By Margaret Kalekye/Release
Kenya’s commercial law experts want top leaders of troubled companies to consider re-organisations that could include standstill arrangements and debt conversion into equity, to help them stay afloat in a tough business environment.
More than 10 publicly traded companies have already issued profit warnings in the last one year including the self-listed NSE, highlighting a tough business environment that risks pushing most companies into liquidation.
MMC Africa Law Corporate Commercial Law expert, Bernard Musyoka said 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.
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-organized 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 realization.