No payment deal for Uchumi creditors, employees in Uganda

Saturday May 14 2016

Efforts by Kenya and Uganda to diplomatically resolve a stalemate over the sacking of 800 Ugandan employees by Uchumi Supermarkets have flopped after Nairobi declared that the dispute was a purely “commercial matter” and not a national issue.

Uchumi, which is listed on the Nairobi Securities Exchange, made surprise exits from Uganda and Tanzania last October, closing down six and four branches respectively.

It also shelved plans to enter the Rwandan market in its bid to contain the spiralling operational costs of its regional subsidiaries, which accounted for more than 25 per cent of the retailer’s overall costs.

Uchumi’s exit from Uganda came up for discussion at the 13th Northern Corridor Integration Projects Summit in Kampala last month and Uganda is reported to have complained that the company had closed down without paying 800 workers and suppliers.

Uganda asked intervention from the Kenyan government to resolve the deadlock over the compensation of employees and suppliers.

READ: Uganda seeks talks with Kenya over Uchumi debt to suppliers


Then, Kenya said it was committed to assist in resolving the matter after getting details on the extent of the problem, by convening a bilateral meeting with Uganda.

But Nairobi now says Uchumi is a private company and matters to do with its insolvency and potential winding up should be dealt with in accordance with company laws and the specific laws of the country in which it was operating.

“We have had conversations about this matter. It is a straightforward commercial case. We have to recognise that the law has to be followed when winding up a company and when dealing with the creditors,” Kenya’s Principal Secretary in the Ministry of East African Community Affairs Betty Maina told The EastAfrican.

“This is not a state matter. Uchumi is a private company that is in distress and the law is very clear on how the creditors are to be settled. The conversation that has happened is to ensure that the law is applied in dealing with this matter,” she added.

But according to the PS, Uchumi committed no illegality in closing down its operations in the region and all the creditors will be dealt with in accordance with the company laws and the laws of the specific countries in which it was operating.

“The company is insolvent and the only thing the management needs to do is engage with all the creditors and agree on the way forward in terms of compensation,” she said.

READ: Uchumi faces insolvency as pressure from creditors and suppliers mounts

Uchumi is majority owned by Jamii Bora Bank, with a 15.8 per cent shareholding, followed by the Kenyan government with 14.6 per cent.

Kenya has, however, refused to bail out the loss-making company, saying it will only play its role as a shareholder in the event the management comes up with a viable recovery plan.

In Kenya, Uchumi has been sued by five suppliers who want it wound up over delays in repayment of its debts.

Reports show that the retailer owes suppliers Ksh3.6 billion ($35.16 million) with another Ksh2.5 billion ($24.41 million) debt held by commercial banks with charged assets.

However, it is understood that some suppliers have agreed to convert their debt into equity as part of efforts to expedite the recovery of the company.

Uchumi is also shopping for a strategic investor to inject Ksh5 billion ($48.83 million) into the business.

Uchumi was first put under receivership in June 2006 and its shares suspended from trading on the NSE after a botched expansion strategy that plunged the firm into financial distress, with debts totalling Ksh2.2 billion ($21.48 million).

Three and half years later, in 2010, the receivership was lifted following an agreement by the creditors — KCB and PTA bank— to convert their loans into equity.
The retailer was relisted on the NSE on May 31, 2011.

The company, which initially had 37 branches (27 in Kenya, four in Tanzania and six in Uganda) now, has 19 branches.