Corporate financial distress: an anatomy of Uchumi supermarket stores in Kenya (2001 - 2006)
Muchira, Charles M
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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.
University of NairobiSchool Of Business, University Of Nairobi