Alarm bells as a fresh round of insolvency hits businesses in Kenya

Placing a firm under administration helps to regain control when it has serious cash flow problems, is insolvent, and facing serious threats from creditors. This helps to rescue the company as a going concern, achieve better results for creditors or control, and then dispose of its property.

Three firms— Jituka Investments, Wadia Construction Company, and Napro Industries Limited—have become the latest entrants into the insolvency books and will be counting on administrators to try and resuscitate their affairs within the next 12 months.

All the affairs and business of these companies will now be conducted by administrators. The powers of the directors in terms of dealing with the companies’ assets have ceased.

The trio follows the likes of logistics startup, Sendy Group and a flower farm based in Isinya, Kajiado county, Desire Flora Kenya Limited, which have also sunk into administration, littering the corporate scene with companies whose visions have bumped into headwinds.

Desire Flora has been running a 16-hectare farm in Isinya where it grows 12 varieties of roses under greenhouses. It has been servicing both the Dutch Flower Auctions as well as direct supply to wholesalers based in the EU, Russia, USA, Canada, and Australia.

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Sendy Group of companies was placed under the administration of Peter Kahi of PKF Consulting in September. He is taking care of Sendy Group’s outfits including Sendy Kenya Freight Ltd; Sendy Ltd; Sendy Store Ltd & Sendy Kenya Marketplace Ltd.

The logistics firm shut its retail and supplier trading platform known as Sendy Supply in October last year, axing 20 per cent of its workforce citing funding challenges.

In September alone, there were seven firms placed under administration by direct appointment, compared with one in August, according to Business Registration Services (BRS) statistics.

The fresh round of insolvencies has come in an environment where operating costs have been rising. Interest rates are currently at levels last seen over seven years ago, while costs such as electricity and transport have also skyrocketed. 

Private sector activity contracted last month as rising fuel prices hurt business in multiple sectors including manufacturing, services, wholesale, and construction sectors, according to Stanbic Bank Kenya Purchasing Managers' Index survey.

“Elevated inflationary pressures and rising fuel bills acted to dampen client sales, whilst also leading to the second-fastest rise in input costs in the survey's near-decade history,” said the survey.

The rise in firms falling into administration has coincided with that of those undergoing liquidation. Official record from the BRS shows 46 firms were liquidated in the financial year ended June 2023, matching the previous period.

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While the process is usually used as a breather for firms to put their house in order, success stories have been hard to come by, with exceptions such as Kaluworks requiring debt write-off by some of its big creditors to pull out of administration.

Kaluworks was one of Kenya’s leading aluminium products such as utensils and roofing sheets, before the country started to see an influx of imports of similar materials.

Since 2016, at least 30 businesses have been placed under receivership by creditors but roaring back to life has been the most elusive thing.

Many firms are failing to recover from administration, with some requiring an extension to try their luck once more as has become the case with JK Blake Limited, which last week got a 12-month extension.

JK Blake was put under administration in June last year by Diamond Trust Bank and the extension means its directors will not be allowed back into the affairs of the business yet as the administrator, Tom Ouma Mungai, tries to revive the business.

Firms such as Athi River Mining, Nakumatt Holdings, and Deacons East Africa have walked in the murky waters of administration but failed to come out.Failing to get back on their feet and be able to service creditors’ obligations is always bad news for the interests of the other stakeholders such as workers who end up losing their jobs.

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Where an administrator cannot resuscitate a company, then their role turns into that of disposing of the company's assets and distributing the proceeds to the company's creditors—a painful process that not only marks the end of the road for such firms but also leaves creditors in losses most of the time.

Opinion is still split on whether the administration in Kenya is successfully rehabilitating companies in distress especially that many times, the push and pull on claims by different parties, usually eats into the time of administrators and the meagre resources available.

There has also been an argument that directors usually kick the can down the road for way too long and only allow administrators in when it is far too late in the day to give the recovery strategy a real chance of success. 

Firms under administration have also found it difficult to access credit and the administrator struggles to find buyers as potential suitors fear for the unknown details.

Administration was introduced by the Insolvency Act, of 2015 as an alternative to liquidation, with the key objectives being to maintain the company as a going concern and try to achieve a better outcome for a company’s creditors than liquidation would offer.

The process of administration is headed by an administrator, a certified insolvency practitioner, who may be appointed by an administration order of the court, unsecured creditors, or a company or its directors.

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