Inside the hidden world of a corporate ‘clean-up’ chief

For 32 years, Peter Kahi has probed the insides of companies that are on life support, and prescribed a revival or death dose.

Mr Kahi is in an elite class of about 20 insolvency practitioners in the country who are called upon when companies slide to the bottom and have to be placed in administration.

Since 1988, the ‘corporate clean-up’ consultant has overseen about 100 receiverships in what has been a colourful career. 

In a candid interview with the Financial Standard, Kahi believes his role in the corporate world is to turn ailing firms around, and recounts his experiences during the darkest days of companies in crises.

He has consulted many times for companies that were out of money, overwhelmed and unsure of which way to turn. And in some instances, unplugging the life support tubes for struggling companies has turned out to be the only sensible option due to the critical state they are in when they are brought in.

But Kahi, a partner at PKF Consulting in charge of business recovery and forensic services in East Africa, would prefer to be remembered as a ‘doctor’ rather than a ‘mortician’.

“But if you come to me at that last stage, then my work will just be to prepare you for burial,” he says.

Why companies fail

Being a top corporate doctor after handling close to 100 companies, Kahi’s experience serves as a forensic manual on why companies fail.

Such failures, he reckons, are always the result of a series of poor decisions over time.

His work has seen him handle cases covering various sectors like banking, motor vehicles, tourism, agriculture, transport, steel and retail.

His biggest assignments across the region include being the administrator of Nakumatt Holdings, Deacons, the liquidator of Ukwala Supermarkets, Karuturi, Coates Brothers (East Africa) and he was also the receiver-manager of Triton Petroleum.

Kahi, a tall man with a deep voice that burns with audit passion, regrets that most companies seek his services too late when there is little he can offer in terms of restructuring.

This is when the firms enter the bottom zone of what is referred to as the ‘distress curve’, or ‘slippery slope’ in audit circles.

The first stage is the under-performance stage, which is characterised by losses. The distress stage follows, where key ratios in the balance sheet are senseless. Finally, there is the crisis stage where a business has completely run out of cash.

“Cash is king. The mistake that people make is to call us at that last stage when nothing can be done. Unless you’re God, you can’t resurrect when all else have failed. Your work is to just bury that company,” says Kahi.

He lists several warnings signs that indicate a company is in trouble: when a company continues to ship products even though payments are late; bankers who renew credit lines even though a client’s numbers are weak; lawyers and accountants who soft-pedal advice to retain clients; and managers who convince themselves that things will simply somehow get better despite setbacks.

And when Kahi gets a call, the situation “can be anything from high distress to a stale pile of waste”.

“The outside world doesn’t know this, and that’s why they call you a mortician. I call myself a doctor ... when you’re ill, you don’t go for treatment at the last minute when you are about to die.”

Kahi says in the initial stages of the symptoms, a firm can be helped to turn things around through some restructuring and independent business reviews.

He gave the case of a plastics manufacturing business that threw in the towel after the management admitted they could no longer run their firm, and gave the banks the keys to their company. The firm was restructured by the consulting corporate doctors, and later sold to Bobmil Industries.

Kahi, who has worked for top audit firms, including KPMG and Ernst & Young, says he has managed to save dying businesses over the years, including a coffee trading company, a plant manufacturer and a steel company that was later bought by Devki.

He says management failure is the single biggest cause for the collapse of most firms. And when it comes to the retail cases he has handled, trouble starts mostly because of overexpansion.

Kahi explains that the Insolvency Act of 2015 brought a lot of sanity to the industry. It offers companies a lifeline by giving them a 12-month chance for a turnaround as opposed to immediate liquidation.

Detailed proposal

Creditors are also treated equally, and once an administrator is appointed, he has to call a creditors’ meeting within 60 to 70 days, and give a detailed proposal on the way forward.

“The Act offers a moratorium of one year to see if a company can be turned around and also offer protection against creditors. In the early days, most appointed receivers were banks; this Act now compels you to deal with all creditors equally,” explains Kahi.

Due to the strict and expensive rules introduced by the Act, there are currently only a few licensed insolvency practitioners in the country, with the majority drawn from the big accounting firms.

The practitioner pays a fee of Sh50,000 to the regulator, gets a professional indemnity insurance cover of Sh25 million and an enacting bond of Sh5 million. One must also have practised insolvency for two years.

An administrator may be appointed by the court, a holder of a floating charge or by the company or its directors, according to the Act.

Kahi’s biggest administration job has been Nakumatt, which sunk with a Sh38 billion debt.

“I’ve never seen such big debt before. It used to be between Sh3 billion and Sh5 billion. Nakumatt’s debt portfolio is the biggest in Kenya,” says Kahi.

He, however, adds that he has not been overwhelmed by the Nakumatt job, though it is likely to take years to complete. 

The most dramatic moment of the administration process, he says, is the creditors’ meetings.

He notes that emotions run high, tempers flare and no proposal seems to make sense for the creditors, who include suppliers, landlords and shareholders, who realise they may never recover the millions of shillings they are owed by the collapsed firm.

“For long, the affected companies have been hiding information, and then all of a sudden they drop this bombshell. But the truth has to be told,” maintains Kahi with a stern look on his face.

And when it comes to Deacons, which collapsed with a Sh1.1 billion debt, Kahi says it is the fashion retailer’s franchising model that let it down, especially when Mr Price and Woolworths pulled out of the deal.

He adds that mitumba, online shopping and the emergence of foreign retailers further eroded Deacons’ survival options. Currently, negotiations with prospective buyers of the firm’s assets are underway.

wwambu@standardmedia.co.ke