In Tuskys collapse, a mirror image of Nakumatt’s troubles

Both retailers were accused of money laundering through the infamous, collapsed Charterhouse Bank.

Tuskys’ founder, Joram Kamau, at one time worked for Nakumatt. His former employer offered financial and technical support while he was starting out.

Tuskys’ current financial troubles have only brought to fore more of the similarities between the two fallen retailers.

In May 2017, African Cotton Industries filed an insolvency petition against Nakumatt Supermarkets, then the largest retailer in East and Central Africa, over a debt of Sh70 million.

The petition opened the door for more than 100 creditors who had for years suffered in silence as Nakumatt failed to pay suppliers and landlords their dues, at times brushing them off with dares to find an equally big substitute retailer to do business with.

Nakumatt debts

In total, Nakumatt went down with Sh18 billion debts owed to suppliers, landlords, banks and other institutions.

The Nakumatt creditors played a painful game of cat and mouse with the Nakumatt founder, Atul Shah, as the retailer made numerous false payment promises and issued bouncing cheques to suppliers who threatened to file insolvency proceedings.

African Cotton Industries had enough when cheques totaling Sh11 million bounced, and filed the insolvency petition.

After the suit was filed, Mr Shah asked creditors to hold their horses as he was just about to get a big rescue package.

The package would involve Tuskys taking over management of Nakumatt, injecting an initial Sh600 million to pay some debts and settlement of other dues in instalments, over an unspecified period of time.

For some time, this deal enticed some suppliers, who started softening their stance and even supported Nakumatt’s revival plans in open court.

By the time Nakumatt was requesting the court to place it under administration, even African Cotton Industries that had filed the insolvency petition backed the retailer’s stand.

Tuskys announced the deal in press statements, in which its directors stated that the decision was the result of empathy they had on Nakumatt.

They justified the rescue on the fact that Tuskys founder, Joram Kamau, received huge support from Nakumatt, his former employer, while starting out in Nakuru’s Rongai town.

Mr Kamau’s scions did not know that as they were seeing Nakumatt fall, they were simply looking into a mirror.

When family wrangles within Tuskys and complications with the arrangement killed the potential partnership, creditors ruled that the offer was just a ruse to buy time for Mr Shah to extend the cat and mouse games.

One of Mr Kamau’s children, Yusuf Mugweru, opposed the deal while sounding warning bells that Tuskys was itself insolvent. Mr Mugweru’s shouts atop the rooftop did not elicit much, other than a couple of stories in the news media.

And when the Tuskys merger deal collapsed, Mr Shah blamed new laws that capped interest rates on loans offered by financial institutions.

No doubt, the interest rate caps sparked an unpleasant storm for many private institutions that depend on borrowing to survive, as banks tightened their wallets and largely lent to safe bets like government or institutions with valuable assets as security for loans.

But Mr Shah’s claim was contradicted in court, where suppliers like Githunguri Dairy Farmers and the Kenyatta family-owned Brookside Dairy had not been paid their dues for periods long preceding introduction of the interest rate caps.

Today the script has been written but the main character has been recast, as Tuskys is now asking creditors to hold their horses on insolvency and await a Sh2 billion capital injection from a mystery investor in Mauritius.

After issuing bouncing cheques, promising to pay suppliers and at times evading their calls, Tuskys is now facing insolvency proceedings.

On August 12, 2020 Syndicate Agencies Limited filed an insolvency suit against Tuskys seeking Sh30.8 million for security services over a three-year period.

The firm had provided CCTV cameras and personnel to watch the feeds, spies in competitors’ stores and other support staff within Tuskys’ stores.

Just 12 days later, Hotpoint Appliances Limited filed a second insolvency petition against Tuskys.

The electronics giant had not been paid since 2016 for appliances sold, whose value had totalled more than Sh248 million.

Pressure was now mounting on Tuskys, as the threat of being liquidated became more real.

Hotpoint said in court papers that it served Tuskys with a statutory demand on June 3, 2020; which had not been responded to.

Coincidentally, Nakumatt received its statutory demand from African Cotton Industries on the exact same date in 2017.

Under Kenyan law, a firm or individual served with a statutory demand must within 21 days pay all or part of the liability due, or face court action that could end in an order for liquidation.

Tuskys had been trying to calm creditors down as many suppliers had stopped giving the retailer products to sell by the time the insolvency suits were filed.

Landlords, like Greenspan Mall and United Mall, had already become impatient with the retailer and had started the reclaiming spaces rented to Tuskys over unpaid arrears.

One day after the Hotpoint case was filed, Tuskys came out to dangle a carrot in front of creditors by announcing that it had struck a financing deal with a Mauritian company.

Tuskys Board chairman Bernard Kahianyau said that the retailer was striving to have working capital injected, and that the green elephant would trumpet again.

The deal would see creditors paid part of their Sh6.2 billion dues. Creditors did not accept the proposal, and a good number instead opted to join the insolvency petition.

Tuskys took the same carrot and dangled it in front of 30 creditors in the court petition. Justice Francis Tuiyott allowed Tuskys until October 27 to discuss the financing deal, but creditors still did not swallow the bait.

Much like Nakumatt, Tuskys was now trying to convince creditors to back out of the liquidation attempt over a capital injection deal whose details are only known to the retailer’s owners.

Bounced cheques

Last September, Tuskys employees who had been sacked three months earlier held demonstrations after being issued with post-dated cheques that later bounced.

As for the mystery investor, the Nation has learned that Shield Fund PLC, which has been in talks with Tuskys, is a special purpose vehicle for a well-known Mauritian company.

An initial Sh500 million injection was swallowed up by a bank overdraft, which left Tuskys unable to offset some of its debts.

The financing deal is now on the brink of collapse as Shield Fund wants assurances from creditors that they are onboard the revival train before it pumps in more money.

Unfortunately, creditors want more details on the financing deal before they can agree to hold their claims.

But Tuskys has already signed a non-disclosure agreement with Shield Fund that could not only see the financing deal collapse, but could also the retailer penalised for breach.

Tuskys is between a rock and a hard place, and with creditors’ patience already razor thin, the retailer now risks following its big brother, Nakumatt, through one last step – death.

Nearly half a year after Tuskys started engaging Shield Fund, there has been no progress.

When Nakumatt fell, an audit report by PKF revealed that Mr Shah could have siphoned Sh1 billion through interest-free loans from the retailer to himself over the years.

Interestingly, in 2016 two Tuskys directors – Stephen Mukuha and George Gashwe – were charged at the Milimani High Court for stealing Sh1.6 billion from the retailer between 2002 and 2012.

The complaint had been filed by Mr Mugweru, their brother and co-director.

Out-of-court talks failed, when the siblings attempted to have the missing funds treated as loans by Tuskys to its directors.

Tuskys has blamed its collapse on the Covid-19 pandemic, citing lower sales owing to general economic troubles across the country. This is similar to of Atul Shah’s claim that interest rate caps were behind Nakumatt’s fall.

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In part three: Read about the mystery investors behind Sh2 billion Tuskys bailout. Tuskys wants the court to allow it sell some assets to offset debts. Has the Sh2bn deal collapsed? Find out in the third instalment of the fall of the green elephant.