The High Court’s Commercial Division in Blantyre yesterday declined to declare bankrupt Cotton Ginners Africa Limited which some commercial banks said had defrauded them of over K23 billion through dubious loan facilities.
The ruling, made by Judge Michael Mtambo, means the commercial banks, which were holding different properties of the company as security, are now at liberty to sell the assets valued at K10 billion.
Cotton Ginners Africa Limited proprietor, Abdul Kader Patel, sought the bankruptcy application to allow the company reorganise and start repaying the loans.
But the banks objected to the application, opting to sell the assets they were holding as securities.
The major victim of the alleged fraud is Standard Bank Limited, which is owed about K8.6 billion, followed by Export Development Fund (K4.1 billion), Ecobank Malawi Limited (K3.5 billion), CDH Investment Bank (K4.5 billion) and National Bank of Malawi (K250 million).
Mtambo, in his judgement in this civil case, said looking at the application he found that the preliminary plan for the resuscitation of the company had no real prospects of success.
“None of the objectives set out in…the Insolvency Act would be achieved. There is, therefore, no need for me to grant an order of reorganisation and appoint an administrator who will in all probability not provide a better plan than the one already there [selling of assets],” he said.
The judge said granting of the order for reorganisation was going to unfairly delay the right of the creditors to salvage whatever is available to satisfy their claims.
A lawyer for CDH, Daniel Mwangwela, said yesterday’s court order gave the creditors liberty to start selling the securities to recover the loans.
The cotton company is also liable to meet costs for the court proceedings, according to the judgement.
The company argued during the hearing of the application that the genesis of its financial problems was when the company’s managing director and shareholder, Abdul Rehman, in collusion with the creditors, incurred huge debts in the name of the company without the knowledge of other shareholders.
Rehman, who allegedly fled to Pakistan together with his family in April last year, returned to Malawi later and was immediately arrested and remains in custody pending a criminal trial he is co-answering with Patel and others.
The charges they are facing range from fraud and forgery and the criminal matter begins on March 1.
Patel was also arrested later but is out on bail.