Kenya’s Capital Markets Authority (CMA) has reviewed the eligibility criteria for troubled listed firms to be put on a recovery board prior to being delisted, a development which exempts companies with working capital challenges.
The new criteria, currently being shared with the market, targets companies that are technically insolvent, under receivership and statutory administrations, companies facing corporate governance and management issues and high risk companies.
However, firms with working capital challenges, which are considered ‘short term’ have been granted a helping hand under the reviewed eligibility criteria as they will not be put on a recovery board.
"We want companies to enter the recovery board, the only reason we have delayed is because of Covid-19. We are reviewing the eligibility criteria so that companies entering that board specifically deserve assistance and they are there for a short period only," CMA acting chief executive Wycliffe Shamiah told The EastAfrican last week.
"We are looking at companies under receivership or statutory administration and are listed. Such firms are candidates of the recovery board. Also any firm that defaults or is insolvent for other reason, will end up on that board. But a company failing on a requirement like working capital may not be put on the board because those are requirements that can be settled within a certain period of time."
The EastAfrican has also learnt that the board, which is expected to go live next month will not act as a soft landing for ailing companies as discussions are underway by the regulators on whether to kick out managers believed to have orchestrated the poor performances of their firms.
STRIKING MIDDLE GROUND
"If companies have management issues, for example, they don’t have a board of directors, I think these firms will end up on that board for the time they don’t have the board," said Mr Shamiah.
"But you are not just ending at the recovery board as a soft landing. We shall put pressure on you. We are discussing whether to allow such companies to remain under the same management that placed them in the circumstances they find themselves."
Paul Mwai, the chief executive of AIB AXYS Africa and chairman of the Kenya Association of Stockbrokers and Investments Banks said the recovery board is a good idea to strike a middle ground between shareholders of troubled firms who still want to trade in their shares and the general public who will be fully aware of distressed firms and […]
