Ex-Nakumatt CEO loses Sh2bn assets to Bank of Africa

Former Nakumatt Supermarket CEO Atul Shah has failed to stop Bank of Africa from auctioning his personal property worth Sh2 billion over loans offered to the collapsed retailer.

The bank is the first to seize assets linked to Mr Shah after the creditors vowed to attach assets owned by him and his family to recover billions of shillings lent to Nakumatt.

The High Court has given Bank of Africa the nod to auction the property, registered under the name of Collogne Investments on August 24 to recover Sh700 million advanced to the collapsed retail chain.

Collogne Investments is owned by Mr Shah.

Nakumatt closed shop in January with debts estimated at Sh30 billion -- including Sh18 billion to suppliers, Sh4 billion to commercial paper holders and the rest to banks. The banks have been more aggressive in pursuing their unpaid loans, with assets worth Sh3.68 billion linked to Mr Shah and his family targeted for seizure.

Justice Mary Kasango dismissed an application by Collogne Investments to stop the auction by Bank of Africa. Collogne Investments argued that the property was used as security for other loans and that it would lose office space if the auction were allowed to proceed.

The company told the court the forced sale of the office block in Nairobi’s Industrial Area will expose it to legal suits from third parties who have rented space in the property.

Nakumatt tapped several loans from Bank of Africa between 2013 and 2015 when it was struggling to settle suppliers’ dues before it was brought down by poor management and rapid debt-fuelled expansion.

“Bearing what is before me I am of the view that the plaintiff has failed to demonstrate that its appeal is not frivolous and I do find that the defendant bank stands to suffer greater hardship if an injunction is granted since the debt is not being serviced,” Justice Mary Kasango said.

Bank of Africa told the court that the auction was lawful, arguing that the directors of Nakumatt were not protected by the retail chain’s insolvency.

Creditors of the supermarket chain on January 7 voted to wind it up after it failed to repay debts following a failed rescue attempt.

After the vote, the banks started to identify properties and bank accounts linked to Mr Shah, especially outside Kenya, with a view to seizing and recovering billions of shillings the lenders are owed.

The local assets include shopping malls, office blocks and prime land in Nairobi, Mombasa and Nakuru — where Atul’s father started Nakumatt as a retail shop. The properties are owned by third parties linked to the Shah family, which owns the bulk of Nakumatt shares, according to a document prepared by the retail chain’s court-appointed administrator.

Meanwhile, the Directorate of Criminal Investigations’ anti-banking fraud unit is investigating Nakumatt over alleged theft and money laundering.

That means Mr Shah risks both criminal and civil proceedings over the collapse of retail chain should the creditors push for court action after the two investigations.

Nakumatt Holdings had lent its directors more than Sh1 billion in interest-free soft loans by the time it was placed under administration on January 22, 2018, according to a review of the company’s financial statements.

The related party transactions were recently disclosed in a report for the year ended February 2018 by Parker Randall Eastern Africa, the retailer’s independent auditor.

Although the auditor did not specify which individuals owed the company the money, Nakumatt had only two directors — Mr Shah and his son.

The amounts owed by insiders, which did not attract interest charges, had dropped to Sh948 million as of February 2018, the period for which the latest financial records are available. Regulatory documents said Mr Shah had acknowledged receiving the soft loans and informed the administrator that he had no cash, arguing he was distressed.

A document from the administrator has listed properties that include a Sh2 billion property in Nairobi owned by Collogne, Park View Shopping Arcade worth Sh600 million, a Sh220 million plot in Westland under Nakumatt Investments, an office block valued at Sh350 million in Mombasa and River View Plaza, which is worth Sh200 million.

“Banks will now go after guarantors some of which are Nakumatt sister companies. The guys who will walk home with zero are the commercial paper holders,” said Pater Kahi, who was appointed as Nakumatt administrator in 2018.

“DTB is owed Sh3.6 billion, Standard Chartered Sh900 million, KCB Sh1.9 billion, Bank of Africa Sh328 million, UBA Sh126 million and GT Bank Sh104 million.”

In its heyday, the retailer, which started off Nakuru Mattresses, had more than 60 outlets across Kenya, Uganda, Tanzania and Rwanda. However, its financial problems led to empty shelves and store closures that eventually culminated in the demise of the once leading supermarket chain.

Foreign investors could have helped overhaul management and inject cash. But despite a swarm of suitors, no deal was made in the end.