US$14M Legal Battle Poses Challenges for Makomo Amid Corporate Rescue Efforts
Just over a year since resuming operations, Makomo Resources finds itself embroiled in a US$14 million legal dispute with Barak Fund SPC Limited, which claims Makomo owes this amount following its entry into corporate rescue in 2021.
By Ryan Chigoche
Makomo, once Zimbabwe’s largest coal miner, resumed operations last year after securing a contractor. It currently supplies coal to the Zimbabwe Power Company, positioning itself to regain prominence in the US$12 billion mining industry. However, if Barak Fund’s lawsuit is successful, it could significantly impact the company’s recovery efforts.
The lawsuit alleges that Grant Thornton, the corporate rescue practitioner, failed to conduct a forensic investigation mandated by the court, resulting in a US$13.5 million loss for Barak. Although US$2.8 million has been paid to other creditors, Barak’s claim remains “contingent,” preventing payment. Makomo’s legal team denies these accusations, asserting that the corporate rescue practitioners followed statutory requirements and that Barak’s request to remove Grant Thornton lacks legal merit.
Potential Impacts on Makomo Resources:
If the court rules in favour of Barak, the financial strain on Makomo could be severe, diverting funds away from operations, maintenance, and workforce management—crucial elements during the corporate rescue. The company’s ability to manage existing debts could be compromised, hindering recovery efforts.
The legal costs and financial liabilities may delay important projects and expansion plans, while the lawsuit itself poses reputational risks. Negative perceptions could harm relationships with stakeholders, customers, and potential investors, and might deter new investments critical for the company’s recovery.
Moreover, the legal scrutiny may force Makomo to adjust its operations, leading to increased costs. The focus on legal matters could detract senior management from pursuing long-term goals, and employee morale may suffer due to the ongoing uncertainty.
Additionally, any operational disruptions caused by the lawsuit could affect Makomo’s coal supply to key customers, jeopardizing relationships and impacting pricing strategies.
As the legal battle continues, the outcome will have significant implications for Makomo’s future and its corporate rescue efforts. Meanwhile, the company remains Zimbabwe’s largest privately-owned coal producer, with substantial supply to the country’s power stations and other sectors.
In 2013, Makomo became Zimbabwe’s leading thermal coal producer, surpassing Hwange Colliery Company. It operates on its 7,000-hectare Entuba coalfields in Hwange, with a life span of 30 years and resources for underground operations for over 100 years. Makomo is 60% owned by a group of six indigenous businesspeople, with the remaining shares held by foreign investors.