Ukwala collapse under Sh1bn debt hits KRA hard

Ukwala Supermarkets has applied to the court for the permanent closure of its business, revealing that it is unable to pay its debts that have accumulated to nearly Sh1 billion.

The struggling retailer owes the Kenya Revenue Authority (KRA) Sh840 million, making the taxman the biggest loser out of the more than 300 suppliers and institutions that have lodged claims against what was once counted among Kenya’s top supermarket chains.

Ukwala Supermarket in November filed for liquidation, informing the court that it had found it impossible to remain afloat. Total creditor claims against Ukwala amount to Sh930 million, yet the firm’s assets are valued at a paltry Sh19.3 million.

“The company is applying to be liquidated because of its indebtedness and inability to meet its financial obligations to creditors, suppliers, employees and the liabilities far outweigh the assets both fixed and movable,” says Ukwala director Vijay Jayantilal Dodhia in court filings.

Justice Mary Kasango is expected to render her judgment on the application on March 14. The firm has invited creditors who want to support or oppose the application to appear during the hearing of the suit. No creditor has so far filed any application in support or opposition of the intended liquidation.

The liquidation, if allowed by the court, will draw the curtain on the retailer that was registered in April 1995 and grew to one of the leading supermarket brands in the country. Mr Dodhia in court documents blames the fate facing the firm on "heavy losses occasioned by hard economic times and unfair business competition from other players".

But even as the firm's directors seek to liquidate it, the question remains how KRA became the most exposed institution of all the creditors. The taxman in April 2018 froze Ukwala Supermarkets’ bank accounts at Diamond Trust Bank, claiming Sh280 million Pay as You Earn and VAT arrears from the company.

Separately, KRA has been seeking Sh560 million from Ukwala, which the retailer has disputed in a suit pending before the tax appeals tribunal.On October 28, last year, two directors of the company, Mr Dodhia and Mr Rohit Shah, held a meeting and decided to seek for liquidation. They described the company as insolvent.

In a one-page minutes of the meeting filed in court, the two directors agreed that no meaningful operations could take place after KRA froze the bank accounts. They now want the High Court to appoint an official government liquidator to liquidate the company. The retailer and the taxman have had long-running disputes.

At one point in 2016, KRA threatened a partial takeover of the supermarket but the parties agreed to withdraw the case and opted to settle their differences at the tax tribunal.

This decision gave a Botswana retailer, Choppies Enterprises, a window to acquire several branches from Ukwala Supermarkets after orders stopping the transaction were discharged following the out-of-court deal. Choppies, which is listed on both the Botswana and Johannesburg stock exchanges, subsequently took over eight Ukwala outlets across the country.

Three of the stores are in Nairobi, four in Kisumu and one in Bungoma. It is not clear how KRA, which earlier went to court and stopped the planned sale over tax arrears, failed to protect itself against exposure during the takeover process.

The acquisition left Ukwala Supermarket as at yesterday with only a single operational branch in Eldoret. Ukwala and KRA withdrew the suit in which the taxman was seeking Sh946 million in unpaid levies between 2011 and 2014. The retailer had admitted to owing the taxman Sh101 million, but appealed the additional Sh845 million that KRA was demanding.

As per the out-of-court deal, Ukwala was to pay Sh59.7 million to the taxman within 30 days, and apply for a waiver of the Sh42 million it had racked up in interest and penalties. The disputed Sh845 million was to be settled by the KRA’s tax appeals tribunal. Ukwala in the latest court documents says the tax dispute filed in 2016 is still pending before the appeals tribunal but alleges that the amount in contention is Sh560 million.

Besides KRA, the firm owes over 100 suppliers Sh89.7 million and now wants all proceedings against it to be suspended as the court hears the liquidation suit. Kapa Oil Refineries in July 2018 sued Ukwala Supermarket for the failure to pay for supplies worth Sh527,476.

Other creditors include Ketepa (Sh1 million), PZ Cussons (Sh609,458), WoW Beverages Sh1 million, Africa Spirits Limited (Sh1 million), Mumias Sugar (Sh1.3 million) and Chandaria Industries (Sh937,863).