The life of the ailing cement manufacturer ARM Cement will be brought to an end this week (September 30) when the joint administrators commence winding up the company to pay off outstanding claims estimated at $103.82 million.
The joint administrators — George Weru and Muniu Thoithi of PricewaterhoueCoopers (PWC) — said in a circular to the creditors dated September 21 that their mandate of the administration of the company is set to end on September 30 in line with a court order dated September 9.
“The next course of action will be the immediate commencement of the liquidation of the company in line with the administrators’ proposals as approved by the company’s creditors on October 23, 2018 and in line with the provision of the Insolvency Act, 2015 of Kenya,” they said.
“The joint administrators will transition into the role of joint liquidators of the company and will continue to pursue an orderly wind-up of the affairs of the company and its subsidiaries.”
According to the administrators, the company’s total claims stand at $154.14 million, comprising preferential creditors ($2.88 million), secured creditors ($71.06 million) and unsecured creditors ($80.2 million).
However, so far total claims paid out stand at $50.32 million comprising preferential creditors ($2.88 million),secured creditors ($42.63 million) and unsecured creditors ($4.81) million.
Additional recoveries have been made possible through a resolution of a $23 million capital gains tax (CGT) dispute with the Tanzania Revenue Authority (TRA) with respect to the sale of Maweni Limestone Ltd.
According to the circular, ARM’s tax liability with respect to this transaction (Maweni) was reduced to $4 million from $23 million following negotiations with the Tanzanian tax authority.
As a result, the total surplus (after settlement of all Maweni liabilities and costs of realisation) arising from the sale of Maweni business which is available for distribution to the ARM creditors next month (October) stands at $21 million.
These funds will be distributed to ARM’s secured and unsecured creditors who will each receive $17.69 million and $3.3 million, bringing their total compensation to $42.63 million and $4.81 million respectively.
“We expect that these funds will be received by ARM in the month of October 2021 for distribution to the creditors of the Company,” according to the Joint Administrators.
The proceeds from Maweni transaction is expected to push recovery to ARM’s secured creditors to 60 percent of their total admitted claims, from the current 35 percent while that of unsecured creditors will rise to six percent of their total admitted claims from 1.8 percent.
According to the administrators, further recoveries from Maweni transaction, if any, are unlikely to exceed $5 million, while in Kenya a dispute over capital gains tax (CGT) with the Kenya Revenue Authority (KRA) amounting to $4.73 million, relating to the sale of ARM assets and business to National Cement Company Ltd for a total consideration of $50 million is yet to be resolved.
“Recovery to the respective categories of creditors may improve further should the Administrators succeed in unlocking further amounts from residual retentions relating to the Kenya and Maweni transactions,” they said.
In mid-January 2021, the administrators received the approval of the Rwanda Development Board’s Registrar General to commence the liquidation of Kigali Cement Company Limited (KCCL) with the objective of settling any claims against the company and achieving an orderly wind-up of the affairs of the subsidiary.
The administrators then appointed a liquidator who is currently pursuing bidders for a transaction that would see the realisation of the company’s assets or any other agreeable transaction.
The administrators however noted that it is unlikely that there will be any surplus to ARM from the liquidation of KCCL considering the amount of creditor claims received in relation to KCCL and the estimated realizable value of the assets of KCCL.
The transaction for the sale of ARM Tanzania Ltd is yet to be concluded although the administrators have already received offers for the purchase of the shares.
“We are waiting for the South African court to make a ruling on the matter. We anticipate that the earliest this ruling can be delivered is after a month from the date of this letter. We will continue to keep creditors updated on this matter,” according to the joint administrators.
In South Africa, a court is yet to make a ruling in which minority shareholders filed a petition seeking cancellation of the shareholders’ agreement and ceding of ARM’s shares in Mafeking Cement to themselves, citing non-performance by ARM.
ARM subscribed to 70 percent of Mafeking shares in May 2009 and signed a shareholders’ agreement which provided for certain activities, related to the development of the deposit held by Mafeking, that ARM needed to fulfil within a prescribed period.
In February 2019, minority shareholders filed a petition seeking cancellation of the shareholders’ agreement and ceding of ARM’s shares in Mafeking to themselves, citing non-performance by ARM.
Further, On August 6 2019, the minority shareholders were successful in bringing urgent proceedings to prevent ARM from selling or disposing of their shares pending the outcome of the litigation.
The new Insolvency Act (2015) allows financially distressed companies to go through an administration process to explore possible ways of recovery before being pushed into liquidation.
However ARM which was put under administration by the United Bank of Africa (UBA) over loan default on August 17, 2018 has failed to recover from financial bruises afflicted by the mismanagement of its former directors.