The Commercial Division of the High Court in Nairobi has ordered the folding and sale of prime assets of two Cytonn real estate funds after the administrator failed to salvage them.
In an order that now leads to auctioning of prime properties in order to recoup the money owed to investors, Justice Alfred Mabeya declined to extend the administrator’s term, the court noted that the Cytonn High Yields Solutions LLP (CHYS) and Cytonn Real Estate Project Notes LLP (CPN) are seriously ailing, and the only viable option is to wind them down.
Justice Alfred Mabeya observed that CHYS went under with Sh11 billion owed to creditors while at least 886 members of the public were lured to invest their money in CPN.
The firm is owed Sh3.6 billion broken down into Cytonn Integrated Project LLP (The Alma) - Sh562,326, Cytonn Investments Partners 18 LLP, (Applewood/Miotoni) - Sh 177 million, Cytonn Investments Partners Five LLP, (Riverrun) - Sh 119 million, Cytonn Partners, Eleven LLP, (Ridge) - Sh861 million and Cytonn Investments Partners 10 LLP (Taraji) - Sh 1.6 billion.
In a revelation on the dealings by CPN, the judge said that investors hope to have their money back is secured by mere papers. He said that projects under CPN sunk more than Sh4 billion.
“There is evidence on record that the monies paid by the creditors of CPN were sunk in these projects and all that CPN has in its possession are mere pieces of paper called Loan Notes for the same. There are no securities held by way of charges for what the investors sunk in CPN who in turn sunk the same into these projects,” said Justice Mabeya.
In the case, the administrator admitted that CPN couldn’t be rescued as a going concern because it has no credible funding model.
Following the admission, the judge ordered that the administrator surrender all the properties under CPN to the official receiver together with the administration documents.
“In this regard, there is no likelihood of turning the company around and therefore, there is no justification for extending the term of the Administrator or appointing a new one,” he ruled.
On CHYS, the judge said that the administrator had not taken care of the creditors’ interests as the administration was still in its initial stages.
According to the judge, the administrator was rooting for the promoters of CHYS adding that there was no security for the loans handed to eleven special purpose vehicles (SPVs).
“He is dilly-dallying and doing absolutely nothing towards achieving any of the objectives of the Administration. He stated that he only had Loan Notes given by SPVs which he had demanded but received nothing. He never stated when he allegedly made the demands; to who and how much he demanded; what the response was and what action he had taken or intended to take in view of the recalcitrant position taken by the SPVs,” said Justice Mabeya.
In this case, one of the creditors - John Bosco Matheka told the court that CHYS management had continued to run the firm even after administration orders.
He argued that the administrator had not revealed to the court and to the creditor he had an engagement with the company two months before his appointment.
Cytonn’s chief executive Edwin Dande opposed the application. He told the court that the administration process would be positive as the company now owes creditors Sh5.9 billion which had matured by July 31, 2021.
He also said the purpose of the administration was to provide an avenue for a credible balance sheet, restructuring CHYS debt as well as establishing whether the company’s debt obligations could be successfully restructured.
Dande argued SPVs are separate legal entities that were not under administration and ought not to be condemned unheard. He asserted that they were not barred from dealing with their own assets by the administration order.
Justice Mabeya ordered that properties that had been listed in the case should be preserved until the liquidation process is complete. “Nothing substantial has been done. Monies in excess of Sh11 billion contributed by the members of the public have sunk and not a dime has been recovered or any effort shown by the Administrator to recover the same.”