Lawyer offers recovery tips to Nakumatt and other troubled firms

Troubled companies should consider reorganisations such as standstill arrangements and debt conversion into equity to help them stay afloat in a tough business environment, a top commercial law expert says.

More than 10 publicly traded companies have  issued profit warnings in the last one year including the self-listed Nairobi Securities Exchange (NSE) highlighting a tough business environment that risks pushing most companies into liquidation.

According to MMC Africa Law’s Bernard Musyoka, players in the financial, agricultural, manufacturing and fast moving consumer goods sectors are the hardest hit with a huge reduction in profits as recorded in their balance sheets published recently.

“Most businesses are sinking deeper into debt and face a risk of imminent shop closure every day. This is unless a working turn-around strategy can be implemented immediately. Nakumatt, Uchumi and Kenya Airways fall into this category, and are currently rolling out measures aimed at driving them back to profitability” said Musyoka.

Lifestyle clothing retailer Deacons East Africa, underwriter Sanlam Kenya, Sameer Africa, Sasini, Family Bank, CIC Insurance, Williamson Tea, Unga Group Limited, Shelter Afrique, Limuru Tea are among the listed companies that have already issued profit warnings in the last one year. Listed companies are required by law to issue profit warnings if their profit for the current year is going to be least 25 per cent lower than the profit for the previous year.

Private companies have not been spared either. Giant retail outlet, Nakumatt, is currently struggling to stay afloat amid claims of unpaid rent, salaries and suppliers.

MCC Africa Law partner Bernard Musyoka.

Mr Musyoka warned that these companies risk falling in the jaws of creditors who often result into using harsh methods that lead into liquidation and push shareholders into losses and the employees into unemployment.

“This is because such liquidation will not be straight forward, it will likely face resistance from the companies and it will take time for all the creditors to agree how to share the pie,” argued Musyoka.

The expert has advised creditors of companies facing turbulent times to consider deployment of administration – a corporate insolvency procedure by which a company can be re-organised or have its assets realized for the benefit of its creditors.

Administration allows for the re-organisation of a company or the realization of its assets under the protection of a statutory moratorium, which prevents creditors from taking action to enforce their claims against the company during the administration process and so hamper the implementation of a strategy for the company’s rescue or asset realisation.

Other key options at the disposal of businesses caught up in such economic hardships include standstill arrangements with creditors or debts conversion into equity.

Under a standstill arrangement, the debtor company gets a new leaf of life by allowing it to trade and pay a nominated supervisor of such scheme an agreed amount at agreed intervals, which can be distributed to the on-hold creditors as agreed.

“This offers the company protection during the still period and a second chance to rectify the financial mistakes that led it into the red in the first case,” added Musyoka.

Debt into equity swaps on the other end is a capital re-organisation of a company in which a creditor converts indebtedness owed to it by a company into one or more classes of that company’s share capital which may not be equity share capital in the strict sense. This lowers the level of the debt of the debtor company, hence improving cash flows.

Mr Musyoka concludes that “unless the existing shareholders are willing to pump more capital, such conversion of debt into equity in favor of the creditor often results into a dilution of existing shareholders”.
[crp]

Latest

Form 4 Leaver Who Makes Sh140,000 Monthly From Chapatis

Jepkoech, who started off with one packet of wheat flour a day, says she does a bundle per day, making Ksh4500 per day from chapatis alone. In addition, she sells tea and chips, which tops up her sales to Ksh5,500 per day, translating to about Ksh140,000 per month.

Perfectionism: Are You a Perfectionist?

Perfectionism can be defined as the propensity to think and believe that anything short of perfect is an abject failure while having concerns over mistakes and subjecting oneself to harsh and critical self-evaluations when the output fails to produce sought-after satisfaction and excellence. Am I a perfectionist?

Smart Doors: How You Can Control Access to Your House on Mobile

Many operators of Airbnb in Nairobi and other cities are using this technology to manage their clients access to accommodation and lodging facilities using smart doors and smart switches.

Fatal Accidents Report Reveals Most Dangerous Roads in Mombasa

The report, which spotlights roads with highest accident rates at the coast, offers chilling trends, including, among others, statistics that show significantly more men die in road accidents.

Follow Us

Newsletter

Don't miss

Lupita’s Little Brother Junior Nyong’o Charting His Own Path in Acting

Junior Nyongó, who is also a musician and a DJ and now a graduate of UC San Diego with an MFA in Acting, is crafting his own solid path in the world of acting with roles in major theatre productions.

Safaricom To Power Tusker OktobaFest Beer Festival

Safaricom’s involvement in OktobaFest as a technology and payments partner will focus on fostering seamless in-festival connectivity, empowering the youth and Gen Z community through Safaricom Hook, and powering digital payments through M-PESA.

Music Producers Launch Organization To Streamline Recording Industry

Recording Industry of Kenya (RIKE) was launched on 9th October 2023. Registered in 2022 as a not-for-profit organization, RIKE aims to promote the collective interests of producers of sound recordings in the country.

Nairobi’s Hero Bar Listed Among World’s 50 Best Bars

World Best Bars: Hero Bar in Nairobi continues to climb the list, moving up six places to No.62 and Johannesburg’s Sin + Tax comes in at No.94. Dubai new entry Ergo is at No.69 and Melbourne’s Byrdi has re-entered the list at No.61.

Kenyan DJs Face Off In Smirnoff Battle Of The Beats Season 3

The Smirnoff Battle of the Beats Season 3, a DJ competition, is poised to unleash an unprecedented musical frenzy countrywide.

The Highs And Lows Of Betty Kyallo, Sisters Show As Season 2 Ends

Kyallo Kulture has always been, above all, about sisterhood, and in Season 2 we have witnessed the charm of it - the ups that gave us wholesome moments as the sisters led by Betty Kyallo spent time together.

DStv Beats CNN, BBC To Become Most Admired Media Outlet In Africa

DStv, MultiChoice Group’s leading broadcast service, has been named...

MultiChoice Revises Subscription Fees For DStv, GOtv

MultiChoice has announced price adjustments on some of their...

Octopizzo: How I Make My Money

"I've been doing this for 12, 13 years. It reaches a point where you no longer need to prove that you can make a hit record," he stated.

New Spotify EQUAL Artist Qing Madi Talks Music and Dreams

Heavily influenced by her cultural background and the lyrical arrangements of Kendrick Lamar, the versatile Nigerian prodigy is shaping the future of music with her unique genre-bending fusion of Afrobeats, Pop, Soul and R&B.
BUSINESS TODAY
BUSINESS TODAYhttps://businesstoday.co.ke
editor [at] businesstoday.co.ke

Form 4 Leaver Who Makes Sh140,000 Monthly From Chapatis

Jepkoech, who started off with one packet of wheat flour a day, says she does a bundle per day, making Ksh4500 per day from chapatis alone. In addition, she sells tea and chips, which tops up her sales to Ksh5,500 per day, translating to about Ksh140,000 per month.

Perfectionism: Are You a Perfectionist?

Perfectionism can be defined as the propensity to think and believe that anything short of perfect is an abject failure while having concerns over mistakes and subjecting oneself to harsh and critical self-evaluations when the output fails to produce sought-after satisfaction and excellence. Am I a perfectionist?

Smart Doors: How You Can Control Access to Your House on Mobile

Many operators of Airbnb in Nairobi and other cities are using this technology to manage their clients access to accommodation and lodging facilities using smart doors and smart switches.

LEAVE A REPLY

Please enter your comment!
Please enter your name here