Koko Networks (UK) Limited, the British arm of insolvent Kenyan clean-cooking company Koko Networks, has failed to secure a buyer for its carbon credits at a fair price, leaving creditors facing little or no recovery as the company winds down.

The company's troubles originated in Kenya, where Koko Networks Limited — the operating business that supplied subsidised cooking fuel to more than one million households — laid off more than 700 employees in January and entered administration on February 1. The Kenyan government had declined to issue the Letter of Authorisation required to sell carbon credits into international compliance markets, cutting off a revenue stream that had helped keep the fuel affordable. Carbon credits represent verified reductions or removals of greenhouse-gas emissions and are sold either into government-regulated compliance markets or to buyers on voluntary markets.

The carbon credits are the UK entity's principal asset, since Koko Networks (UK) Limited sold the credits and guaranteed debts across the group. Without a sale, FirstRand Bank, which is owed $60 million, along with other unsecured creditors owed roughly £126 million ($167 million) in total, expect to recover nothing. The administration itself is projected to cost close to £880,000 ($1.16 million), excluding the administrators' fees.

"We do not anticipate that the bank (FirstRand) will be repaid in full from the company's assets," PwC, the accounting firm appointed administrator of Koko Networks (UK) Limited on February 19, said in a progress report dated September 17. Administration is a UK insolvency procedure that places a company under the control of a licensed insolvency practitioner charged with achieving the best available outcome for creditors, whether by selling the business and its assets or winding it down in an orderly way.

Sale Process Draws Offers, None Sufficient

The sale process began on July 17, when PwC started marketing Koko's assets as part of the insolvency proceedings. It initially sought buyers for the wider business, including its technology, manufacturing operations and fuel distribution platform, in transactions valued at more than $15 million.

According to the report, PwC held talks with three potential purchasers and five brokers before appointing a broker to market the carbon credits. Offers have since been received, but the administrators said they "do not consider that these offers would generate a meaningful return to the estate." PwC will continue marketing the credits.

The report did not disclose how many credits Koko holds, what type they are, or their value on the company's books.

Creditors Fund the Wind-Down

With little cash coming in, creditors are financing the closure. Koko UK received about $659,000 during the period from the administrators of the Kenyan business, which the report said comes from certain creditors under a wider group arrangement.

The funding carries interest and is treated as an administration expense, meaning it must be repaid ahead of unsecured creditors — those holding no security over company assets.

The administrators project total costs of about £880,000 ($1.19 million) before their own fees. Legal fees are the largest expense, led by DLA Piper UK, the law firm advising on the case.

Creditors will also be asked to approve roughly £181,000 ($245,000) in unpaid costs accrued before the appointment, most of it PwC's own time. The firm's remuneration has not yet been approved.

Against that bill, there is very little to recover: the company holds under £280,000 ($379,000) in cash. Koko's largest receivable — a debt of about £1.1 million ($1.49 million) owed by Koko Rwanda, the group's Rwandan business — is not expected to be repaid, because that company is itself insolvent.

The largest creditor is FirstRand Bank, acting through its Rand Merchant Bank division, the investment banking arm of the South African lender. The bank's collateral does not cover the company's main assets, so administrators do not expect it to recover anything. Other unsecured creditors are likewise expected to receive nothing, as is His Majesty's Revenue and Customs (HMRC), the UK tax authority.

The administrators are also assessing potential legal claims alongside their counterparts in Kenya and the group's Mauritius entity, and are seeking outside funding to pursue them. The report did not state who such claims would target. It cautions that if the claims proceed, "significant costs will arise" on top of the current estimates.

A Carbon-Credit Model That Collapsed

Koko Networks was founded in 2014 as a clean-cooking company focused on replacing charcoal and other polluting fuels with subsidised bioethanol cooking fuel. The company sold the fuel to about 1.3 million Kenyan households and relied on carbon revenue to keep prices low.

Its Kenyan operating company, Koko Networks Limited, entered administration on February 1 after the government declined to issue the authorisation letters needed to sell credits into international compliance markets. The UK company, which commercialised the credits generated in Kenya, entered administration on February 19.

PwC expects to issue its next report about six months, or at the conclusion of the administration if that comes sooner. Until then, the outlook for creditor recoveries hinges on the continued marketing of the carbon credits, and on whether the administrators' assessed legal claims — which the report cautions would carry significant costs — secure outside funding.