East Africa: Restructuring Quarterly Bulletin – December 2024

In the December edition of our quarterly restructuring bulletin, we highlight:

• Economic and corporate updates.
• Insolvency statistics and the distressed companies in the press.
• Interesting developments in case law.
• Regulatory updates

KENYA

Economic updates

• The International Monetary Fund (IMF) has approved USD 606.1 million in funding for Kenya to bolster fiscal resilience, address debt vulnerabilities, and support reforms. The funds are part of ongoing Extended Fund Facility, Extended Credit Facility, and Resilience and Sustainability Facility arrangements. This financial support also aims to mitigate climate-related risks and catalyse private climate investments. To read more, click here.
• The Kenya Bankers Association has announced that Kenyan banks will lower lending rates following reductions in the Central Bank Rate by the Central Bank of Kenya. This move aims to ease credit access and support economic recovery. The rate cuts will be implemented progressively, considering deposit costs and individual credit risk profiles. To read more, click here.
• Savings and credit cooperatives (Saccos) issued more loans than commercial banks in the first eight (8) months of this year, reflecting the choices of customers put off by high-interest rate charges by the latter. To read more, click here.

Corporate updates

Highlights:

There were twelve (12) petitions filed for the liquidation of companies by the court between July and October. There were no applications filed for administration by the court in the same period. Additionally, six companies went into administration by direct appointment, while three companies went into voluntary liquidation. To read more, click here. Further, the Registrar of Companies issued a gazette notice announcing the deregistration of sixty-seven (67) companies in September.

Distressed companies in the press

• Stanbic Bank, bondholders, and Aureos suffered significant losses following ARM Cement’s collapse, with unsecured creditors facing massive write-offs. While secured creditors recovered about 73% of their claims, unsecured creditors will receive only 7.65%, with potential marginal improvements from further recoveries. The liquidation process prioritised payments to employees and secured lenders, marking the end of ARM Cement’s saga. To read more, click here.
• The Official Receiver, Mark Gakuru, has moved to lease out Cytonn Investment’s 99-acre land in Kilimani, which has been at the centre of a court liquidation battle. Two affiliates of investment firm Cytonn have asked the Court of Appeal to block the sale of a 40-acre Ruiru land, even as the Official Receiver argues that the fresh application is an attempt to scuttle refunds to over 3,000 Cytonn High Yields Solutions investors. To read more, click here.
• A court in Nairobi has blocked Equity Bank’s (Equity) takeover of TransCentury PLC, an investment holding company in the infrastructure sector and its subsidiary East Africa Cables Limited (East Africa Cables) in a KES 4.8 billion loan row. Equity had placed the two firms under receivership claiming that they had declined to pay back USD 20 million (KES 2.8 billion) debt owed by TransCentury and a further KES 1.948 billion owed by East African Cables. To read more, click here.
• Mobius Motors Kenya (Mobius Motors), the Kenya-based automobile assembly company, had initially gone into voluntary liquidation. In a turn of events, an undisclosed buyer recently acquired Mobius Motors. A creditors’ meeting was scheduled to be held in light of these developments. To read more, click here and here.
• Blueshield Insurance Company (Blueshield) was placed under liquidation on the application of the commissioner of the Insurance Regulatory Authority (IRA) based on non-compliance issues such as the non-remittance of contributions to the Policy Holder’s Compensation Fund, Insurance Training and Education Trust and the non-payment of premium levies. Blueshield was previously placed under statutory management but was unable to fulfil the reasonable expectations of the policyholders. To read more, click here.
• Similar to Blueshield, United Insurance Company (United Insurance), was placed under liquidation on the application of the commissioner of the IRA for failing to maintain its tax obligations and failing to keep proper books of accounts. United Insurance was previously placed under statutory management, To read more, click here.
• Sky Foods Limited (Sky Foods), the manufacturer of TreeTop juice recently went into administration. Sky Foods had previously acquired the TreeTop juice brand from Unilever Kenya, projecting an annual production of 12 million litres of juice. Although there were expectations for a revival of the TreeTop juice line, the high operational costs likely played a significant role in Sky Food’s financial decline. To read more, click here.
• iProcure, an agritech startup has been put into administration. Despite raising substantial funding, the company struggled with financial sustainability. The case of iProcure underscores the risks inherent in scaling startups reliant on rapid expansion and capital-intensive operations, especially in sectors like agritech where market dynamics and operational complexities can pose significant hurdles. To read more, click here.
• The High Court has authorised Synergy Industrial Credit Limited to proceed with the sale of the 14 Riverside complex in Nairobi to recover its debt from Cape Holdings Limited. To read more, click here.

Case Law updates

Pinecare Limited & 2 Others vs I&M Bank Limited & 2 Others [2024] KEHC 8192 (KLR)

In this case, the plaintiffs contested the actions taken by an administrator specifically challenging the sale of a property during the course of the administration of Pinecare Limited (Company). The administrator, appointed under the Insolvency Act, managed the Company’s assets, including the property. The plaintiffs argued that the sale was improperly conducted by the chargee, I&M Bank Limited (Bank), but the High Court (Court) emphasised that such challenges should have been addressed during the administration process. The Court held that the administrator had acted within the legal scope of their authority. The Court also added that once the administrator is appointed, he/she acts as an agent of the Company and can sell the property without following the sale process for charges set out in the Kenyan Land Act (Cap 280, Laws of Kenya).

The Court also applied the principle of res judicata, ruling that the plaintiffs could not reopen matters already settled during the insolvency proceedings. It highlighted that the plaintiffs’ delayed efforts to challenge the process, after the administration and subsequent development of the property by the buyer, were untimely and would unfairly disrupt completed transactions. The decision reinforced the need for disputes regarding insolvency and restructuring to be resolved within the administration framework to ensure finality and legal clarity. To read more, click here.

MAURITIUS

Mauritius National Budget 2024/2025

The Mauritius National Budget 2024/2025, presented on 7 June 2024, outlines key measures and projections aimed at fostering economic growth and improving regulatory frameworks.

One significant proposal is the amendment of the Companies Act 2001 to align administrators of limited life companies with the Insolvency Act 2009. This would ensure a standardised and legally consistent process for winding up such companies, including obligations for filings and public notices. Questions remain about whether administrators must be registered Insolvency Practitioners, as currently, the Companies Act allows any individual, including company officers, to serve as administrators.

Additionally, requests to remove a global business company (GBC) from the Registrar of Companies’ records would now require a no-objection letter from the Mauritius Financial Commission Services (FSC) instead of solely from the Mauritius Revenue Authority (MRA). Provisions relating to prejudiced shareholders and constitutional alterations would also apply to GBCs and authorised companies unless explicitly excluded in their constitutions.

On the financial services front, measures include expediting FSC queries and licensing processes, permitting foreign companies to hold immovable property under specific conditions, and establishing a framework for secondary trading of government bonds. The investment funds regime is also set for a review to enhance Mauritius’ appeal as an investment platform.

MRA: Letter of no objection

In addition to the above, the MRA now requires that, upon winding up of companies (being domestic companies, protected cell companies, global business companies, authorised companies, amalgamating companies, trusts and foundations), the relevant management companies, liquidators, trustees and administrators will be required to request a Letter of No Objection from the MRA for onwards winding up procedures, in line with the Guidelines issued in this regard. The Guidelines set out:

• the procedure for the application of such letter and;
• the documents and information required to be submitted along with the letter requesting the Letter of No Objection.

TANZANIA

Bank of Tanzania Monthly Economic Report

The Bank of Tanzania injected TZS 1,113.1 billion via reverse repos to boost liquidity. Treasury bill auctions yielded mixed results, favouring longer maturities, with an average yield rising to 10.61%. Lending rates remained steady at 15.26%, while deposit rates fell slightly to 7.98%, widening the interest rate spread. Foreign exchange liquidity improved, driven by tourism, crop, and gold exports, with reduced central bank interventions. The Tanzanian shilling averaged TZS 2,694.25 per USD, marking a 10.3% annual depreciation. To read more, click here.

Tanzanian economic growth is projected to grow 5.4 per cent

Tanzania’s economy is projected to grow by 5.4% this year, supported by reforms aimed at fostering a favourable business environment and encouraging investment. The Bank of Tanzania (BoT) has reported that high-frequency economic indicators from the second quarter of 2024 reflect robust growth, with a strong likelihood of meeting the projected growth rate. Data from the National Bureau of Statistics shows the economy expanded by 5.6% in the first quarter of 2024, up from 5% during the same period in 2023.

Key sectors fuelling this growth include construction, agriculture, and financial services. The BoT identifies financial and insurance services, information and communication, and electricity as the fastest-growing sectors. The economy’s structure remains largely unchanged, with agriculture, construction, and mining serving as cornerstone sectors. This projection aligns with an African Development Bank report forecasting Tanzania’s real GDP growth at 5.7% in 2024 and 6% in 2025, driven by agriculture, manufacturing, tourism, public investments, and business reforms. To read more, click here.

Swiss companies to engage in various sectors

The 2024 Economic Report by the Embassy of Switzerland highlights Tanzania’s economic resilience, achieving 5.1% GDP growth in 2023/24, driven by agriculture, mining, construction, financial services, and manufacturing. Under President Samia Suluhu Hassan, policies promoting economic diversification and industrial growth have sustained Tanzania’s middle-income status, while inflation remained low at 3.2% and fiscal policies improved revenue collection. For 2024/25, GDP growth is projected at 5.4%, supported by sustainable reforms, climate resilience, and major infrastructure projects like the Julius Nyerere Dam, Standard Gauge Railway, and LNG plant. The government aims to attract investment and strengthen trade through regional agreements like AfCFTA, while Swiss-Tanzanian trade remains significant, with gold leading imports and Switzerland among Tanzania’s top 20 FDI sources, focusing on construction, agriculture, energy, and tourism. To read more, click here.

Foreign investors selloff through DSE

On 28 October 2024, The Guardian reported a significant sell-off by foreign investors on the Dar es Salaam Stock Exchange (DSE), with shares valued at TZS 3.9 billion sold. This represents 50% of the shares divested by foreign investors since the start of the current quarter, with local investors purchasing the sold shares. As of mid-October 2024, there is cautious optimism surrounding Tanzania’s equity market, as the DSE Index has shown gains, partially driven by the performance of cross-listed companies. To read more, click here.

Tanzania’s Amsons Group acquisition

On 11 July 2024, Daily News reported that Tanzania’s Amsons Group, a leading manufacturing and energy company, submitted a bid to acquire a 100% stake in Kenya’s Bamburi Cement, valued at approximately USD 180 million (TZS 23.2 billion). In November of the previous year, Amsons Group completed the acquisition of a 65% stake in Mbeya Cement Company in Tanzania from Holcim, following regulatory approvals. Through its Kenyan subsidiary, Amsons Industries (K) Ltd, the group has now issued a notice of intent for a public takeover to acquire up to 100% of Bamburi shares at TZS 65 per share. This move aims to strengthen Amsons’ presence in the East African cement market and represents a significant milestone in regional economic growth and market integration. To read more, click here.

UGANDA

Continued government intervention in business rescue efforts

We have continued to see the government come to the rescue of businesses at the brink of insolvency with the latest of them being Ndere Troupe Limited (Ndere). Ndere, a business focused on traditional entertainment and tourism promotion, has faced significant financial challenges following a loan from the Uganda Development Bank (UDB) in 2019. The loan, originally UGX 6.8 billion (equivalent to USD 1.8 million), had grown to UGX 10.5 billion (USD 2.8 million) by 2024, and Ndere’s assets were at risk of being auctioned due to default.

The company sought government intervention, explaining the negative impact of the COVID-19 pandemic on its tourism-related earnings. In response, the government of Uganda agreed to assist Ndere, though the specifics of the rescue plan were not disclosed. While government interventions in rescuing businesses, including Roko Construction and Electromaxx Uganda Limited, have been applauded, they have also faced criticism for being arbitrary, unsustainable, and prone to corruption.

Regulatory changes in the money lending industry – Capping interest rate for money lenders

On 8 November 2024, Uganda’s Minister of Finance issued Legal Notice No. 21 of 2024, capping the interest rate for money lenders at 2.8% per month (33.6% annually), under the Tier 4 Microfinance Institutions and Money Lenders Act. Lenders exceeding this cap face fines of up to UGX 1 million (equivalent to USD 280) and possible license cancellation.

This new cap is significantly lower than the current market rates of 4%–12% per month, raising concerns that it may drive lending underground, increasing risks for borrowers. Money lenders argue that commercial banks, which charge higher rates, are not similarly regulated, and call for interest rates to be determined by market forces. This move mirrors Kenya’s 2016 attempt to cap interest rates, which was eventually abandoned. While borrowers welcome the cap, its effectiveness remains uncertain, and its impact on the market is yet to be fully seen.

Case Law updates

The Court finds suspected tax evasion as grounds for deferring company dissolution in Uganda

The High Court of Uganda (Court) has revived Crane Autos Limited (Crane Autos), a company that had been dissolved following liquidation, to allow the Uganda Revenue Authority (URA) to recover outstanding taxes. The URA had argued that the dissolution was part of a tax evasion scheme involving the company and its affiliates, potentially depriving URA of over UGX 20 billion (equivalent to USD 5.5 million) in owed taxes. Crane Autos had failed to file tax returns for years and initiated liquidation after being assessed for taxes. The Court ruled in favour of the URA, cancelling the dissolution and deferring the company’s closure, citing irregularities in the liquidation process and potential attempts to frustrate tax collection. Although the Court acknowledged the need for closure in insolvency cases, it emphasised that such dissolution could be challenged if evidence of fraud or other valid concerns were presented. This decision is currently under appeal and has sparked considerable debate among both the URA and the business community.

GLOBAL RESTRUCTURING UPDATES

In this section, we provide a comprehensive look at recent regulatory and corporate developments in the global restructuring landscape, with a regional breakdown covering Europe, the United Kingdom, the United States, and Asia. Here are some of the most notable updates:

EUROPE

Germany

Germany’s restructuring scene is marked by rising insolvencies in sectors such as real estate, construction, and healthcare, driven by high interest rates, inflation, and operational pressures like labour shortages and material costs. The insolvency framework continues to offer structured options such as the “insolvency plan” and the StaRUG pre-insolvency process, which has gained traction domestically for comprehensive financial restructuring. Preventative measures like debt-for-equity swaps, mergers, and covenant adjustments are being used to avoid uncontrolled insolvencies. Stronger companies are leveraging the economic downturn to consolidate and acquire distressed assets, particularly in vulnerable industries like automotive and healthcare. To read more, click here.

WKW. group, a prominent German automotive supplier, has filed for insolvency for most of its operating companies, impacting approximately 1,800 employees. The Local Court of Wuppertal appointed Joachim Exner from Dr. Beck und Partner as the provisional insolvency administrator. Exner is currently on-site, assessing restructuring options. Business operations continue as usual across WK. Group locations, with wages secured through November by insolvency substitute benefits. To read more, click here.

France

France’s restructuring landscape is characterised by proactive measures to address financial distress, influenced by the EU Restructuring Directive, which emphasises early intervention through mechanisms like conciliation and safeguard proceedings. The Prudential Supervisory and Resolution Authority (ACPR) plays a key role in managing financial institutions, employing measures such as recapitalization, asset transfers, and governance reforms to stabilise operations. Economic pressures, including rising interest rates and inflation, have intensified the demand for these restructuring frameworks, reflecting a robust yet adaptable system​. To read more, click here.

Amid a challenging business climate, French multinational information technology service and consulting giant, Atos SE, announced that it expects reduced cash flow over the coming years. However, the company assured stakeholders that this will not impact its planned restructuring, which is set for court approval and expected to dilute existing shareholders significantly. The restructuring involves several capital raises and debt issuances between November 2024 and January 2025.  To read more, click here.

France – Regulatory update

• Recent reforms to French insolvency law aim to strengthen creditor rights and streamline restructuring procedures. These reforms introduce more flexible restructuring tools, such as debt-for-equity swaps and improved access to conciliation, enhancing the efficiency of the process. The changes aim to speed up restructurings, improve investment recovery, and ensure better outcomes for both creditors and distressed companies.
• Recent French complex corporate debt restructurings, including those of retailer Casino (CCC+) and nursing home operator Orpea, demonstrate the effectiveness of France’s new insolvency law in preserving creditor ranking and protecting the rights of secured creditors. To read more, click here.

United Kingdom

Company updates

In October 2024, corporate insolvencies remained elevated, with the total number of registered company insolvencies reaching 2,191, marking a 16% increase compared to October 2023. This trend underscores the persistent pressures faced by businesses across various sectors.

The predominant form of corporate insolvency continues to be Creditors’ Voluntary Liquidations (CVLs), which accounted for approximately 77% of all corporate insolvencies in recent months. This reflects a growing trend where businesses opt for voluntary liquidations rather than facing compulsory measures. To read more, click here.

• Petrofac Limited: The international oil and gas firm announced a Part 26A restructuring plan to address an upcoming maturity wall by converting significant debt to equity. To read more, click here.
• ISG Construction, a construction giant entered administration after failed sale attempts, leading to 2,200 job losses. The company had struggled with liquidity issues for months. To read more, click here.
• Heat Exchange Group Services Limited, a UK-based supplier of heat exchangers and industrial and marine boiler products, recently entered administration. The company faced significant financial issues tied to a major contract, which hampered the company’s operations and complicated attempts to sell the business. Due to these challenges, a full sale could not be completed under a planned group restructuring. Eventually, HEGS PHE Limited acquired most of the company’s assets, preserving most jobs. Heat Exchange Group then entered administration to manage any remaining liabilities and asset sales​. To read more, click here.

United States of America

Corporate updates

• Tupperware, the 78-year-old brand known for its plastic food containers, has filed for Chapter 11 bankruptcy and is seeking new owners to help modernise its business and attract younger customers. The company’s financial position has been severely impacted by the challenging macroeconomic environment, leading to this course of action as it seeks potential buyers to preserve its legacy and transform into a digital-first, technology-led company. To read more, click here.
• Takeoff Technologies, a provider of e-grocery fulfillment solutions to leading grocery retailers across the globe filed for Chapter 11 bankruptcy, securing USD 9.6 million in debtor-in-possession financing to maintain operations during its search for a buyer. To read more, click here.
• iSun, a major Vermont solar installer filed for bankruptcy due to prolonged financial challenges, reporting a forecasted USD 10 million net loss for 2024. To read more, click here.
• LaVie Care Centers: This Atlanta-based operator of skilled nursing facilities filed for bankruptcy to restructure its debt and stabilise operations amid rising operating costs. To read more, click here.

Case Law update

William K. Harrington v. Purdue Pharma LP (U.S., No. 23-124, 6/27/24): The U.S. Supreme Court rejected Purdue Pharma’s bankruptcy plan, emphasising that non-bankrupt parties cannot be shielded from litigation without creditor consent. This ruling could complicate settlements involving high-value claims, as creditors may pursue individual lawsuits, potentially prolonging litigation and reducing recovery rates for claimants. To read more, click here.

Johnson & Johnson’s (J&J) ongoing talc-related legal issues have prompted multiple attempts at restructuring via bankruptcy. Their most recent attempt, in 2024, follows earlier rejections, where the court ruled that J&J was not in financial distress. This time, J&J is pursuing a settlement plan involving USD 8.2 billion aimed at resolving nearly all pending talc lawsuits, primarily related to ovarian cancer claims. While this plan has received significant support from claimants, it is still under judicial review, with a key decision expected in early 2025. To read more, click here.

ASIA

China

• The restructuring and insolvency trends in China as of October 2024 reflect a complex interplay between legislative changes and economic realities. While challenges persist – particularly in the real estate and financial sectors – the government’s proactive measures aim to create a more supportive environment for businesses facing financial distress. To read more, click here.
• In 2024, China’s courts are placing greater emphasis on public interest and the consensual nature of insolvency proceedings, particularly under the 2021 cross-border insolvency cooperation mechanism with Hong Kong. The Chinese property sector, struggling with a prolonged downturn, may serve as a critical test for this mechanism.

Regulatory updates

• Amendments to the Chinese Company Law:

Effective 1 July 2024, China implemented significant amendments to its Company Law, which directly impact bankruptcy proceedings. The new regulations emphasise the importance of engaging with employees and labour unions during bankruptcy considerations. This approach aims to enhance transparency and ensure that employee interests are considered in restructuring efforts. To read more, click here.

• Enterprise Bankruptcy Law revisions:

The revisions to the Enterprise Bankruptcy Law are designed to streamline bankruptcy processes and improve the overall business environment. These changes include provisions for prioritising certain creditors and recognising common benefit debts during bankruptcy proceedings. To read more, click here.

CRYPTOCURRENCY RESTRUCTURING AND INSOLVENCY UPDATES

• FTX Bankruptcy Plan Approved: On 7 October 2024, a Delaware bankruptcy judge approved FTX’s reorganisation plan, allowing creditors to recover up to USD 16.5 billion. This marks a major milestone in what has been described as the largest and most complex bankruptcy estate asset distribution in history. Approximately 98% of creditors are expected to receive 119% of their claims based on the value of their assets at the time of FTX’s collapse in November 2022. To read more, click here.
• In addition, the bankruptcy court for FTX Trading employed a unique valuation method for estimating cryptocurrency claims. This involved applying substantial discounts to the valuations of certain tokens, demonstrating the court’s scrutiny of market conditions and the actual supply held by the debtors. This ruling is expected to influence future claims estimation processes in cryptocurrency-related bankruptcies​. To read more, click here.
• Following the above developments, the cryptocurrency market experienced fluctuations, with Bitcoin and Ethereum seeing slight declines in value amidst the news of FTX’s repayment plan and ongoing market adjustments. To read more, click here.