Until a few weeks ago, not many people believed that a business as big and vibrant as Uchumi Supermarkets could end up in the financial conundrum it is currently entangled in.

To many, Uchumi, Kiswahili for economy, had acquired significant secondary meaning: A true shopping home of value that was too big to fail.

This reminds me of a recent discussion at the annual congress of an international association of restructuring, insolvency and bankruptcy professionals, INSOL Europe, held in Berlin, Germany.

Jim Hagemann Snabbe, chief executive of SAP–AG,  led the discussion on the topic “too big to fail,” where he referred to big companies that were previously thought to be extremely powerful but have since either completely failed or are currently struggling. Examples are Lehman Brothers, Enron, General Motors and Nokia.

He advised top executives never to think of their businesses as too big to fail, but instead constantly rethink strategies to avoid reckless expenditures and uncalculated expansion policies, which, analysts argue, are the most common causes of business failure.

Going by media reports, I am convinced that the company is insolvent. According to the law on insolvency, once a company is unable to pay its debts as and when they fall due, it is deemed to be insolvent, even if an objective analysis of its balance sheet reveals more assets than liabilities.

In Uganda, the Insolvency Act, 2011 lucidly provides that a debtor is presumed to be unable to pay his debts, hence is insolvent, if he has failed to comply with a statutory demand or if execution proceedings issued against him in respect of a judgment debt have been returned unsatisfied, or where the debtor’s properties are under control of a receiver or some other person enforcing a charge.

Again, going by media reports, creditors in Uganda and Tanzania have made several demands for payment from Uchumi, and some of its assets were attached in execution of court judgments, which, on the face of it, suggests insolvency.

The biggest question, however, is how best the management of Uchumi can save itself from this quagmire, without hurting more people as well as exposing itself to further embarrassment and possible claims and actions for insolvent and/or fraudulent trading.

Depending on what the management of Uchumi wants to achieve, they could consider negotiating for time with their creditors, such that they can mutually agree on payment schedules, but this would only be possible for say Kenya, where the creditors have not yet started attaching its assets, and presumably trust the company more.

They could also consider turnaround financing. This is a form of credit arrangement for struggling but viable companies that entails a debtor seeking urgent financing where the company stakes its assets, including goodwill and other intellectual properties, to get funds to pay off the most understanding creditors who pose the biggest risk to the survival of the business.

This can, however, only work where the company has a good financial history that can be relied on by the financiers to determine its capacity to recover.

For markets like Uganda and Tanzania, where the situation is already bad, Uchumi could consider commencing administration proceedings.

The Insolvency Act of Uganda stipulates a detailed step by step procedure on how this can be done, but the most important highlight is that once a company passes a resolution agreeing to pay its creditors, it can petition the court for an interim protective order, which once granted, requires the company to appoint an insolvency practitioner to act as a provisional administrator, whose fundamental duties include investigating the company business, property and financial  circumstances and to exercise all reasonable powers to ensure survival of the company.

This procedure is not the same as liquidation or winding up, it is just one of many insolvency procedures, which in some countries is called a rescue procedure.

Administration would greatly help Uchumi because under the law, once administration commences, no creditor will be allowed to petition court for the liquidation of the company, except where such an order is deemed necessary for the benefit of all creditors, which would ordinarily not be easy to prove.

The other benefit is that during administration, creditors are not allowed to enforce their individual rights against the company and its assets, including execution proceedings or attachment of company assets, except with approval of the court or the administrator.

This would give management time to restructure and possibly move towards quick recovery, without the threat of liquidation hanging over its head or creditors individually attaching business assets.

The last and least desirable option is to commence liquidation proceedings. This would, however, greatly affect all the stakeholders, especially the many unsecured creditors since it will entail sale of the company assets and distribution of the meagre proceeds among all the creditors in accordance with the priority rules, which will leave many creditors without anything, let alone engulfing other associated companies, since a liquidator in one country could seek to extend the proceedings across the border, which could end up affecting the whole group.

Abudu Sallam Waiswa is an advocate of the High Court of Uganda, and the 2015 Richard Turton International Insolvency Award winner.