Corporate financial distress: an anatomy of Uchumi supermarket stores in Kenya (2001 - 2006)
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Date
2007Author
Muchira, Charles M
Type
ThesisLanguage
enMetadata
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To investigate the missing link between prudent management, bankruptcy laws, and
financial distress. We find that Uchumi supermarkets became insolvent when its Board of
Directors decided to embark on unplanned expansion program. The expansion program
was founded on four pillars which included the deployment of retail management
technology to increase efficiency; staff rationalization and renewal; Branding; and branch
expansion.
The expansion programme was funded primarily with internally generated funds that
involved cash inflows from operations, trade creditors and a medium term debt from
commercial banks. The company had also projected a significant growth in sales from
the newly created branches. Although there was an overall improvement in sales, the
operational costs outperformed the sales growth by a considerable margin. The general
economic performance of the country also stagnated at the time. That led to a big
mismatch between assets and liabilities. The company started experiencing some cash
flow difficulties a move that made the management to reverse some of the expansion
goals by closing down the loss making stores. The closure of the stores further resulted
to a loss of jobs. An estimated 580 employees were declared redundant and laid off their
duties. The paper concludes by clearly articulating the missing link between prudent
management, bankruptcy legislation and financial distress. An elaborate legal framework
taking into account the interests of all the firms’ stakeholders was recommended with
core objectives of preventing, managing, and dispensing bankruptcy related cases.
Publisher
University of Nairobi School Of Business, University Of Nairobi