KFC�s bankruptcy raises eyebrows
Brian Benza | Friday June 10, 2016 18:00
Having operated in Botswana for over 20 years, KFC appeared to be a money-spinning business with franchisor, KFC Africa describing Botswana as one of their key markets in the region largely due to the relatively higher purchasing power of Batswana.
Officials at KFC Africa say they were aware that the local business has of late faced some challenges, especially with regards to supply of certain raw materials, which could have led to a slight decrease in market share.
But the dire financial position that the franchise slipped into now has come as a total shock to KFC Africa, leaving them in awe as to how the situation could have deteriorated to the extent of water and power being cut off in some of the 11 outlets in the country.
Late last year, the Competition Authority approved a deal in which franchisee, VPB Propco proposed to sell the business to a South African company, Callus for a fee rumoured to have been in the region of P60 million. But the deal apparently fell through at the last minute for undisclosed reasons.
In an interview with BusinessWeek, provisional liquidator Nigel Dixon-Warren of KPMG says preliminary investigations have revealed that KFC Botswana’s debt hole is currently at P110 million.
Among some of the largest creditors is FNBB, which was the lead petitioner for the company to be placed under liquidation over a P41 million debt. Other banks such as Stanbic and Barclays are owed various amounts as well. Franchise holder, KFC South Africa is reportedly owed about P21 million comprising franchise, advertising and trading fees.
Botswana Unified Revenue Service (BURS) is allegedly owed about P11 million while Botswana Power Corporation (BPC) had cut off power supplies in some of the outlets as some of the franchise outlets incurred bills of as much as P25,000 per month per outlet.
According to Dixon-Warren, they have since managed to restock and restore power and water supplies with all the stores in Gaborone now fully operational.
“With the help of some of the affected banks as well as our own cash reserves, we have resuscitated operations with only two outlets still closed outside Gaborone.
The plan is for the business to be fully operational again and hopefully profitable so that it can be as attractive as possible to potential buyers.
Of course, there might be a big gap between the value of company and the debts, but we believe it is still a profitable business and with the huge interest we have received from bidders, I believe we can get a good deal for the creditors,” he said.
About 15 suitors have expressed interest to take over the franchise.
The provisional liquidator, however, said it was highly unlikely that they would be able to find a bidder who can payoff the P110 million debt, adding that some of the creditors might have to settle for a lesser amount now with the remainder being paid off as the business operates.
Addressing the media in Gaborone last Friday VPB Propco spokesman, Anthony Siwawa said they were closing shop as a result of a number of factors, chief of which is the end of the franchise agreement, and the acceptance that it no longer makes business sense to continue operations.
“We have worked in the last 12 months to try and progress through sale of the business rather than closure, however, this has not been possible. We were looking to sell the business in a bid to ensure it remained operational where there was no strong business sense for us to continue managing it,” Siwawa said.
As part of his duties as provisional liquidator, Dixon-Warren is also tasked with investigating how the seemingly lucrative business failed and whether there could have been ‘reckless trading’ as prescribed in the Companies Act.
“Our first priority is to make sure the business is back on its feet again. But part of my duties demand a thorough investigation on how the franchise went bust and take appropriate action,” said Dixon-Warren.
Although KFC was a limited liability company, the Companies Act dictates that directors of a company that has gone bust can also be held accountable if evidence of ‘reckless trading’ is proven in a process dubbed “lifting of the corporate veil”.
“The liquidator has to prove that the directors knowingly took loans with the full knowledge that the business will not be able to pay the creditors back,” said an accountant with a local financial advisory firm.