Plans by four banks to recover Sh7.5 billion from a cash-strapped steel plant have been derailed by a court decision that asked the receiver-manager to furnish a new creditor with information.
High Court Judge David Majanja directed that Rao Ponangipalli - the receiver-manager of Athi River Steel Plant - gives the manufacturer’s financial books to a South African company, which also claimed to be owed money by the steel maker.
Rao, the receiver-manager appointed by Bank of Africa, Commercial Bank of Africa (now NCBA Bank Plc), I&M Bank and KCB Bank Kenya on May 18, 2018, had argued against furnishing information relating to financials of Athi River Steel Plant to Credit Guarantee Insurance Corporation, arguing that the latter was an unsecured creditor.
However, Justice Majanja ruled that Rao had a statutory duty as receiver-manager to avail all information relating to a company under receivership to all creditors.
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“A reading of section 723A of the Insolvency Act, 2015 is plain and obvious in so far as it imposes on the insolvency practitioner an unconditional obligation to provide information to a creditor, whether secured or unsecured,” said Justice Majanja last month.
The ruling slams breaks on the four banks' plan to dispose of the company, with Credit Guarantee Insurance Corporation keen on recovering its money from the manufacturer.
It is claiming $4,175,000 (Sh455 million). Credit Guarantee, which offers credit insurance, claims to have acquired the credit from Macsteel International Holding BV, which had supplied steel bullets to Athi River Steel Plant.
The ruling also brings into sharp focus the use of administrative receivership, which has been favoured by banks in receivership or liquidation, as they can easily carry out the process at the expense of other unsecured creditors.
At the time of Rao’s appointment, the lenders were collectively owed Sh6.445 billion by the steelmaker, which remained unpaid despite demand.
Rao noted that together with a cash injection from some of the banks, the company owed the lenders over Sh7.577 billion and have since issued statutory notices under their respective charges.
He said the assistance from some of the lenders had been able to get the plant running to the extent that it generated a turnover of Sh1.5 billion.
But in an affidavit sworn on October 21, 2020, the Credit Guarantee challenged the financials provided, saying they did not reflect the cash injection made by the lenders.
The South African firm insisted the information it was given was brief, for three months only, not the audited and unaudited financial statements with supporting documents.
Rao said the steel firm's directors frustrated his attempts to know the affairs of the company, and even attempted to eject him by filing a case in court.