Home Legalese Tujenge Uchumi Yetu.

Tujenge Uchumi Yetu.

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The news

Uchumi Supermarket, the Kenyan retail chain, which also, and importantly, doubles as Kenya’s oldest supermarket chain, was one of the pioneers of regional expansion once the East African Community took shape. It opened a store in Uganda long before its rivals, like Nakumatt and Tuskys, had crossed the border. They did the same in Tanzania and were i advanced stages of opening a store in Kigali as well.

Unfortunately, operations were projected to have a negative cash position of $7.1 million by the end of December 2015, up from $3.78 million in September of the same year. Documents filed in court showed that the company had incurred a net loss of $3.062 million. As of June 2015, the supermarket registered losses amounting to $87,713.

With effect, it has had to shut down all its branches in Tanzania and Uganda and faces a similar eventuality in Kenya as it seeks to stop further financial haemorrhage. Hundreds of East Africans are now jobless and many suppliers are bitter with Uchumi for unpaid invoices for goods and services supplied.

The law

In an ongoing, troubling winding up case in the Milimani Law Courts Commercial Law And Admiralty Division of the High Court, the supermarket’s success in it or not is hinged on a new insolvency legislation, the Insolvency Act No. 18 of 2015.

The new law is one which would have effectively stopped the creditors from proceeding with a winding up case against the retailer. However, Uchumi could not rely on the Insolvency Act of 2015 as it was/is yet to be fully implemented by Parliament’s passing of procedures to shut down a firm under it.

High Court Judge, Farah Amin, found that the supermarket chain could not rely on a precedent set by another High Court judge, Eric Ogola, who had determined, in the winding up petition for Blue Bird Aviation Limited, that the new Companies Act could be used to wind up a company.

This was due to the fact that the creditor, San Giorgio Limited, who had sought to wind up Uchumi for its failure to pay debts, had actually commenced the process a day before, and to use a lay man’s words, the law changed. The law came on November 6, 2015 and twenty-four hours late as the winding up process had commenced on November 5 of the same year. For it to be applied retrospectively to Uchumi, it had to be expressly and clearly provided for in the said law, but this was not the case.

Notes

If there are any notes that we, as region, need to take home from these developments – off and from Uchumi’s winding up troubles and case – they are that;

  1. With various companies gradually engaging in the growth of their businesses across borders, we need to revise our bankruptcy laws with the intent of making changes to the statutory provisions governing national, international, and cross-border insolvency cases brought in the East African region.

 

We need laws that effectively incorporate features of rescue models and focus on creating a turnaround profession and empowering turnaround firms to revitalise ailing businesses and save the day for those clients in distress.

 

  1. Cross-border business can be overwhelming. In East Africa, for example, we still face “choice of law” issues as an individual or company will have to find a legal representative who can help align it with the local legislation. With a company like Uchumi, which faced and still faces a couple of insolvency issues, one of the thorniest problems in cross-border insolvency proceedings that other companies with the same scope as Uchumi can learn from is, indeed, choosing which law will apply to the rights of competing parties from different jurisdictions. True, the laws are different and applicable to distinguishable jurisdictions, but a consolidation of an all embracing one for the East African region and its economy would be beneficial for and to many.

 

If a debtor, like Uchumi, becomes the subject of an insolvency proceeding in one country, but is engaged in a potentially avoidable transaction in another, by the laws of which country will the avoidability of the transaction be measured? Easy! That particular country! However, with a consolidated legislation – for the region, a debtor, like Uchumi, which may be doing well in one country, but not so well in another could be dealt with and rescued as a single unit, which is beneficial to the region, and not wound down in different pieces in different countries.

 

  1. When I learnt the meaning of the Swahili words tujenge Uchumi yetu, which were written on packaging material for the supermarket, and when translated, mean let us build our economy, I also learnt that the government of the Republic of Kenya had a stake of up to 50% in the company.

 

On that foundation alone, I find it incumbent upon the governments to learn from the 2005 efforts of US, European and Asian countries and develop corporate and business rescue policies, and enable turnaround restructuring for notable businesses.

 

Modern mechanisms of insolvency practice are more public interest centred than they are of private interest, and do not have a recourse to public funds. This would help save business like Uganda’s WBS Television which was liquidated not so long ago for filing to honour its obligations to Uganda Revenue Authority, the national tax regulation and collection agency.

 

Moving forward

 

As an illustration, saving some of these companies would include business rescue, turnaround restructuring, and corporate rescue measures which can ably be effected through converting debt to equity. Uchumi itself agreed with some of its suppliers who were opposed to its winding up suit to reduce their debt burden by converting their shares into equity.

 

The effects of winding up are numerous. There is, expectedly, an immense public interest in a winding matter like Uchumis and an impact on the economies of countries in the region in terms of jobs and opportunities for suppliers to market their produce.

 

In Uganda, where Uchumi’s goods were auctioned, in May 2016, by the official receiver, in order to recover money owed to the retailer’s creditors, it left more than a dozen creditors, a number of landlords seeking their dues, and hundreds of employees that were rendered jobless, before closing its operations in Uganda and Tanzania in 2015 and later filed a bankruptcy petition seeking to safeguard its remaining assets from creditors.

 

With well defined business and corporate rescue and turnaround restructuring, some of these companies and all their affiliated parties can be saved of distress and given a new breath of life.

 

 

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