Former Chase Bank director Laurent Demey has filed a case against Capital Markets Authority (CMA) seeking to reverse a Sh2.5 million fine for his alleged involvement in Sh10 billion bond eight years ago.
CMA fined Demey alongside other Chase directors following an audit by the regulator.
However, Demey in his case filed before the High Court argues that CMA issued a blanket condemnation assessing what role each director played in the medium-term notes (MTN) bond.
His lawyers, Iseme Kamau and Maema Advocates, argue that he was not a part of day to day running of the lender adding that he had been appointed as a non-executive director representing Amethis Africa Finance Limited, which had a stake at the bank.
According to Demey, it is unfair for CMA to require him to provide information, which he had little knowledge of, and condemn him for actions he was not involved in.
"I believe to be true that the respondent (CMA) abused its discretion by awarding a blanket condemnation to all the directors of CBKL irrespective of their role and actions," says Demey adding that some of the directors such as Rafiq Shariff were beneficiaries to the bonus payment and therefore had different access to information.
He added: "The committee failed to ascertain the individual liability of the applicant."
The Central Bank of Kenya placed Chase under receivership on April 7, 2016, and appointed Kenya Deposit Insurance Corporation (KDCI) as the receiver manager following liquidity issues.
In the case, Demey argues that as he was not residing in Kenya, he relied on the financial statements audited by Deloitte & Touche, and the oversight role is undertaken by the Central Bank of Kenya (CBK) to monitor Chase's performance.
Demey adds that Deloitte has audited Chase's books for more than a decade.
According to him, CBK audited Chase's books and it arrived at different conclusions from that of CMA. "The report by the CBK did not flag any issues related to the accusations of CMA including publication of false and misleading accounts," he says adding that CBK only suggested improvements to be made and emphasized on the lender raising more capital.
In its report, CBK noted that the bank experienced cash flow difficulties following 'inaccurate' social media reports and the stepping aside of two of its directors.
In his case, he narrates that on May 14, 2015, Chase approved a Sh1.052 billion retirement bonus for its former group managing director and chairman Zafrullah Khan which was to be paid for a period of five years in equal annual installments from the same year.
The pay, according to him, was to be done on the basis of the bank's profits and liquidity.
Demey says that he was not present during the meeting.
He claims that contrary to the findings of the CMA committee, the bonus was paid in full in June 2015 without the knowledge or approval of the ad-hoc team that had been set by Chase or the bank's board.
He alleges that the payment was done to various beneficiaries including Balst Investment Holding Limited, which is allegedly owned by a director Rafiq Shariff.
He says he was not aware of the payments or any of the directors who were the beneficiaries.
Demey further says that following a meeting held by the board it was agreed that since the Sh1.05 billion was paid without approvals, then it would be converted into a loan to Mr Khan and therefore he ought to have reimbursed the money.
The former Chase director says that Deloitte's report was the root cause of the spell that befall the bank. According to him, the audit firm issued its report without concurrence and approval by the board. He states that the publication of the audit firm's report caused a run on the bank, which crippled its ability to meet its obligations.
He says some of the documents including the management report from Deloitte have never been availed.
"As a result of the foregoing the decision by the respondent that sanctioned the applicant to pay Sh2.5 million regardless of his role in the affairs of CBKL and notwithstanding that some of the directors were beneficiaries to the bonus payment made to Mr Zafrullah Khan was biased," Demey argues.
jmuthoni@standardmedia.co.ke
