Court asked to halt secret Sh17.7bn KUSCCO plan to form new SACCO

KUSCCO Centre, Nairobi.[Courtesy]

A secretive Sh17.7 billion restructuring plan has put KUSCCO under fresh legal scrutiny days before the High Court is expected to rule on an insolvency petition threatening the SACCO union’s future.

The proposed restructuring, which includes the creation of a new entity known as the Kenya Federation of Savings and Credit Cooperatives (KEFESCO) Ltd has triggered an urgent application by its creditors led by RUPSA Regulated NWDT SACCO Society Limited seeking court intervention.

RUPSA wants the High Court to determine whether KUSCCO can reorganise its membership and affairs while preservation orders issued in March remain in force arguing that the changes could affect members’ rights and could frustrate Sh6.1 billion claims before the insolvency dispute is determined.

The SACCO, which has filed an insolvency petition against KUSCCO, placed the new developments before the Milimani Commercial and Tax Division through a supplementary affidavit by its Treasurer Edward Ngarega Gacheru and an urgent letter by its advocates.

In the affidavit, Gacheru says KUSCCO has 177 member SACCO societies with confirmed liabilities of more than Sh6.16 billion.

He argues that the membership base is a key economic asset because it generates subscription revenue, deposit flows and other activities that sustain the organisation.

 “Transferring that membership to a new entity would strip the Respondent of the asset base that any liquidator would need to administer the estate and pursue recoveries for creditors,” Gacheru said.

The court had issued preservation orders on March 25 restraining KUSCCO from disposing of its assets pending determination of the insolvency proceedings.

RUPSA’s lawyers, led by Allan Mulama Advocates, told the court that KUSCCO’s corporate and membership structure was now being reorganised while the matter remained pending.

 “The issue is no longer merely whether the Preliminary Objection should be determined,” the lawyers said.

 “The Respondent’s corporate and membership structure is now apparently being reorganised while the Court’s determination remains pending.”

The concerns arise from a letter dated August 13 by Commissioner for Co-operative Development David Obonyo convening a Special General Meeting of KUSCCO shareholders yesterday August 28 at All Saints Cathedral Church Hall in Nairobi.

One of the agenda items is the registration of KEFESCO Ltd.

RUPSA’s lawyers argue that the meeting could alter KUSCCO’s structure before the court delivers its ruling on the preliminary objection pending in the insolvency petition.

They have asked the court to determine whether KUSCCO, its shareholders, officers or agents can migrate its membership base in a manner that could remove property, rights or economic interests from the reach of the preservation orders.

“Once the membership base, business relationships, goodwill and associated economic interests have been migrated into another entity, the Court would be left to determine after the event whether what was done was permissible,” the lawyers said.

They added: “Equity has never been particularly impressed by being presented with a fait accompli.”

The advocates also drew attention to Section 429 of the Insolvency Act, 2015, arguing that certain transactions involving company property, transfer of shares or alteration of members’ status may require court approval.

RUPSA has also raised concerns over KUSCCO’s alleged sponsorship of the SACCA Congress 2026 scheduled for October 11 to 16 in Dar es Salaam, Tanzania.

The petitioner says KUSCCO has not paid the Sh108,849,922.97 decree entered in its favour on April 29, 2025, while owing 177 creditor SACCOs a combined Sh6,166,460,317.

The affidavit further states that KUSCCO Mutual Assurance Limited, a subsidiary of KUSCCO, is under statutory management by the Insurance Regulatory Authority.

Gacheru relied on KUSCCO’s own court papers  saying the organisation had warned that without the ability to realise assets, it faced the prospect of defaulting on salaries, tax obligations and repayments to more than 2,000 member SACCOs.

The petitioner questioned why resources would nevertheless be committed to an international conference while creditor claims remained unsettled.

RUPSA’s lawyers, however, stopped short of making a definitive contempt allegation against KUSCCO or officials involved in the proposed restructuring.

“We do not make a premature allegation of contempt,” the lawyers said, adding that the issue should be determined by the court after considering the existing orders, the conduct complained of, the persons responsible and the evidence presented.

They warned that deliberate conduct undertaken with knowledge of the court orders, if found to constitute disobedience, could attract the court’s contempt jurisdiction.

The advocates have asked the court to urgently deliver its pending ruling on KUSCCO’s preliminary objection and determine whether yesterday's Special General Meeting and the proposed creation of KEFESCO comply with the preservation orders issued on March 25.

They also want the court to establish whether any migration, transfer or restructuring of KUSCCO’s membership base and associated rights requires prior approval.

In their letter to the High Court Deputy Registrar, the lawyers urged the court to intervene before the proposed restructuring takes effect, arguing that allowing the changes to proceed could undermine the purpose of the preservation orders.

They asked the court to determine whether KUSCCO and persons acting under its authority should be reminded that the existing orders remain binding unless varied or discharged.

The lawyers further told the court that the proposed restructuring should not be allowed to create a new corporate or membership structure before the court determines whether it affects the subject of the insolvency proceedings.

“The preservation jurisdiction exists precisely to prevent that eventuality,” they said.

The matter is pending ruling.