Uchumi Supermarkets’ fight for survival suffered a blow on Friday after a Nairobi court directed that the old Company’s Act could be used in an ongoing suit filed by its creditors.
The retailer lost the first round of a legal battle where it was seeking to have an insolvency case filed by suppliers heard and determined under the newly enacted legislation. The old Companies Act is hostile to struggling firms as it provides for express liquidation in case of default, while the newer laws allow such businesses to negotiate on repayment of outstanding debt.
The retailer’s chief executive officer, Julius Kipng’etich, however, told The Standard he was optimistic that the ruling did not translate to too ‘much’. “What we know now is that the court ruled against us, allowing the application of the repealed Companies law,” said Mr Kipng’etich late on Friday. He added that Uchumi was waiting to see what the implication of the directive would be.
Winding up orders
The presiding judge gave the directions after considering that the suit was filed when the new Companies Act had not come to force. That ruling could have a major significance for Uchumi’s recovery plans, which only last week were dented after the chief operating officer Willy Kimani resigned and went back to his former employer, Naivas Supermarkets.
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After Kimani’s exit, the retailer hired Peter Kamau, an operations consultant, as an adviser to help implement its recovery plans. Some of its suppliers had moved to court seeking winding up orders following the non-payment of debts, whose total is estimated at Sh3.6 billion.
Most of the owed suppliers had, however, accepted to convert their debt to shareholding in the retailer, but the latest development from the courts could have significant implications to the plans. Under the new Companies Act, which was assented to law last September, struggling firms are given a chance to repay their debts rather than being put up for sale to settle outstanding dues.
The legislation came into force together with the Insolvency Act – which has been lauded as pro-business by the Kenya Private Sector Alliance (Kepsa).
“Unlike the previous legislation, the Act seeks to redeem insolvent companies through administration as opposed to liquidation. The Act focuses more on assisting insolvent natural persons, unincorporated entities and insolvent corporate bodies whose financial position is redeemable to continue operating as going concerns so that they may be able to meet their financial obligations to the satisfaction of their creditors,” reads a legal commentary from Oraro and Company Advocates.
Already, six of the seven suppliers that had petitioned to liquidate the retailer have agreed to withdraw their cases. It was hoped to be the significant milestone in its recovery plans.