Uchumi grapples with Uganda bankruptcy suit

Retail chain Uchumi has filed for bankruptcy in Uganda, two months after shutting down its cross-border operations in a move that is likely to complicate its future re-entry to the neighbouring country.

The Nairobi-based retailer has petitioned the High Court in Kampala to wind up Uchumi Supermarkets (U) Ltd, its wholly-owned subsidiary in the neighbouring state, after multiple creditors secured orders seeking to attach its properties.

Uchumi in October declared its Uganda and Tanzania operations insolvent and the retailer has been unable to service its debts because its liabilities have exceeded assets.

The decision to take the bankruptcy route is meant to safeguard its remaining assets from creditors even as it makes a return to the foreign markets more difficult.

Gad Ouma, a commercial lawyer, said bankruptcy proceedings are a messy affair given that creditors are paid in order of merit – starting with secured creditors like bank loans attached to assets - meaning some are likely not to be paid.

“The reality is that it leads to creditors fighting against each other. The small creditors are exposed and may have to write off the debts, which is a big blow to them,” said Mr Ouma, an attorney at Robson Harris Advocates.

Uchumi has previously announced that it plans to return to both Uganda and Tanzania in one year’s time.

Those seeking to recover their dues from Uchumi include suppliers, landlords and 900 employees seeking terminal dues after they were rendered jobless.

READ: Uchumi sacks 900 Uganda, Tanzania staff

Julius Kipng’etich - who was hired in August as Uchumi CEO to turn around the fortunes of the struggling retailer – defended the bankruptcy route , saying it does not prejudice the retailer’s future return to the regional market.

“No. We have done everything legally,” said Mr Kipng’etich in an interview with the Business Daily.

“By law it is illegal to run an insolvent company. These operations were in negative position and there is no indication they have any future,” he said.

The retailer disclosed it was pumping Sh200 million a month into its five Ugandan branches and six Tanzanian branches “to help them meet their financial obligations,” but the efforts had proved futile.

Uchumi’s Uganda unit was indebted to the tune of Ush8.8 billion (KSh265 million), according to documents filed in court. The submissions will be heard on February 22, 2016.

Mr Kipng’etich said Uchumi has just finished paying its former Uganda subsidiary employees and has paid workers in Tanzania.

The former Uchumi employees in Uganda in November last year filed a suit seeking an order to compel the retailer to pay them terminal benefits.

“On October 4 and 5 while the plaintiffs (workers) were on duty at their various Uchumi branches, they were summarily summoned and informed that Uchumi was being temporarily closed for renovations. Up to date, no work has been given by Uchumi. The defendants (Uchumi) are engaging in various acts of fraud and deceit,” the former Uchumi workers say.

Uchumi Uganda ran into insolvency in the year to June 2013, when its liabilities hit Sh881 million against total assets worth Sh623 million.

The operations are projected to have hit a negative cash position of Ush23.8 billion by end of December 2015, up from Ush12.7 billion in September, according to filings made in court.

The Tanzania operations have been in a negative net asset position since June 2012, when liabilities were recorded at Sh415 million with assets standing at Sh252 million.

“I don’t know how the former management continued to run these operations yet they were insolvent,” said Mr Kipng’etich.

Uchumi’s Uganda subsidiary recorded its fourth consecutive loss in the period to June 2015 while the Tanzanian operations continued its loss-making streak since Uchumi set up shop in Dar es Salaam in 2011.

The poor show by the regional units was hitting the parent company and meant that Uchumi was relying on its Kenyan operations to turn a profit.

Uchumi –which was once the largest retailer in the region— has dropped to be Kenya’s fourth largest retailer in terms of revenue after it was overtaken by Naivas. Nakumatt is the biggest followed by Tuskys.

Uchumi posted an after-tax loss of Sh3.4 billion in the year to June 2015 following a decline in revenue coupled with a Sh1.04 billion provision for cooked books.

Several creditors had secured execution orders while other had filed pleadings pending before different courts in Uganda.

Uchumi’s top creditors in Uganda include Crown Bottlers, Century Bottling Co. Ltd, Nateete Shopping Centre, Samona Products and Dembe Trading.