Financial advisory

Financial Distress? Company Voluntary Arrangements

Posted on by InVhestia

Every entrepreneur’s goal is to provide a solution to society by providing goods or services which are differentiated and which solve a specific problem. Such action assumes the business will remain a going concern. Along the journey of the business, poor economic conditions or poor management decisions affect the business resulting in its inability to service its obligations as they fall due.

If a company sustains a long period without paying its liabilities, the company is financially distressed; such companies experience decreased product demand as a result of not being able to stock sufficient and required inventory, which in turn is attributable to the company’s inability to meet obligations to suppliers. This situation leads to high cost of financing and unfriendly terms of trade.

WHAT HAPPENS TO A COMPANY IN FINANCIAL DISTRESS? PART VIII – INSOLVENCY ACT OF 2015

When a company gets into financial distress, it can be placed under administration. Part VIII of the Insolvency Act 2015 (the Act) requires appointment of a qualified person (appointed by court, the company or holder of floating charge) as an administrator to manage the affairs of company. The overall objective is to maintain the business as a going concern and avoid liquidation. However, administration isn’t always successful and liquidation becomes inevitable. Part VI of the Act guides on the liquidation process but liquidation is considered only after the administration process. While administration is an option available to restructure a company, the Act introduces other alternatives.

COMPANY VOLUNTARY ARRANGEMENTS (CVA) – PART IX OF THE INSOLVENCY ACT OF 2015

A company in financial distress doesn’t need to wait for the administration process. The directors of the company may propose to the company creditors a voluntary arrangement on how to settle the outstanding debt. In making the proposal, the directors of the company appoint a licensed insolvency practitioner to guide the CVA process.

THE CVA PROCESS

Step I – The Proposal

The company, through its board resolves to utilize CVA as a way to restructure the business. The board then makes a proposal to its shareholders and creditors for a voluntary arrangement with respect to its financial affairs. The directors must also nominate a Provisional Supervisor, “the Supervisor” who must be a licensed insolvency practitioner to supervise the implementation of the voluntary arrangement.  The proposal should include the following:

  • Information about the company & background
  • A Statement of affairs
  • Proposed method for restructuring the outstanding debts: senior lenders, preferential creditors, and unsecured creditors. This would include waiver of interest and penalties, lengthened debt tenor, moratorium, haircuts, debt equity conversion among others
  • Impact of the restructuring process on the financial position of the business
  • Turnaround business optimization strategy

The Supervisor reviews the proposal and gives his opinion on whether it has a reasonable chance of success. Once the Supervisor is satisfied with the proposal, he files a report in court and asks the court for permission to convene a creditors’ meeting. The supervisor is also required to have confirmed the claims of the creditors prior to the meeting.

Step II – The Creditors’ Meeting

The main purpose of the meeting is to decide whether to approve the proposal as is, introduce modifications or reject it. A modification to the proposal may be approved if the company consents.

While the meeting is convened by the Supervisor, at the beginning of the meeting, the creditors must elect one of their own to be chairperson for the meeting.  For voting purposes, the meeting is divided into 3 groups; secured creditors, preferential creditors and unsecured creditors

APPROVAL OR REJECTION OF THE CVA

Section 665 of the Insolvency Act of 2015 states that the proposal is approved if:

  1. A majority of the members of the company present at the meeting approves the proposal (Shareholders)
  2. A majority of the members of each group of creditors (number and value) present at the meeting approve the proposal. Approval by each group of creditors supersedes that of members in case members vote against the proposal

A proposal (with or without modification) takes effect as a voluntary arrangement by the company on the date in which the court approves and it is binding on the company and its creditors.

FIRST EVER CVA IN KENYA: UCHUMI SUPERMARKETS PLC AND THE ROLE OF INVHESTIA AFRICA LIMITED

Uchumi is currently facing financial challenges. Consequently, there is an urgent need to reorganize the business to be able to meet its financial obligations while responding to a highly competitive and evolving business environment.

In the reorganization process, management decided to liquidate a non-core asset, a 20-acre parcel of land in a bid to settle some of the debt partially and at the same time inject some liquidity into the business to finance working capital to enable the business to achieve revenue growth and consequently improve its cash flow position.

Uchumi Supermarkets PLC engaged InVhestia Africa Limited to prepare a debt restructuring plan. The proposal was presented to the creditors on 2nd March 2020, at Bomas of Kenya.

The proposal recommended the following to each category of the creditors based on cash flows

  • Unsecured Creditors: 30% payment over six years on an annual basis, 30% discount or haircut and 40% conversion to non-cumulative convertible preferential shares
  • Preferential Creditors: 100% payment over six years on an annual basis
  • Secured Creditors: The proposal submitted included a mix of Lump sum payments, Full and Final Settlement (FFS), haircut or discount on the outstanding balance and restructuring the remaining balance over seven years

The table below summarizes the voting results of the Uchumi CVA proposal.

Written by James Wambua and Steve Ogada

MEDIA REPORTS

https://citizentv.co.ke/business/uchumis-agony-high-court-sets-repeat-creditors-vote-323858/

https://www.youtube.com/watch?v=MqizKIe9HyI&feature=youtu.be

https://www.youtube.com/watch?v=3573ww4PYPk&feature=youtu.be

https://www.youtube.com/watch?v=nPBF2e7dQdc&feature=youtu.be

Make Your Every Business Decision a Masterpiece

Posted on by InVhestia

InVhestia Africa and Esham Park celebrated their recently concluded merger on Thursday 14th March. Attended by clients and partners, the launch event highlighted the enhanced capabilities that the combined entity, going by the name InVhestia Africa will offer.

Esham Park is a project finance advisory and consortiums structuring company which was has been in existence for over 10 years working on various projects and adding value to clients across Africa. Over the last 5 years Esham Park has been working closely with InVhestia on several projects executing them successfully.

At the event, Simon Mwacharo Guyo, the Chief Executive Officer of Craftskills Wind Energy Limited shared his journey with Esham Park. “The Esham Park team took me on as a client 9 years ago and walked with me until my passion project reached financial close in December 2018. This level of dedication is hard to find in consultants” said Mr. Guyo. The project he speaks of is the 100MW Kipeto wind power project which is the second largest wind power project in Kenya. The project will have 67 turbines spread on 17 acres of land that will power 40,000 homes. Mr. Guyo highlighted the support of the local community and indicated that the project would be giving a 5% dividend contribution to the Maasai community. Esham Park marketed the opportunity to potential investors, led investor engagements and negotiations and reviewed term sheets and transaction documents.

InVhestia Africa, on the other hand, is a corporate finance advisory, financial modelling training and capital raising company. It has been in existence over the last 7 years during which time has become an industry leader in the area of financial modelling and advisory work related to it across Africa. InVhestia has worked with clients from various sectors such as Financial services, FMCG, Agribusiness and the Energy sector among others.

Presenting the strategic direction of InVhestia going forward, Stephen Gugu, a principal at the firm emphasized, “Our financial modelling and advisory services will form the quality inputs that will make your every decision yield a masterpiece.” The coming together of the two firms will provide clients with fully integrated financial advisory services. The focus will now be three fold, Project and Corporate Finance Advisory, Financial Modelling and Training, and Capital Raising. The team members have a solid track record with over 12 countries of work experience. Some of the team members were recruited through the firm’s social responsibility initiative, the Invhestia Annual Inter-university Competition. At the event, the top students from last years edition were honored and given an opportunity to network with potential employers and mentors. The awarding was given by Antony Maina from Aspen Network of Development Entrepreneurs (ANDE) our 2018 competition partner. InVhestia is dedicated to ensuring you have the quality inputs needed to succeed and grow your business and is committed to growing the talent in the financial sector.

For more information on how you can plug in to the 4th Edition of the competition, reach out to us on learn@invhestia.com

Let’s talk about how to make your every business decision a masterpiece today.