments,had been diverted to service bank debt after lenders threatened to attach company assets.

Against this backdrop, the board moved to place the company under corporate rescue in terms of the Insolvency Act (Chapter 6:07), appointing Farai Chibisa and Ian Mtetwa of Grant Thornton Zimbabwe as corporate rescue practitioners.

The practitioners are now tasked with stabilising operations, preserving assets and crafting a turnaround strategy for the embattled firm.

COTTCO board chair Sifelani Jabangwe said the move was designed to recapitalise the business and reset its operating model after years of structural weakness.

“Since 2016, when Cottco’s resuscitation was supported by the Government, COTTCO has had a weak balance sheet such that it required guarantees to secure loans to fund annual cotton crop cycles,” Jabangwe said.

The company’s fragile financial position was further exacerbated by the El Niño-induced drought of 2024, which reduced national cotton output to a historic low of approximately 12,000 tonnes. COTTCO’s intake dropped to 9,900 tonnes — well below break-even levels — compounding its already significant debt burden.

Efforts to secure fresh capital were also hindered by delays in finalising audited financial statements, some of which date back to a period between 2015 and 2019 when the company operated without a substantive board. The accounts have since been updated to 2023, with audits for 2024 and 2025 expected by September this year.

Jabangwe said creditor pressure had intensified in recent months, with some lenders moving to attach company assets, a development that threatened to derail recovery efforts and destabilise the broader cotton value chain.

Internal documents seen by Business Times paint a picture of a company under acute financial strain.

“The company is financially distressed as it is struggling to meet its obligations to creditors as and when they fall due,” COTTCO said in one of the documents.

The crisis has been driven by a toxic mix of liquidity constraints, limited working capital, high debt levels and delayed payments to farmers. The arrears have contributed to declining production and increased reliance on state-backed input schemes.

COTTCO remains Zimbabwe’s largest cotton contractor and a central player in the country’s agricultural value chain, making its instability a matter of national economic concern.

Meanwhile, Mangudya emphasised that the corporate rescue process would not shield any wrongdoing from scrutiny.

“The process that we have taken is a good one because the corporate rescue practitioner will investigate what was happening,” he said.

“The appointment of a business rescue practitioner does not suspend any investigation or forensic audit.”

He added that the intervention would help safeguard company assets while enabling a full review of its financial and operational conduct.

The scale of the alleged irregularities is expected to intensify calls for accountability, particularly as thousands of smallholder farmers remain unpaid and cotton output continues to decline.

The corporate rescue process will include a comprehensive assessment of COTTCO’s financial affairs. Any evidence of misconduct uncovered could trigger further investigations, raising the prospect of regulatory and legal consequences for those implicated.