One thousand laid off by Mastermind after bank takeover

Troubled Mastermind Tobacco (K) Ltd has issued notice of termination of contracts of about one thousand employees 4 days after the cigarette maker was pushed into administration by I&M Bank over undisclosed debt.
The firm owned by the estate of the late tycoon Wilfred Murungi stopped cigarette production 6 months ago (June) and was later put under administration from 14 December, adding to a growing list of struggling businesses hoping for rescue under the formal insolvency process in a difficult operating environment.
“We hereby notify all employees that on the placement of the company under administration all existing contracts of employment stand automatically terminated, in accordance with the provisions of the law,” joint administrators Swaroop Rao Ponangipalli said in a notice to all employees dated 18 December, 2023.
According to the notice, employees interested in continuing their employment with the company are required to submit their applications in writing but such re-employment will be subject to Joint Administrators’ approval and in accordance with the newly negotiated terms and conditions.
“Any such re-employment will be communicated only after the initial assessment of whether the operations can continue at a financially viable level, which determines the number of employees required to be re-employed by the Joint Administrators,” said Ponangipalli.
“Any employee, who is not re-employed, in writing, ceases to be the employee of the company with effect from the date of appointment of the Joint Administrators (December 14).”
The notice did not disclose the number of employees affected but the firm through its website puts the total number of its employees at more than 1,000.
“We are an indigenous company employing more than 1,000 people throughout East and Central Africa,” the firm says on its website.
I&M Bank appointed Mr Ponangipalli as the joint administrator for Mastermind Tobacco, Kenya’s second-largest cigarette manufacturer whose signs of financial distress began manifesting in 2018 through delayed salary payments.
Latest data from the Office of the Official Receiver shows an increasing number of firms sliding into financial distress, failing to survive the administration process and eventually being liquidated.
In the last two fiscal years (2020/2021 and 2021/2022) the High Court allowed a total of 75 firms to be liquidated and in the first four months (July, August, September and October) of this financial year the High Court has approved nine firms to be liquidated, according to the Office of the Official Receiver.
Kenya introduced the Insolvency Act in 2015, marking a paradigm shift from the previous requirement that insolvent companies be wound up immediately for the benefit of creditors.
Currently, the law requires that insolvent companies be first put under administration to help in efforts to steer them back to profitability.
Only where an insolvent company is determined to be unsalvageable should liquidation apply.
Mastermind, which imported more than half of its raw materials (semi-processed tobacco leaf) from Uganda and the Democratic Republic of the Congo (DRC), has been embroiled in court battles against its employees and the Kenya Revenue Authority (KRA).
In 2019, Mastermind and the KRA signed a deal with the taxman to put its prime assets on forced sale to settle KSh2.9 billion tax arrears.
The firm earlier this year lost a KSh517 million suit against the KRA after the High Court denied the company a chance to admit new evidence in court to support its case.
The case arose after the Tax Appeals Tribunal was called upon to determine whether cigarette consignments in issue were exported and hence zero-rated. Mastermind presented certificates of exports before the tribunal.
However, the tribunal ruled that the company had not proven that the consignment of goods were imported and that it required the firm to produce further documents.
This prompted Mastermind to file the suit against the Commissioner of Investigations and Enforcement, seeking that the court admit the inspection and verification reports to help decide.
Mastermind Tobacco, the only indigenous tobacco company in Kenya with its headquarters in Nairobi, was involved in tobacco growing, cigarette manufacturing and marketing.
It has a presence in eight countries in East, Central and Southern Africa: Kenya, Uganda, Tanzania, Malawi, Zambia, DRC, Somalia and South Sudan.
Since its inception in 1987, its brand portfolio had grown to twelve with Supermatch Kings being the flagship brand in the region.
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