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Regulator wants orders blocking Dubai Bank liquidation lifted

By Kamau Muthoni | February 2nd 2016
Dubai bank Kenya limited is allegedly closed by Central Bank of Kenya on 14/8/2015. Photo/ Edward Kiplimo

The banking sector regulator has challenged a High Court order halting the liquidation of the troubled Dubai Bank.

Dubai Bank had been put under receivership over liquidity and capital deficiencies, but the High Court ruled that the process was unwarranted and premature as it was done in a huff.

The Central Bank of Kenya (CBK), through Kenya Deposit Insurance Corporation (KDIC), had hoped sell the bank to recover depositors' and creditors' money.

In its appeal papers, KDIC argues that the orders of Justice Erick Ogola were unjust as they left depositors and creditors of the financial lender at risk of losing their cash.

"I verily believe that the process of liquidation cannot be declared premature simply because in the opinion of a third party the process was hurried," KDIC lawyer Muema Kitulu argues in his court papers.

Mr Kitulu said it was well known the bank had not followed banking laws.

"...yet there is a recognition that the said institution had failed to run its affairs in accordance with the Banking Act, CBK prudential guidelines and other relevant laws in place.

"Besides, there is evidence that for several years corrective recommendation issued by the Central Bank of Kenya to DBK board were ignored," Kitulu added.

Dubai Bank's chairman Hassan Zubedi had told the court that  a financier was ready to inject money to revive the troubled financial institution and the court had only ordered CBK to consider the proposal.

Sovereign Financial Holdings, according to Zubedi, was willing to inject Sh2 billion and at the same time have the management restructured. But KDIC argues that the Banking Act does not allow creditors to settle debts accrued by a financial institution.

It has emerged that Sovereign Financial Holding Company, which has a presence in the United Kingdom, Cayman Islands and the United Arab Emirates, is ready to take up a stake in the bank at a cost of Sh2.214 billion.

Zubedi, the disgraced chairman of collapsed Dubai Bank, had revealed to judge Ogola that he had fronted a new investor who would inject the much-needed cash to save his bank from liquidation.

The new strategic investor plus cash injection from large depositors could help wipe out the bank's insolvency and leave it with a credit balance of over Sh3 billion.

"If the proposed injection of Sh2,214,500, 000 is allowed by the defendants (Kenya Deposit Insurance Corporation and Central bank of Kenya) and the large depositors permitted to 'convert their deposits into equity, the net effect would lift DBK out of insolvency," the papers filed by Richardson and David Ltd boss Lawrence Pius Valiveetil read in part.

Zubedi had earlier stated that the investor would take over the operations of Dubai Bank with a majority stake under the proposed plan.

"The new strategic investor will constitute a new board. They will also appoint a new management as their investment in Dubai Bank will constitute 95 per cent of the bank's ownership," Zubedi said in a letter presented in court.

A search on Sovereign Financial Holding indicates the firm is a financial services holding entity.

It was specifically established to undertake the acquisition of target banks and financial institutions in emerging markets with the objective of becoming a leading global financial services group.

The company states that upon completion of its first round of acquisitions, it plans a listing on the main board of a European Stock Exchange.

But in the appeal, KDIC argues the buyout plan was in breach of the banking regulations.

KDIC holds that the bank ought to be liquidated and stopping the same has placed creditors and depositors in hardship.

The liquidation decision, KDIC says, was for the benefit of the depositors, creditors and shareholders of Dubai Bank.

KDIC wants the court to stay the ruling by justice Ogola, meaning that it wants the court to allow it to proceed with the liquidation process.

The case will be heard on February 4, at the Court of appeal.

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