16 October 2018

Kenya: Fate of Troubled Karuturi to Be Known December

The Court of Appeal is in December expected to determine if Karuturi will pay Sh1.8 billion contested debt to Stanbic Bank before the dispute before High Court is determined.

Judges William Ouko, Stephen Gatembu Kairu and Daniel Musinga will on 20th of next month deliver a ruling on whether or not the money will be re-paid pending determination of the suit contesting the figure.

Karuturi owners want the appeals court to set aside the orders by High Court directing them to settle the amount arguing that the judge reached a final decision even before the case was tried.

But Stanbic, on its side, reckons that Surya Holdings Limited and RHEA Holdings Limited, have admitted the pre-receivership and post-receiver debt has been assessed by an audit firm selected by the owners themselves.

"The learnt judge (High Court) has in the event not determined the final amount due from the appellants, which he left for a full hearing, but ordered that the amount determined in the forensic audit be paid as a condition for extension for injunction," said Stanbic in its papers filed at the appeals court.

Lawyer Kamau Karori, appearing for Stanbic, urged the Court of Appeal to reject Karuturi owners' plea, noting that part of the debt has been admitted and post receivership although disputed are based on a mutually agreed process.

Fred Ngatia, Karuturi's lawyer, pleaded with the judges to set aside the order asking them to pay, arguing that they have evidence to show the discrepancies in the audit report relied on by the High Court.

Mr Karori appears together with the George Oraro. Both senior lawyers, were in court in person to argue the case when it was heard by Court of Appeal showing the high stakes involved in the dispute.

Court of Appeal had in May given Karuturi relief affording them a chance to fight to salvage their property after it restrained Stanbic from auctioning the properties pending the determination of the suit.

Receivership in 2014

Karuturi was put under receivership in 2014 after failing to service a Sh383 million loan borrowed from CfC Stanbic Bank.

The receiver managers on May 2 advertised for the sale of some of the movable assets which include greenhouse irrigation equipment, generators, cold storage units, farm tools, motor vehicles and IT equipment.

Justice Francis Tuiyott in January ruled that a three-year old court order restraining the bank from auctioning the properties of the flower farm stands vacated after the lapse of 90 days if the firm fails to pay the outstanding debt, prompting the appeal.

The judge observed that the owners had admitted pre-receivership and the post-receiver debt had been assessed by audit firm selected by mutual agreement.

The judge directed the firm to settle Sh410 million pre-receivership loan in 60 days.

He further directed the owners to settle Sh640 million the company owes creditors other than the bank and Sh680 million advanced to the company by the bank after it was placed under receivership.

Court records show that the bank and the owners had settled on Deloitte Consulting Limited to undertake an audit on the firm, with a view to establishing the amount owed to the financial institution during receivership.

The audit revealed that the flower firm has sunk in further debt since it was placed under.

But the owners objected to being held liable for the debts incurred during the receivership.

They argued that the bank manipulated the trade deficits of the firm and that the facilities advanced to the company should not be borne by them.

The bank held that the owners should also bear the debt that was accumulated during receivership.

Surya Holdings Limited and RHEA Holdings Limited in papers filed at the Court of Appeal are arguing that the judge failed to consider that they are guarantors who cannot be held responsible for debt incurred during the receivership.

The owners of flower farm Karuturi Limited in January announced that it has secured an investor to inject funds into the business as they fight to save their prized assets from going under the gavel by Stanbic Bank

Karuturi, which was prior to its collapse Kenya's biggest flower exporter said that it had reached an agreement with Phoenix Group for a "blend of debt and equity" that will help it to meet its current debt obligations and restart its operations.

The firm has been under receivership for the past four years.

The statement did not, however, indicate the value of the expected investment.

Phoenix Group is said to be worth Sh200 billion. The Singaporean company is among the world's leading rice producers.

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