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Why lawsuits may shadow Tuskys, Nakumatt merger

A shopper at a Nakumatt Supermarket outlet in Nairobi. FILE PHOTO | NMG
A shopper at a Nakumatt Supermarket outlet in Nairobi. FILE PHOTO | NMG 

Nakumatt-Tuskys proposed merger was announced last week. But in my view this deal risks delays due to the numerous lawsuits that Nakumatt is facing from various quarters.

A list of creditors was published and it was announced that some of these creditors have initiated a winding-up petition against the supermarket.

There have been some reported employee issues. However, I am not aware if a labour dispute has been filed. There are also some rental and supplier disputes. In the wake of all these other disputes, it is unlikely that the proposed merger will continue unless a settlement is reached with the other disputants.

The rights of creditors supersede the rights of shareholders or any other third parties. Tuskys is a third party and the interests of creditors take priority.

While the winding-up petition has just been filed, the Section 411 of the Insolvency Act states that the rights of directors cease as soon as a liquidator is appointed.

This means at some point, if the creditors opt to proceed with the petition, then the directors of Nakumatt will not have any powers to pass any board resolutions as far as the proposed merger is concerned.

The affairs of Nakumatt would be taken over by a liquidator thereby further challenging the proposed merger. I am not privy to the details of the proposed merger. Some quarters state that the terms of the deal include taking over the debts and liabilities of Nakumatt.

If this is the case, then the winding up petition should be withdrawn and an agreement made on settlement of debt. A winding-up petition involves several creditors and from the list published in this paper last Wednesday, then the third party will have to seek consensus of all creditors on an out-of-court settlement.

This means that the third party cannot have a settlement with only one class of creditors such as suppliers and exclude others. This would still expose the entity to further litigation from excluded creditors.

The proposed merger would be guided by the Competition Act and the Companies Act. A merger done without regulatory approval is null and void.

The Competition Authority’s consent must be sought. One of the things the authority takes into account is the extent to which the merger will affect employment. From media reports, there were some employment issues that Nakumatt faced with its staff members.

Whether a labour case was filed, or if the issues were resolved is not clear. But assuming that they were not resolved, it is unlikely the proposed merger will proceed until this is done.

A few years ago, the CFC/Stanbic merger was slightly delayed when former employees filed a suit temporarily halting the merger until their case was heard.

In the same merger, a former depositor sought orders halting it until his case was heard. The bank was required to pay some security costs.

A merger leads to the creation of a new entity and the former entities cease to exist. Therefore any obligations accruing to any third party by the former entities cannot be actioned after the merger.

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