Former chief executive of the collapsed retail giant Atul Shah is in hot soup after the creditors of Nakumatt Supermarket moved to court seeking a private investigator to trace and identify his assets over the loss of cash at the stores.
Shah and his son, Ankoor Shah, are accused of accessing and failing to refund interest-free loans amounting to Sh1 billion from the retail chain at a time when the stores were struggling to repay its suppliers, landlords, and other creditors.
Atul is also in trouble for writing off stock worth Sh18 billion in May 2018, just weeks before the company ground to a halt, in what is linked to the theft of suppliers’ goods. Now, banks are seeking to identify properties and bank accounts linked to Mr. Shah, especially outside Kenya, with a view to seizing and recovering the billions of shillings the lenders are owed by Nakumatt.
“On the recovery bit, the banks are looking at engaging a private investigator to look into the directors’ affairs. Also, the Banking Fraud Investigation Unit is investigating Nakumatt on theft and money laundering,” Peter Kahi, Nakumatt’s court-appointed administrator, told the Business Daily in an interview.
Shah would be facing his first criminal and civil proceedings over the collapse of Nakumatt should the creditors’ push for court action after the two investigations. Nakumatt creditors will on Tuesday vote on whether to dissolve the once giant retailer after efforts to revive the supermarket chain failed.
The creditors, who include banks, suppliers and landlords, are owed Sh38 billion. The administrator will share about Sh422 million received from the sale of six Nakumatt branches and the retail chain’s only remaining assets to Naivas. The banks, whom Nakumatt owes Sh13.2 billion, have now trained their sights on Atul and his family in the struggle to recover the billions.
“Alphonse Liposhe, a financial investigator attached to the Central Bank of Kenya (CBK), has been head of a team probing the money laundering aspect,” said Kahi.
Nakumatt Holdings had lent its directors more than Sh1 billion in interest-free soft loans by the time it was placed under administration on January 22, 2018, according to a review of the company’s financial statements. The related party transactions were recently disclosed in a report for the year ended February 2018 by Parker Randall Eastern Africa, the retailer’s independent auditor.
The auditor did not specify which individuals owe the company money, but Mr Kahi said Nakumatt has only two directors—Mr Shah and his son. The amounts owed by insiders, which did not attract interest charges, had dropped to Sh948 million as of February 2018, the period for which the latest financial records are available.
“Significant in this net balance is Sh948 million due from the directors. These receivables are not supportable based on the available evidence. The amounts due from a director are interest free. They relate to short-term advances through a current account,” reads part of the report.
“Ideally, the directors should have refunded the company this money, but they claimed not to have the money. On prosecution, any aggrieved party (the creditors) can order for this based on the facts which are now available,” he added.
The loans to the company’s directors are among a series of related party transactions amounting to Sh2.8 billion, which are unlikely to be recovered. Others include amounts claimed from subsidiaries in Uganda, Rwanda and Tanzania, which ceased operations.
The administrator has written off Sh1.5 billion or 53 percent of the receivables, leaving a balance of Sh1.3 billion.
“There are no repayment plans for these balances; the companies frequently lend and borrow funds from each other,” the auditor said. The report paints a picture of loose governance at Nakumatt relative to other firms such as banks where insider dealings are more closely regulated.
There is a limit on the size of loans directors and employees of a bank can take in aggregate. The loans also typically attract interest charges, though sometimes at below-market rates.
Kahi said a forensic investigation to probe why Mr. Shah wrote off stock worth Sh18 billion in May 2018 had failed to take off. “I did not have the funds to execute the forensic audit. I reached out to some creditors for support, but they did not want to throw good money after bad money,” he added.
One concern for investors was the stake held by former lawmaker Harun Mwau, who was named in 2011 under the US Foreign Narcotics Kingpin Act for alleged drug trafficking. The role of Mr Mwau in the company was the main stumbling block because they did not want to fall foul of US law enforcement, who froze Mwau’s US assets after the designation.