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Uncertainty for 1,000 employees as Mastermind Tobacco initiates termination amid financial woes

Why Kenya's Mastermind Tobacco is ending contracts for 1,000 employees | Pulselive Kenya

Lynet Okumu

Mastermind Tobacco (K) Ltd, facing financial turmoil, has terminated the contracts of approximately 1,000 employees just four days after being placed under administration by I&amp;M Bank due to undisclosed debt.

In a notice dated December 18, 2023, joint administrators Swaroop Rao Ponangipalli informed employees that all existing contracts of employment stand automatically terminated by law.

“We hereby notify all employees that on the placement of the company under administration all existing contracts of employment stand automatically terminated, by the provisions of the law,” joint administrator Swaroop Rao Ponangipalli said.

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Those interested in re-employment must submit applications, subject to approval by the Joint Administrators and new 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.

The company, owned by the late tycoon Wilfred Murungi's estate, ceased cigarette production six months ago and joined the growing list of businesses seeking rescue through formal insolvency procedures.

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<h3>Uncertain future for Mastermind Tobacco employees</h3>

The notice did not specify the number of affected employees, but the firm had previously stated it employed over 1,000 people throughout East and Central Africa.

Employees who are not re-employed cease to be part of the company from the date of the Joint Administrators' appointment on December 14.

The termination comes in the wake of the administration process initiated by I&amp;M Bank, which appointed Swaroop Rao Ponangipalli as the joint administrator for Mastermind Tobacco.

<h3>Challenges in Kenya's Business Landscape</h3>

Data from the Office of the Official Receiver reveals a growing number of firms facing financial distress, failing administration, and subsequent liquidation.

The data shows that 75 firms were liquidated, over the last two fiscal years, and in the first four months of the current financial year, nine firms have already been approved for liquidation by the High Court.

Mastermind Tobacco, the country's second-largest cigarette manufacturer, has been involved in legal battles with employees and the Kenya Revenue Authority (KRA).

<h3>Mastermind's legal and financial struggles</h3>

The company, which imported over half of its raw materials from Uganda and the Democratic Republic of the Congo, faced court battles with its employees and the KRA.

In 2019, Mastermind and the KRA agreed to sell the company's prime assets to settle a Sh2.9 billion tax arrear. Earlier this year, the company lost a Sh517 million lawsuit against the KRA, with the High Court denying it the opportunity to introduce new evidence.

Why Kenya's Mastermind Tobacco is ending contracts for 1,000 employees

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