How CMA fanned wrangles at motor firm

BY Standard Team

The move by Capital Markets Authority (CMA) to rescind a decision allowing troubled motor firm CMC to change its directors is a pointer that the regulator is not an independent arbiter in the motor firm's woes.

CMA chairman Kungu Gatabaki wrote to his CMC counterpart Joel Kibe on February 27 giving the names of CMA’s nominees that included Zehrabanu Janmohammed, Dr Joshua Okumbe and Susan Wakhungu-Githuku.

The action was a serious disregard of Article 185 of the Company’s Act that stipulates how directors of companies are supposed to be removed. With that letter, CMA usurped powers solely accorded to shareholders of a company by the law.

Following those orders, seven directors, including Kibe voted out Peter Muthoka and Joseph Kivai – who represented the interests of Andy Forwarders, the largest shareholder at CMC – saying the move was in line with CMA orders.

Fresh row

Gatabaki later realised his action, which had been carried out in contempt of an earlier court order, could land him in jail.

When asked why it allowed the removal of two directors from the motor company’s board and imposed three others in disregard of the Company’s Act, CMA took more than one week to reply.

And when it finally came, it was a curt response: "This matter is in court and the authority is constrained from commenting on the same."

The statement was attributed to Rose Lumumba, Director Corporation Secretary and Communications.

By late last week, the capital markets regulator had issued statements rejecting the forceful removal of Muthoka from the company’s board, sparking a fresh row with the five directors who voted themselves into the new board.

The message was specific that Gatabaki had disowned the reconstituted team, arguing that his directive to have five CMC nominees sit in the new board was to be executed by consensus – not through forceful expulsion based on boardroom voting power.

Correspondents

In a letter to CMC chairman dated March 13, Gatabaki said CMA had expected three of the motor dealer’s directors to step down on their own volition, creating room for the three nominees appointed by the regulator.

"We are, therefore, surprised by the ‘removal’ of Muthoka and Kivai by the majority of the directors in order to create two of the vacancies (Mr Kemoli’s resignation creates the third)," reads part of the letter.

But the issue that is likely to send tongues wagging is how CMA’s chairman appears to have relegated CMA’s CEO Stella Kilonzo to the periphery.

The question is: How comes all correspondents regarding CMC Holdings are addressed to him, and not to CMA chief in whom the law vests executive authority?

So many questions have been left pending, but it is apparent that the industry regulator’s indecision and failure to comply with the law in its dealings as regards CMC could be coming back to haunt it.

Declined to block

This is because even the Kibe faction that was initially thought to have benefitted from Gatabaki’s directives is also questioning the move.

In a letter dated March 14, Kibe expressed his "surprise" at the sudden turn of events. Last week, ousted chairman Muthoka suffered a legal setback after a Nairobi court declined to block the three CMA nominees from sitting in the motor dealer’s board.

Leaky contract

CMC Holdings entered into an exclusive five-year contract with Andy Forwarders Services (AFS) Ltd. The contract, an audit found, exposed the motor dealer to massive losses through exorbitant charges.

It is understood that CMC’s contract with the logistics firm did not have a termination clause thereby exposing the motor dealer to arbitrary charges.

It also left the group open to massive claim for unlawful termination.

AFS has been accused of overcharging CMC between Sh1.5 billion and Sh2 billion over a five-year period, dating back to 2006.

Interim board

According to copies of invoice seen by The Standard, the total clearing and freight costs for nine tractors charged by Andy Forwarders stood at Sh5.2 million compared to Transami (Sh2.3 million), Damco (Sh2.6 million) and Siginon (Sh2.5 million).

Another invoice revealed that Andy Forwarders charges on 18 units of Man Trucks stood at Sh8.4 million compared with Transami (Sh5.7 million), Damco (Sh5.2 million) and Siginon (Sh5.4 million).

Capital Markets Authority (CMA) has queried the ouster of Peter Muthoka, the largest shareholder in CMC and a co-director Joseph Kivai both whom represent Andy Forwarders.

CMA has advised the motor dealer to iron out boardroom divisions before forming an interim board.

The two were removed by majority of the directors at CMC to pave way for proposed non-executive and independent directors recommended by the authority.

The coup that took place during a board meeting also saw long-serving director Richard Kemoli resign to create the third position of an independent director.

The majority vote by the directors also ushered in CMA’s three nominees to the board — Ms Zehrabanu Janmohammed, Dr Joshua Okumbe, and Ms Susan Wakhungu-Githuku.

Battle for control

The three will serve as non-executive directors in the caretaker board that will oversee CMC’s operations until January next year.

But CMA expected the appointment of a new board to be done through consultations with the current directors who collectively own 58.6 per cent of the country’s fourth largest auto dealer.

The ouster of the three directors marks the latest twist in long-drawn battle for control of CMC that began on September 8, when Joel Kibe replaced Muthoka as chairman in a boardroom coup.

CMC’s board has been divided, with majority of the directors supporting Kibe in opposition to Muthoka and Kivai.

The new boardroom line-up also retained finance director Mary Ngige and chief executive Bill Lay, who kicked up the storm with claims that Andy Forwarders had defrauded the company through inflated charges for services rendered.

Last month, the regulator said it would appoint three independent directors, including the chairman, to CMC’s ten-member board and retain chief executive officer Bill Lay and finance director Mary Ngige.