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The East African : Oct 31st 2015
40 The EastAfrican BUSINESS OCTOBER 31 - NOVEMBER 6, 2015 Uchumi money woes: He≥e is u≥gent insolvency advice fo≥ management 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 U 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 ntil a few weeks ago, not many people believed that a business as big and vibrant as 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 great- An attendant at an Uchumi outlet. Going by media reports, several creditors in Uganda and Tanzania have made several demands for payment from the supermarket chain. Picture: File COMMENTARY ABUDU SALLAM WAISWA “According to the law, once a company is unable to pay its debts, is deemed to be insolvent.” 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. it The biggest question, howev- er, 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 man- agement 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 turn- around 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 ly 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 op- tion 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. Rwanda in a budgeta≥y dilemma as funding options dwindle By BERNA NAMATA The EastAfrican RWANDA’S ECONOMIC managers face a dilemma of mobilising resources in the coming months as funding options continue to dwindle. Donor aid uncertainty and insuf- ficient domestic revenue against the backdrop of depreciating local currency, lower global growth and depressed commodity prices for its major exports including minerals, mean Kigali must adjust its spending plans to available resources, a move which might see it cut back spending. “We are in stormy weather … We still have room for improvement in our prioritisation in expendi- ture – we do not have the luxury of increasing our expenditure as we have done in the past 10 years,” said Mr John Rwangombwa, Rwanda’s Central Bank governor at the launch of the October 2015 IMF Regional Economic Outlook Report titled “Sub-Saharan Africa: Dealing with the Gathering Clouds” in Kigali. He pointed out that while eco- nomic growth over the past decade was largely fuelled by increased public expenditure estimated at approximately 18 -20 per cent every year, beginning this year public spending is expected to remain constant. Rwanda’s total budget for fiscal year 2015/16 is projected at $2.47 billion, reflecting an increase of $8.26 million, compared with the 2014/15 revised budget of $2.46 billion. Donor funding is expected to de- cline to 5.7 per cent of the gross domestic product (GDP) in 2015/2016 from 7.3 per cent of GDP in 2014/15 as development partners opt to channel funds directly to specific projects and to non-governmental organisations. According to the IMF’s latest economic outlook for sub-Saharan Africa released this week, growth $2.47bn in the region has weakened markedly, and is now expected at 3.4 per cent this year and 4.4 per cent in 2016, from 5 per cent in 2014. Rwanda economy is expected to fall to 6.5 per cent 2015 from 6.9 per cent registered last year, according to IMF figures largely driven by a less favourable external environment including a sharp decline in the prices of their main commodity exports. In highlighting funding vulner- Rwanda’s total budget for fiscal year 2015/16, $8.26 million, more than that of 2013/14 abilities for Kigali, statistics from the National Bank of Rwanda show that in the first half of 2015, the country’s exports decreased by 6.2 per cent in value to $275.28 million from $293.61 million in the first half of 2014 as a result of poor performance in the mining sector, the value of whose exports dropped by 31.3 per cent mainly due to falling international prices. Due to a difficult external envi- ronment, the domestic room for manoeuvre has shrunk. Currently, the only consolation for commodity exporting countries is falling global oil prices which are also expected to support growth by mitigating inflationary pressure. “We saw Europe have a problem with debt crisis…the stagnation of the European Union which is a big market for African countries but also the world and with this impact of the slowdown in demand, definitely all our exports have not been growing at a level that was expected,” said Claver Gatete, Rwanda’s Finance Minister.
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