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What killed Alliance Capital?

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The Commercial Division of the High Court of Malawi in Blantyre Friday ordered that a portfolio manager and financial advisory firm, Alliance Capital, be wound up and liquidated after falling short of being a sound financial institution to conduct business in the country.

Liquidation generally refers to the process of selling off a company’s inventory, typically at a big discount, to generate cash.

In the case of Alliance Capital, the judgement also means that the firm is winding up its transactions and that it is closing.

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The Registrar of financial institutions in the country, the Reserve Bank of Malawi Governor, in this case Wilson Banda, applied for the liquidation of Alliance Capital following a series of complaints lodged to the central bank after Alliance Capital clients failed to redeem their matured investments.

But what really made the once rosy company to reach this stage?

The judgement from the High Court indicates that negligence and disregard of legal mandate is what sent the company into the turbulent waters of debt and failure to honour matured investments.

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The judgement indicates that the company diverted from being a portfolio manager to being a lender to the point that some people who already had loans with the company failed to settle their loans.

The judgement further states that instead of investing in government instruments and other reliable investments, the company resorted to lending the money to individuals, in some instances its own directors and some people who already owe it money without the approval of its clients.

“In one of the cases, the company granted a facility to a company owned by one of its directors without disclosing this conflict of interest to the clients whose funds were used for the facility,” the judgement reads.

It further indicates that there were instances where borrowers were paid amounts which were much higher than those provided for in the facility agreement.

An incident of this nature was where one company was paid K28 million while the facility agreement indicated K20 million.

The judgement further indicates that another company entered into an agreement with Alliance Capital to be given a loan of K5 billion but there was no indication of the exact amount disbursed and terms of conditions of the facility and exact details of the bank account.

It is stated in the judgement that one borrower who failed to repay a facility of K600 million as a foreign currency in 2018 was granted another facility of K250 million in a different trade name in 2019.

“There were some transactions which did not make any business sense in the light of the financial difficulties the company was facing. An example of these questionable transactions was one which took place in October 2020 when a market investor was promised 16 percent return on funds amounting to K700 million.

“This transaction took place when it was common knowledge that no money market securities could be found on the market to back such a return,” reads the judgement.

The loans were not redeemed in time, which made the company to be rolling over maturities of investments for its clients when they were due and led to an exodus of complaints to the central bank and later led to the judgement for its winding.

It is said in the judgement that because of such decisions, the company had a negative capital of K393.39 million against K50 million required capital as of December 2021.

“I therefore order the company to wind up; the Governor of Reserve Bank of Malawi wearing his hut as the registrar of financial institutions is hereby appointed as the liquidator of the company and shall begin to act with immediate effect,” the judgement reads.

Alliance Capital was incorporated as a private limited company on August 31 in 2004 as Alliance Investment Limited and changed its name to Alliance Capital Limited on September 30 2006.

The company kicked off on a rosy note and earned the trust of different companies including Nico Asset Managers, Malawi Electoral Commission and several individuals, among others.

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