Deloitte Kenya Restructuring Survey 2024

Key highlights of the Deloitte Restructuring Survey 2024:

• 76% of respondents were pessimistic about Kenya’s growth prospects in 2024, compared to 29% in 2023, mainly owing to currency volatility and reduced consumer spending.
• Earlier identification of distress was identified as the most important change needed for rescue, with the view that lenders need to be more proactive in their monitoring.
• The three top changes survey respondents want to see are specialised insolvency courts, consequences for wrongful trading and increased timelines for administration proceedings.

Nairobi, Kenya, 16 May 2024 – The Deloitte Restructuring Survey 2024, themed ‘Early identification of distress: the time to act is now’, reinforces the crucial role of effective governance and robust financial controls in detecting business distress early, a move that allows businesses to take the necessary steps to protect or salvage the organisation. However, amidst the ongoing currency conundrum, fiscal pressure and consumer distress, the survey reveals that financial lenders are the best positioned to detect the early signs of business distress. 

The role of lenders in the Kenyan ecosystem becomes ever clearer when considering the weakening shilling, brought on by monetary tightening in the US and geopolitical fears that drove a flight to safety towards US bonds, strengthening the dollar against the shilling from KES 120/USD in September 2022 to KES 161/USD in February 2024 (our survey closed 9 February 2024). Economic uncertainty has also had its toll on consumers. The Deloitte Restructuring Survey respondents expect the situation to worsen with the predicted interest rate and tax increases this year. 

These factors have caused the biggest swing from optimism to pessimism in the Survey’s history, with 76% of respondents being pessimistic about growth prospects in 2024, compared to 29% in 2023.

“Operational restructuring, advisor-led, and management-led informal restructuring were identified as the processes expected to take centre stage during 2024. However, the main hurdle to achieving success in an informal process continues to be the late identification of distress,” said Gladys Makumi, Deloitte East Africa Financial Advisory Leader.

Makumi added that if distress is identified early, outcomes would greatly improve under administration, a process that has become tainted by its use as a quasi-liquidation. She went on to note that early identification of distress also paved way for an out-of-court, informal restructuring process, which the Survey found was where returns to creditors were maximised. 

Makumi emphasised the responsibility of identifying distress early lay with both the company directors and lenders. She continued by adding that the development of skilled and qualified directors within the business would go a long way in assisting to improve the organisation’s ability to both identify early warning signs of distress and take appropriate, timely, and corrective action. For lenders, she highlighted that the onus was on them to identify distress early through diligently monitoring their portfolios and proactively intervening before warning indicators flashed red, otherwise they would face the unenviable choice of extending distressed financing to ailing clients or drawing a line in the sand and crystallising losses.

Kenyan respondents commented that they believed the primary purpose of administration was the rescue of the company and this could be achieved more frequently by the earlier identification of distress. However, companies filed for administration too late to achieve the primary purpose of rescue, resulting in processes that are administrations in form, but liquidations in substance.

“Respondents to our survey ranked specialised insolvency courts, consequences for wrongful trading and increased timelines for administration proceeding as the three top changes they would want to see in restructuring and turnaround in Kenya,” Makumi said. 

She concluded, “In my experience, a successful turnaround is most likely to be achieved when lenders and other restructuring professionals focus on the early identification of distress and, where an informal restructuring is impractical, proactively advocate for administration before it is too late.”

Read the full Deloitte Kenya Restructuring Survey 2024 here. 

For more information contact:

Rebecca Berre-Yeri

Marketing and Communications Manager

Deloitte East Africa

Mobile: +254 719 039 033

Email:   rberreyeri@deloitte.com