9 Companies Put Under Management as Economy Struggles

The business environment in Kenya is not as rosy as we are made to believe. If anything, the collapse of several companies including sugar millers, retailers like Nakumatt and others being placed under administration is a clear indication that there is something wrong in the country’s business environment.

Many companies over the past few decades have gone bankrupt, closed, or phased out completely by competition. The sitting government has been blamed for gradually suffocating the environment, and it is no surprise that people should link the two. With the wave of corruption that has swept across the country, it is hard to ignore the fact the country has succumbed to poor conditions of doing business.

The country has been rocked by massive scandals that have taken a toll on the economy. The economic cost of corruption has stretched even to the most remote areas of the country. Funds meant for developments, the youth, and the elderly are continuously being misappropriated.

These cases of theft projects irredeemable long-term opportunity costs alongside jeopardizing the country’s strategic objectives. Corruption has compromised the future of citizens and their development. In retrospect, we can all agree that corruption will drain any economy of the resources required for projects like infrastructure and investments.

High costs of production brought about by tax imposition even in areas where the government would have eased the burden is another factor that is driving companies to liquidation. Coupled with unfavorable energy costs, the manufacturing sector is having it hard in terms of increasing and ensuring better output.

Well, the tale of trouble is not new either, and the country’s economy alongside cartels and unscrupulous business individuals are to blame. When a firm takes a loan and fails to pay when state corporations are mismanaged and creditors are frustrated, when all the indications are there that a company is failing and no one helps, who is to blame?

The economy is rapidly plunging to its death and the trend of companies closing continues. Let’s not begin talking about small and medium enterprises (SMEs), which barely gets a conducive environment for operating.

The government is hellbent on increasing public debt forgetting that by implementing policies that favor businesses across the country is what the economy needs right now. The government is partly to blame for the increasing number of companies going under receivership or placed under administration.

Very few companies that have gone under receivership have failed to revive their operations. Meanwhile, those that are suffering the most are the middle-class people and the those depending largely on the collapsing companies for income. With the government sitting idly by, the unemployment rate continues, the cost of living increases, and the common citizen is starving. Amid all these, statistics carry on lying to us that the ease of doing business in the country has improved.

Directors, managers, and stakeholders in several strategic companies are making it even worse. They leverage their positions for individual gains giving little thought to the implication of their actions to the employees and the company.

Here are examples of companies that have gone under receivership in the country following loss-making, corruption cases, mismanagement, and political interference. While most of them have tried to revive their operations, some closed shop and weren’t heard of again.

Kisumu Cotton Mills (Kicomi)

It all started with Kicomi, the cotton mills firm that was placed under receivership back in the early 1990s. the company’s collapse came shortly after the World Bank and International Monetary Fund (IMF) prescribed new structural adjustments, which got rid of price controls. This led to unregulated liberalization of the cotton sub-sector and competition.

The company, hence, went under receivership under the liquidator PriceWaterhouseCoopers (PwC) who later on sold it to an Asian entrepreneur for an undisclosed amount. It took more than two decades for the government to think it a good idea to revive the cotton mills.

Meanwhile, thousands of people lost their jobs and were left hopeless with no source of income. To others, business prospects in the cotton industry died.

Kicomi isn’t the only company to be placed under receivership with PwC. Others include:

Karuturi

Karuturi Ltd, one of Kenya’s main flower farms, was placed under receivership in February 2014, over debts owed to lenders including 400 million shillings loan owed to CFC Stanbic Bank.

The fate of more than 3000 workers remained unclear as the company had failed to pay them for several months. Several developments later followed. Now, here is the problem, there is a compromise that Kenya’s contemporary laws offer leeway to entities owed money. With the primary focus of recovering their money, they bleed their debtors to debt leading to their collapse or closure. This is what happened to Karuturi. With a proper management and government policies that favor horticultural industry, the firm would have been saved!

The company’s assets were eventually auctioned to recover the debts.

Kinangop Wind Park limited (KWP)

First of all, this project would have been beneficial to the country’s economy, not just the residents of Nyandarua region. In fact, it would have added to the country’s source of electric power – different from the hydroelectric type – significantly. But due to various political and local involvement issues, Kinangop Wind Park limited (KWP) was placed under receivership with PwC in 2016 and the project never rose from the fall.

Landowners delayed the start of the project and in the end, investors pulled out of the initiative. When the company later withdrew from the 15 billion shillings wind power project, the assets and operations were seized by the liquidators. The project has since stalled and it only remains a dream. Question is, how could the government fail to ensure that such a developmental initiative saw the light of day?

Webuye’s Pan Paper Mills

Webuye’s Pan Paper Mills was placed under receivership in 2009, leading to over 1,500 workers losing their jobs. The company had failed to pay its creditors more than 30 million US dollars. Negative interference from the government wasn’t welcomed by the first receivers of the company, Kieran Day and Ian Small, who pulled out and left it to PwC.

The company would have otherwise collapsed if the billionaire Rai family hadn’t purchased it and paved way for its reopening. The politics that surrounded the company gave a projection that there was no logical outcome, which would have been the case since the majority of firms going under receivership spell doom.

Spencon

Back in 2017, Spencon, a road construction firm was placed under administration a massive debt to KCB Bank. The company collapsed and laid off its workers. As of 2017, the company was still under administration and little was heard after the liquidator called other creditors including Ecobank, Bank of Baroda, Crane Bank (Uganda) and Exim Bank (Tanzania) for discussions on the liquidation of the company’s assets.

ARM Cement

In August 2018, ARM Cement, laden with losses and debts went under administration for a chance to revive its operations.  The company’s shares were suspended on the capital market following the move.

ARM’s net losses in the year ended December 2017 rose 2.3 times to 6.5 billion shillings as short-term liabilities exceeded current assets by 13.4 billion shillings. The efforts of its revival are still ongoing and the company is still under the administration of PwC.

Nakumatt

Recently, Nakumatt, one of – or was – the largest retailers in Kenya was placed under the administration of PKF Consulting Limited. The company had accrued massive debts with trade creditors including the suppliers of tradable goods on credit holding the biggest claim against the retailer.  The debt that stood at almost 19 billion saw the company close shops all across the country with most of the subsidiaries being kicked out for failure to settle debts.

The retailer’s closure of some of its biggest supermarket stores across the country tells a tale of trouble with the local economy.

Deacons East Africa

This is another company that went under the administration of PKF following massive losses that it attributed to the closure of one of its partners. Following the move, the Capital Markets Authority (CMA) suspended the trading of the company’s shares at the NSE. Currently, it is under administration and its fate will only be known in 2019.

Midland Energy

Midland Energy, the Liquefied petroleum gas (LPG) dealer is the latest company among those that have gone under administration this year. The company was recently placed under the administration of consultancy firm Ernst & Young (EY) for failing to meet its obligations.

The company, which has been selling household LPG under the brand name MID GAS joins the long list of companies that have been faced with financial troubles. At least, the company currently stands a chance of revival but if the efforts fail, the last resort will be a liquidation, and it might never be heard again.

Clearly, these are not the only companies placed under administration or receivership in Kenya. With the economy on the verge of tumbling and increased cases of corruption, there is bound to be more and while some will get out of the mess, others will not and the consequences will affect the firms for years to come.

Workers who depend on these companies continue to suffer. Most of them find themselves with no source of income. Suppliers, traders and other partners of such companies are forced to look for other firms for their goods and services. The perpetual corruption cases and unfavorable business environment also continues to contribute to slow growth in the economy.