Nakumatt has filed for administration after a slew of petitions from creditors owed millions of dollars.
The company started life more than 25 years ago as a small Rift Valley bed shop and became East Africa's biggest supermarket chain.
One source close to the company said Nakumatt, whose flagship Nairobi store was destroyed in the 2013 Westgate attack by al Shabaab militants, said it owed creditors including landlords and suppliers as much as Sh20 billion ($193 million).
In January, the managing director of the chain, Atul Shah, told Reuters the debt then stood at $150 million (Sh15.6 billion).
By comparison the privately-owned company, which employs around 4,000 people, had assets of just Sh2 billion, the source said.
Nakumatt's main rivals are local unlisted firms and French retailer Carrefour, which entered the
Kenyan market last year.
More and more Nakumatt creditors have gone to court in recent months seeking to wind up the business due to non-payment of debts.
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A group of 19 landlords who have rented out space to Nakumatt outlets have sued the company over rent arrears of Sh600 million, the Business Daily newspaper reported.
"The Nakumatt directors are optimistic that the court will make the administration order in relation to Nakumatt, as the order will enable Nakumatt achieve a better outcome for its creditors," the company said in a statement.
If the order is granted, it will allow Nakumatt to be maintained as a going concern by a court-mandated administrator, the company added.
The source close to Nakumatt said the chain needed about a year under administration to pay off its debts and could then emerge as a viable, leaner chain with 10-20 stores.
At its height, the company, which began life as the Nakuru Mattresses store, had more than 60 outlets across
Kenya, Uganda, Tanzania and Rwanda. Large bronze statues of its elephant mascot stood outside store entrances, the trunks rubbed shiny by shoppers' children.
But over the past year its financial woes have led to empty shelves and store closures.
Rival Tuskys has proposed a merger to resolve Nakumatt's problems and is willing to support it while under administration, Nakumatt said in a statement on Monday.
The High Court will hear Nakumatt's application for administration on November 8.
Compounding Nakumatt's problems has been an economic slowdown in
Kenya
this year due to tensions surrounding a presidential election in August and its re-run last week.
