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Options when a business goes bust

By Winnie Makena | July 28th 2021

Nakumatt Supermarket at West Side Mall in Nakuru:[Harun Wathari,Standard]

In 2016, Nairobi Business Ventures (NBV) was one of the most hyped listings at the Nairobi Securities Exchange (NSE).

NBV was the first footwear firm to trade at the bourse and the founders targeted to sell ten million shoes annually.

The retailer, which operated the KShoe brand and sold leather accessories, had six branches with the best outlet making Sh4 million every month.

However, expansion dreams were soon shattered and NBV spiralled into a loss-making path.

It added to the list of collapsed supermarkets and fashion stores that have earned Kenya the moniker of 'retail graveyard.'

The last five years have seen the exit of famous brands such as Deacons and Nakumatt.

For the financial year 2019 - 2020, NBV recorded zero sales resulting in a loss of Sh39.5 million. Creditors were also on its neck and liquidation loomed large.

Vasu Abotula, NBV's founder, had no choice but to sell a majority stake to a strategic investor.

Now the firm will diversify into manufacturing after the buyout by Dubai-based Delta International FZE.

Insolvency is a reality for many businesses.

This comes when an entity's liabilities (debts) outweigh its assets and the entity is unable to meet its debt obligations when they fall due.

Liquidation or winding-up is the legal term for the termination or dissolution of a company. 

It is comparable, in some ways, with the death of an individual or when an individual runs bankrupt.

When we speak of bankruptcy, we refer only to individuals and persons trading as partners because a limited company cannot be made bankrupt but insolvent.

Sadly, most times some firms cannot be rescued. According to Peter Kahi, an elite insolvency practitioner at audit firm PKF, this is when firms enter the bottom zone of what is referred to as the ‘distress curve’, or ‘slippery slope’ in audit circles.

The first stage is under-performance, which is marked by losses. The distress stage follows, where key ratios in the balance sheet are senseless. Finally, there is the crisis stage where a business has completely run out of cash.

Enterprise explores what happens to a company when financial distress strikes

Going under administration

The Insolvency Act of 2015 is credited with bringing sanity to how companies are wound up.

One of the processes laid out is administration.

This offers companies a lifeline by giving them a 12-month chance for a turnaround as opposed to immediate liquidation.

In administration, all creditors are treated equally and once an administrator is appointed, he or she has to call a creditors’ meeting within 60 to 70 days, and give a detailed proposal on the way forward.

The administrator is court appointed.

The overall objective is to maintain the business as a ‘going concern’ and escape liquidation. However, administration isn’t always successful and liquidation becomes inevitable. Liquidation or winding up is the process of selling all assets before dissolving the company completely.

For example, Nakumatt has been under administration since 2018.

Nakumatt collapsed with a Sh40 billion debt and creditors last year voted to have it liquidated.

However, in March this year, the High Court ruled against the liquidation of Nakumatt Supermarket, extending the term of its administrator - Kahi from PKF for the third time.

Kahi had argued that the extension would help in the recovery of between Sh3 billion to Sh4 billion, monies that are tied to ongoing court cases for and against the retailer.

Since taking over as administrator, Kahi has raised Sh5.2 billion with Sh3.5 billion paid to creditors, including Sh766 million payments to landlords.

Restructuring and finding a strategic investor

It is possible to turn around a firm.

Restructuring is usually the first stage in the process of a business agreeing on a way forward with creditors detailing a debt repayment plan.

Business restructuring refers to a process of re-organising a company’s ownership, operational and capital structure in order to make it more profitable or rescue it from the brink of insolvency.

In October 2020, NBV had to go the restructuring way when a deal on the takeover of NBV by Delta International FZE was approved by shareholders.

For Sh83 million, Delta International acquired an 84 per cent majority stake in NBV.

Registered in Kenya in March 2012, NBV’s core business had been selling shoes and leather accessories.

NBV started out as a distributor of shoes through the brand name ‘Kwanza shoes’ which changed to ‘KShoes’.

But as the bad economic climate affected Kenya since 2016, purchasing power dimmed, spelling doom for the retailer.

The buyout left existing shareholders of NBV with a 16 per cent stake in the company which changed its business to cement manufacturing, among other industrial undertakings.

The firm has since been re-listed at the bourse after the NSE lifted the suspension of the trading of its shares. 

"You need to know when to make compromises,” NBV founder Vasu Abotula, told our sister publication, Financial Standard.

He added that the coming on board of an investor with bigger financial muscles ensured NBV’s future was secured.  

“I think that other retailers who are facing problems should be ready to give up majority control. They can survive that way,” advices Abotula. 


When there is no real hope of the rescue or recovery of an insolvent company, it is liquidated.

The assets are sold off and distributed to creditors. This is followed by the dissolution of the company.

Liquidation can be voluntary either by members or creditors or by the court.

Nakumatt, now under administration, also provides a good example for liquidation.

In his first creditors’ meeting, Kahi argued that liquidation would have meant that out of a total of about Sh40 billion owed creditors, Sh30.6 billion was unlikely to be paid.

In a painful move in January last year, creditors including suppliers, banks and landlords, who are owed Sh38 billion voted overwhelmingly to have the supermarket liquidated to pave way for payment on claims, however little.

“Liquidation was the only route,” Peter Kahi, the court-appointed administrator from PKF, told reporters after the vote.

The family-owned supermarket that until two years ago had 60 branches, does not have assets and Kahi was hard-pressed to explain how money will be raised to pay creditors.

The alternative was to turn around the business, however, this would take years to actualise and would be too costly and loss-making for the better part of the turnaround window, implying that it would require additional debt.

However, the liquidation has been shelved after the High Court this year gave an extension to its administrator.

Company’s Voluntary Agreement (CVA)

Uchumi, one of the erstwhile giant retailers, has survived many liquidation attempts.

Last year, creditors owed more than Sh5 billion voted for the second time to have the retailer’s debts restructured.

Creditors including banks, suppliers and shareholders agreed on the Company Voluntary Agreement (CVA) that will see them take a 30 per cent haircut and get repaid in parts within six years.

The other option on the table was liquidation of the 45-year-old retailer, which would have seen thousands of suppliers walk home with nothing.

Uchumi had gotten into a Company Voluntary Agreement (CVA) aimed at restructuring its debts as it was far too high to be repaid by liquidation

The CVA process is an alternative to administration where the directors of a company may propose to the company creditors a voluntary arrangement on how to settle the outstanding debt.

Uchumi is the first-ever CVA in Kenya since introduction of the Insolvency Act in 2015.

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