This archive report was first published on 5 January 2020.
January 22, 2018, marked a turning point for Nakumatt Holdings as it was placed under administration. However, a review of the company's financial statements reveals a significant issue that had been brewing for some time.
Nakumatt's directors had accumulated over Ksh1 billion ($100 million) in interest-free soft loans by the time the company was placed under administration. This information was recently disclosed in a report for the year ended February 2018 by Parker Randall Eastern Africa, the retailer's independent auditor.
The auditor's report highlighted the weak governance in the board of the former giant retail chain, which owed banks, landlords, and suppliers a staggering Ksh20 billion ($20 million). The report did not specify which individuals owed the company money, but it did mention that the amounts owed by insiders had dropped to Ksh948 million ($9.48 million) as of February 2018.
According to the report, the amounts due from a director were interest-free and related to short-term advances through a current account. The loans to the company's directors were among a series of related party transactions amounting to Ksh2.8 billion ($28 million), which are unlikely to be recovered.
The administrator has written off Ksh1.5 billion ($15 million) or 53 per cent of the receivables, leaving a balance of Ksh1.3 billion ($13 million). The report paints a picture of relatively loose governance at Nakumatt relative to other firms, such as banks, where insider dealings are more closely regulated.
Revelations of Nakumatt's insider loans come at a time when the retailer is closing most of its remaining branches, making compensation for creditors even less likely. Mr. Shah faces investigations over the loss of Ksh18 billion ($180 million) worth of stock.
