Debt-ridden Kenya Planters Co-operative Union was on the verge of selling its non-core assets to reduce the outstanding Sh644 million debt it owes Kenya Commercial Bank when the receiver managers took over the country's oldest miller.

KPCU lawyer Mr Waweru Gatonye says the union had informed the bank of its efforts to sell the assets and use the proceeds to reduce the debt "when the bank purported to exercise its right by appointing the receiver managers."

Reduction strategy

Mr Gatonye argues that the appointment has effectively prejudiced the union's reduction strategy as KPCU enjoyed an asset base estimated at Sh3.5 billion. Some of the assets include Wakulima House, he said.

KPCU is seeking orders to block the takeover by KCB's appointed receiver managers.

Commercial Court Judge Justice Muga Apondi was informed by Mr Gatonye that the parties had entered into negotiation with a view to resolve the dispute.

Thereafter, Justice Apondi was told that talks had collapsed and the consent recorded with KCB's lawyer Mr Kamau Karori ceased to be effective.

The Judge was asked to continue with the trial.

The coffee marketer moved to court on October 23, 2009 seeking among others, orders to bar the receiver managers from taking over management pending a determination on the validity of the appointment which the union claim is unjust and oppressive.

KPCU argues that the move would affect the facilitation and orderly marketing of coffee from over 700,000 small scale farmers "when proper marketing and management is vital to the sustenance of coffee farming."

KPCU also wants the court to order that they be furnished with a complete and accurate statement of their account with KCB's Moi Avenue branch and to reflect the various rates of interest applied to the credit facilities.

Receiver manger Mr Harveen Gadhoke has issued notices to Co-operative Bank and NIC Bank requesting them to freeze all accounts maintained by KPCU.

Mr Gatonye complained that the move had negatively affected the union as it had blocked the farmer's proceeds.

"It is not true that the appointment of the receivers has adversely affected the applicant," noted Mr Karori, saying KPCU was facing serious financial and governance challenges and that the receiver managers' appointment was crystallised as soon as their deed of appointment was signed.

The farmer's union was placed under receivership on October 19, 2009 over Sh644 million debt and its Consultancy firm, Deloitte assumed the entire operations on behalf of the debenture holder, KCB

Mr Gadhoke and Mr Daniel Mutisya Ndonye were appointed receivers and managers.

The director's executive powers over the company's affairs also ceased,' said a public notice by the consulting firm.

Consultancy report

Records showed that prior to placement under receivership, KPCU had obligations to pay KCB about Sh7.8 million every month as part of a loan repayment plan but the union had cash flow problems.

A consultancy report by the EU recommended that KPCU's operational structure be reviewed to grant it a clear legal basis on which deals such as partnerships and capital injection would be discussed.

The union serves 300 coffee societies with 700,000 members, mainly drawn from small- scale farmers

The union has now ceased operations after running out of funds to remain afloat.

Its entire staff has been sent packing and as a result it has suspended the selling of coffee at the Nairobi Coffee Exchange auction.