CBK’s 48-hour ultimatum sets the stage for Imperial Bank court battle

Central Bank of Kenya Governor Patrick Njoroge

The court papers paint a picture of how relations between the owners of the bank have been deteriorating by the day, while the CBK governor comes across as taking a no-nonsense approach with shareholders in a mess he inherited from the previous regime.

The CBK gave the shareholders just 48 hours to raise Sh10 billion and deposit it in its account.

“This unreasonable period was calculated to make it impossible for the Applicants herein to participate in the said restructuring process in any way,” Hajee’s affidavit reads.

The shareholders are also accusing the regulator of changing tune and doubling the amount required to bring the bank back to operation.

“In fact, the demand for Sh20 billion came as a complete surprise to the Applicants given that in the initial meetings held with the Respondents, what had been discussed was the sum of Sh10 billion, as proposed in the Applicants’ Recovery Plan.”

Good faith

The owners of the bank argue that CBK’s demand was “unreasonable, excessive and oppressive” on the grounds that their recovery plan had demonstrated that once implemented, the bank would be able to comply with all its statutory obligations in terms of liquidity and capital adequacy if Sh10 billion were injected.

The CBK has also not demonstrated how the sum of Sh20 billion was arrived at, the shareholders say.

“The Respondents have not provided any financial and legal framework for the injection demanded, nor an opportunity to conduct an independent due diligence. In failing to justify and validate the demand for Sh20 billion, the Applicants have been deprived of an opportunity to be able to substantially respond to the demand,” the court papers read.

Njoroge also asked the shareholders to approach the persons behind WE Tilley — a company used to siphon Sh34 billion from the bank — for recovery of monies on the basis that they are members of the same community.

When they failed to contact WE Tilley, the governor went ahead to implement different decisions at the bank, which shareholders fear are setting up the bank for liquidation.

They argue that even after asking them to talk to people behind WE Tilley, CBK initiated legal proceedings against the company, which rendered any dialogue with the firm “meaningless, improper, and potentially harmful to the recovery efforts”.

A forensic audit by London-based firm FTI Consulting revealed how eight members of one family that is largely involved in the fish business conspired with the bank’s top managers to siphon Sh38 billion from the bank in one of the biggest such thefts to strike the financial sector.

The FTI audit found that some of the bank’s senior managers, led by Mr Janmohamed, ran a hidden ‘parallel’ bank. The ‘parallel’ books and financial statements were never disclosed to the board or reported, concealing the true position of the bank.

WE Tilley accounted for Sh34 billion of the Sh38 billion that was lost.

The owners of the bank are also opposed to the current payout structure being carried out by KCB and DTB on the grounds that it has given the two banks access to their client list, which they can use against them in the competitive banking sector.

“No justification exists for the making of these payments vide the Interested Parties other than to undermine the long-term viability of the Bank by effectively transferring the Bank’s clients to the Interested Parties, thereby eroding the Bank’s brand and jeopardising its recovery,” the suit papers read in part.

They argue that their willingness to inject Sh10 billion as part of a recovery plan was made in good faith and motivated by the sole desire to protect the bank’s depositors and creditors who had entrusted their money with the institution.

“This willingness to participate in such a plan to recapitalize the Bank necessitated access to the Bank’s data. The Applicants’ various requests for access to the Bank’s records, as set out above, to enable them conduct further investigations with a view to confirming the position of the Bank immediately prior to the appointment of the receiver, have been declined,” the papers add.

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