How Tuskys’ directors lived large as the retailer struggled

But time has come to prove Mr Mugweru right, as Tuskys is badly in debt and on the brink of collapse, owing to two insolvency petitions that have attracted the support of at least 30 creditors.

It is, however, the imminent collapse that has brought the estranged siblings together. Mr Mugweru has temporarily put aside his harsh stance on his siblings to back a potential revival, whose first step is to negotiate a Sh2.1 billion capital injection by a Mauritian investor.

The investment was approved in board meetings last August, and for the first time in almost seven years, Mr Mugweru did not oppose a major family decision. Despite the wish to see Tuskys back on its feet, Mr Mugweru has in past entertained the idea of selling his shares to a strategic investor.

On November 19, 2013, when Justice George Odunga dismissed an application by Tuskys directors Samwel Mukuha, George Gashwe and Frank Kamau to stop investigations into their alleged theft of Sh1.64 billion from the retailer, the judge gave a parting shot that has come back to haunt the family.

“As a parting shot, however, it is clear that Tusker Mattresses Limited is a family venture and the parties herein are closely related. It is in their interest to mutually but genuinely and honestly engage each other with a view to arriving at an amicable solution to the issues affecting Tusker Mattresses Limited otherwise all of them stand to lose. It is not too late in the day to do so,” the judge advised.

To inspire the seven siblings behind the Tuskys brand name, Justice Odunga declined to condemn Mr Mukuha, Mr Gashwe and Mr Kamau to paying legal costs to the other parties in the suit – their brother Mr Mugweru, niece Ann Wamaitha Gatei and the Directorate of Criminal Investigations.

The peace deal did not happen, and it took the imminent collapse of Tuskys, nearly seven years later, for the siblings to sit down and talk about rescuing a giant retailer that their father built from the ground up.

After Joram Kamau Kago retired from Nakumatt in the early 1980s, he opted to compete with his former employer. He had nothing other than a dream and a small retirement package. Rather than run him out of town, Nakumatt helped Mr Kago.

Nakumatt owner Atul Shah gave Mr Kago business advice, and even supplied him with goods on credit. And just like that, Magic Super Stores was born, which later produced two retailers – Tuskys and Naivas.

After opening a branch in the Nakuru central business district, Mr Kago left Magic Super Stores to his brother, Peter Mukuha, who founded Naivas.

At the time, the retailer was trading as Tusker Mattresses.

By the time Mr Kago died in 2002, Tuskys had three branches; two in Nairobi (Mfangano Street and OTC station) and another in the Nakuru.

The Tuskys founder was a humble man. After opening the Mfangano branch, Mr Kago would board an Eldoret Express bus every weekend to Nairobi to inspect the store, motivate staff and evaluate the business.

After each of his five sons – Samwel, George, Stephen, John and Mugweru – completed high school, they would work at the store before furthering their studies.

They also have two sisters, Mary Njoki and Monicah Njeri, who were all directors. Monicah died, but her estate is still listed as a shareholder. All seemed smooth at Tuskys, at least to the public, after Mr Kago’s death.

The children were living large, as Tuskys quickly became the second biggest retailer in Kenya. Financials from the company show that in 2009 and 2010 alone, the shareholders received Sh206 million in dividends.

In 2009, the directors pocketed Sh37 million in salaries, meaning the six individuals listed – John, Samwel, Stephen, George, Mugweru and Frank Kamau (finance director not related to the Kagos) – each got Sh513,000 per month. The following year salaries for directors went up to Sh46 million, meaning each director was paid about Sh638,000 per month.

Just four years before, the company had lost Sh66 million that was trapped at the collapsed Charterhouse Bank. But this was a small amount then, considering that the retailer had deposited and withdrawn Sh4.3 billion at the controversial bank.

Things went on smoothly until December, 2011 when all hell broke loose. At the time, Mr Kamau was the only individual in a senior position that had no blood ties with the Kagos. Mr Mugweru walked into Tuskys headquarters along Mombasa Road and demanded to see the financials from Mr Kamau.

Mr Mugweru had just discovered that his brothers – Stephen and George – could have been drawing capital from Tuskys to run their own companies in Kenya and Uganda.

Tuskys’ books of accounts indicated that it owned the companies as subsidiaries but official documentation revealed that Stephen and George owned them fully.

Interestingly, Tuskys Uganda was among the firms being passed off as subsidiaries but fully registered to Stephen and George. Their niece, Ann Wamaitha Gatei, had been working as an assistant internal auditor at Tuskys and she bumped into documents revealing the inconsistencies and funds transfers.

They showed that Tuskys had transferred funds to Enkarasha Department Store (Sh441 million), Guthera Villas (Sh400 million), Kenspore Company (Sh322 million), Tuskys Kampala (Sh279 million) and Pop Media Limited (Sh200 million).

Kiran Dry Cleaners Limited, Cute Interiors Gourmet Limited, Magic Pay Limited, Save Net Limited and Fortunestar Limited had also received money from Tuskys after being passed off as subsidiaries. But the amounts were not disclosed in court papers.

Ms Wamaitha approached Mr Mugweru with the information in December, 2011. Worried that his siblings could be siphoning funds from the family business, Mr Mugweru confronted Mr Kamau and demanded to see the books of accounts before suspending the finance director.

On February 20, 2011, Mr Mugweru returned to Tuskys headquarters to confront Stephen about the funds transfers, who became extremely violent and assaulted his brother in front of workers.

Mr Mugweru reported the assault at Embakasi police station, and his brother was arrested and charged. The suit is yet to be concluded. Mr Kago later filed a complaint with the Directorate of Criminal Investigations (DCI) over the missing funds. The DCI started probing the transactions and obtained court orders allowing detectives to take a deeper look into Tuskys’ accounts.

Stephen and George unsuccessfully sued to stop the probe before Justice Odunga.

The two argued that Mr Mugweru was trying to use the back door to get control of the retailer’s operations by using the DCI and inciting the media to cover the drama behind the family fallout. Midway through the case, the brothers started negotiations out of court, but nothing came of the talks.

Justice Odunga held that there was no evidence of the claim, and that there were some aspects of the Tuskys situation that could be deemed criminal, if proven. Three years after the judge’s ruling, Stephen and George were charged with the theft of Sh1.6 billion from Tuskys. The case is ongoing.

Mr Mugweru insists he won’t back down until the whereabouts of the Sh1.6 billion are made known to him and a clear refund to Tuskys is made. Interestingly, the companies mentioned in the funds transfer saga have since been officially registered as Tuskys’ subsidiaries, and the missing Sh1.6 billion logged in as loans to the “affiliate” firms.

Just before Stephen and George were charged, Mr Mugweru tried to file for insolvency of Tuskys. After notifying his six siblings of the intention, John, George and Stephen offered to buy Mr Mugweru’s 17.5 per cent stake for Sh100 million. He rejected the offer, and made a counteroffer to buy them at the same rate. This meant he would have to part with Sh300 million, but his brothers rejected the offer.

The other shareholders at Tuskys are John Kago (10 per cent) through Green Pharm Investments, Stephen Mukuha (17.5 per cent) through Mitiki Investments, Sammy Gatei (17.5 per cent) through Future Group Ventures Investments Limited, George Gachwe (17.5 per cent) through Aliann Investments Limited, deceased Mary Njeri (10 per cent) through Kendan Investments Limited and Mary Njoki (10 per cent) through Njowawa Investments Limited.

Mr Mugweru’s insolvency plan was halted by the Attorney-General’s office, which had not yet issued guidelines on how to wind up a company by shareholders, under the Insolvency Act of 2015. Then-AG Githu Muigai had only published guidelines on how to wind up a company through creditors.

To date, the guidelines have not been issued, and have held back many insolvency petitions against companies like Tuskys and Bluebird Aviation.

Since 2012, not many have seen Tuskys’ books of accounts and it is difficult to ascertain whether the retailer has made any profit since. Being a private company in a largely unregulated industry, Tuskys is not compelled to release such information.

Mr Mugweru has in past interviews with the Nation stated that he has not received dividends since 2012, which could indicate that the retailer has not made profits since.

Last August, when the Tuskys fraternity was celebrating the Joram Kamau day, which is set aside to appreciate the hard work of its founder, Stephen said that he “takes full responsibility for failures that have brought about the imminent death of a giant”.

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