Beta Holdings, a name synonymous with construction materials in Zimbabwe, recently announced it was entering corporate rescue proceedings. This move highlights the struggles being faced by most established businesses these days as they face an unyielding economy as well as more nimble and daring upstarts, especially from the informal sector.

A notice issued by Tasima Capital, the appointed Corporate Rescue Practitioner, confirms that Beta Holdings and its subsidiaries – Beta Bricks, Beta Concrete, Beta Logistics, Beta Properties, and Diamond Bird Services – are now under corporate rescue as of February 2025. This decision comes after the company cited production failures and an inability to service loans amounting to nearly US$10 million.

According to a report filed with the Master of the High Court, Beta Holdings’ subsidiaries have been experiencing financial distress due to a lack of sufficient working capital. This has led to reduced production levels since April 2023, negatively impacting the entire group’s revenue. The company then went into tailspin mode as they struggled to service loans and pay off debts.

Weighed down by the economy

Beta Holdings’ woes are not new. In September 2023, the company acknowledged facing “operational challenges” due to prevailing macroeconomic and liquidity issues. This was further compounded by delays in payments to workers and transporters, as well as mounting backlogs in fulfilling customer orders.

The company had embarked on expansion projects, including the installation of new plants in Mt Hampden and Melfort, aimed at increasing production capacity. However, these initiatives placed a further strain on the company’s finances, diverting resources and exacerbating existing liquidity constraints.

What is corporate rescue?

Corporate rescue, as governed by the Insolvency Act [Chapter 6:07], is a legal process designed to rehabilitate financially distressed companies. Instead of immediate liquidation, the process allows for restructuring, giving the company breathing room to reorganize its affairs and potentially return to financial stability. This often involves negotiations with creditors, operational improvements, and the implementation of a turnaround strategy.

The announcement of Beta Holdings’ corporate rescue has raised questions, and understandably so. Here is a brief FAQ that should clarify the process and what it means for the various stakeholders:

FAQs about Corporate Rescue:

• What does Corporate Rescue mean for Beta Holdings? It means Beta Holdings is being given a chance to restructure its operations and finances to avoid liquidation.
• What does it mean for Creditors? It puts a temporary hold on legal action against the company. Creditors will be informed of the rescue plan and will have a say in its approval.
• Will the company continue to operate? In most cases, yes. Corporate rescue aims to keep the company running, albeit with changes to its operations and management.
• What happens if the Corporate Rescue fails? If the company cannot be successfully rescued, it may ultimately face liquidation.
• What is the meeting for? The first meeting of creditors and members, scheduled for February 5, 2025, is a crucial step in the process. It provides an opportunity for creditors and stakeholders to be briefed on the company’s situation, review the proposed rescue plan, and raise any concerns or questions.

A sign of the times

Beta Holdings’ situation is a stark reminder that even established companies are not immune to economic challenges. While the company cites liquidity constraints and production failures, another contributing factor may be the increasing competition from smaller, more agile players in the construction materials sector.

In recent years and months, Zimbabwe’s business landscape has undergone a significant shift. While overall the economy is growing and the construction sector is booming, traditional players are finding it hard to adapt. The informal sector has experienced rapid growth, offering competitive pricing and flexible payment options. These new entrants are eroding the market share of established businesses like Beta Holdings, OK Supermarket, Food World and N Richards.