Nakumatt's death: The giant elephant in the room

Supplies kept the lie going, bursting the shelves and aisles with every item a supermarket thrives on: toilet paper, electronics, water, rice, beans, pasta, bread, frozen foods – you name it.

It all started in 1973. A young Atulkumar Maganlal Shah, fresh from completing his primary education, dropped out of school to work at his father’s Nakuru-based Tiku Fancy Store in what would kick-start a 47-year journey in Kenya’s retail sector.

Atul, as he was known, would never step into a classroom again, at least not as a student.

They say the apple does not fall far from the tree. Atul followed in his father’s footsteps – building a retail outlet from the ground up and watching it go bankrupt over unpaid suppliers’ debt.

Besides other management shortcomings, he had no idea that his employees had also devised a system to milk Sh1 million a day from the till.

History was repeating itself.

Store's collapse

At 15 years of age, Atul had watched Tiku Fancy Store collapse after growing into a respected clothes dealer. Worse still, he watched as his father, Maganlal Shah, was declared bankrupt after failing to pay a Sh1.2 million debt.

Tiku Fancy Store was exporting ready-made clothes to Uganda, but its owner made the mistake of advancing stock to customers in the hope that they would not find it difficult to pay. They didn’t pay back.

Bankrupt, humbled and obviously worn out, the senior Shah went to work for his brother Hasmukh, who owned the Nakuru Mattresses shop in the Rift Valley town and was supplying mainly to boarding schools.

In 1978, Atul and his brother Vimal (not related to Vimal Shah of the Bidco Africa) set up a clothes shop in Nakuru, by the name Furmatts.

Furmatts started to grow as a respected enterprise and the two brothers pooled their savings and bought their uncle’s shop, setting the stage for Nakumatt’s rise.

From its registration as Nakumatt in 1987, the retailer grew to more than 60 branches across Kenya, Uganda, Tanzania and Rwanda, turning the small store into a giant in the retail market. The senior Mr Shah would later join his sons, who were set to conquer the retail sector in the region.

Being a private company, it was difficult to ascertain anything that the retailer said, including making profits. It had hired several public relations companies to project the brand as the best gift in the retail market.

Mr Shah always sang praises of his retail chain, teased about strategic investors seeking to buy into his business and listing on the Nairobi Securities Exchange by 2021. It was a dream – but, then, he didn’t know that his ship was heading towards an iceberg. With just months left to Atul’s own listing deadline, Nakumatt, like a dodo, is dead.

Besides harbouring many thieves at his till box – his employees had turned Nakumatt into their own barn – Atul had along the way realised he could save more money through tax avoidance, and he went straight to Mauritius, Africa’s most popular tax haven, where he registered Nakumatt Group Limited.

Today, Atul solely owns the retail chain through this company registered in Ebene Cybercity, a suburb in the Indian Ocean island nation.

In the new structure, the Mauritius firm owned 99.999 per cent of Kenya’s Nakumatt Holdings Limited, meaning that it could legally transfer its profits to Mauritius without raising any queries. Mr Shah individually owned the remaining 0.001 per cent.

But even then, he still was not remitting all due taxes to Caesar.

Tax money

At the time of its collapse in 2017, Nakumatt owed the Kenya Revenue Authority (KRA) more than Sh1.8 billion.

Haunted by KRA and other cases, Atul’s troubles were recently multiplied by his failing health. At the moment, he is admitted to a hospital in India, where doctors are seeking the cause and treatment for his high blood pressure, which has also slowed down his fight to rescue whatever is left of Nakumatt.

The first sign of trouble for Nakumatt came in 2017, when the retailer was under pressure to offset a Sh60 million debt owed to Africa Cotton Industries. He issued three bouncing cheques, an indicator that the retailer had almost no money in its bank accounts.

Africa Cotton Industries filed an insolvency petition against Nakumatt, a move that would blow the lid on a Sh35.8 billion debt owed to various suppliers against less than Sh3 billion in assets. In 2018, billionaire Ngugi Kiuna’s Maxam Kenya Limited sued Atul for issuing 10 dud cheques meant to settle a Sh9.5 million debt for the supply of alcohol to the chain.

The insolvency suit not only blew open Nakumatt’s true financial position, but exposed Atul as a man running an empty store.

The debt load of Sh35.8 billion was accompanied by an asset base of barely Sh3 billion, meaning that Nakumatt was not investing its money in anything.

It has never been clear when former Kilome MP John Harun Mwau bought a 7.7 per cent stake in the retail chain and the time he quit.

But his exit from Nakumatt ended up being one of the reasons for Nakumatt’s failure, although the liquidator, Peter Kahi, denies this.

Desperate to save the sinking ship, Atul started a divide-and-conquer war with creditors, who were already in court demanding that the business be liquidated and whatever little proceeds available be shared among them.

In 2017, Atul approached Edward Waithaka, the owner of Nanyuki Mall. As the Nakumatt landlord, he was owed Sh14 million in rent arrears. Atul would reveal to Mr Waithaka that Nakumatt had been doing okay until Mr Mwau decided to leave the retailer’s ownership and sell his 7.7 per cent stake held through Hotnet Limited.

He confessed that the retailer’s working capital, which would have ensured suppliers got paid and stocks were replenished, was used to pay Mr Mwau Sh3.1 billion.

But the story did not make sense. Some suppliers had not been paid for over five years, which was long before Mr Mwau expressed desire to leave. Also, the suppliers’ debt was more than five times what was paid to Mr Mwau’s firm.

Atul also engaged the services of Tuskys to hoodwink the public that it would pump Sh3 billion into Nakumatt to help it replenish the empty shelves and start a recovery journey.

Curiously, Tuskys was at the time making losses and unable to get approval from all its shareholders to help in Nakumatt’s recovery by acquiring a stake.

Administration process

The plan was that Atul would leave management and Tuskys would appoint a chief executive officer to oversee the recovery plan.

When this fell through, Atul pushed for administration – a process where a manager is appointed to restructure debt and slowly take a collapsed company back on its feet.

And in a classic case of clutching at straws, the Nakumatt founder approached the Ministry of Trade and Industrialisation begging that taxpayers help rescue his firm from the jaws of death.

This could not happen, as the retailer was a private entity.

The courts at first agreed with Atul, allowing the appointment of PKF’s Peter Kahi.

Mr Kahi was to prepare a report indicating the retailer’s status, then present it to creditors, who would then decide whether to keep Nakumatt on a life support machine, or pull the plug and end its misery.

The report revealed the debt load and creditors realised that there was nothing they would get from the shell of a supermarket left.

In January, creditors decided to accept their losses and move on.

The High Court respected their decision and called it a day on the 33-year-old retail chain. Atul’s appeals against the liquidation order all failed and Nakumatt was left to die.