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A ten-year court case, Sh4b and a bank caught in the crossfire

By Daniel Wesangula | Dec 29th 2021 | 5 min read

I&M Tower along Kenyatta Avenue in Nairobi. December 7, 2021. [Boniface Okendo, Standard]

Sometimes in 2010, representatives of two men whose families had been close for decades met to actualise a deal that had started off as a conversation between friends.

The matter at hand was pretty straightforward. One party wanted to sell off a mixed development complex with a high-end hotel, a residential wing and an office block at one of Nairobi’s most coveted addresses all for a tidy sum of Sh750 million.

Ten years later, suspicion of fraud, suspect rulings from the Judiciary and alleged betrayal from a banking institution have all added to the intrigue of this decade-long case that one judge, in his ruling described as “an attempt to defeat the process of justice.”

2010 was largely a good year for Kenyans. Businesses across the country were doing well.

A new Constitution had settled in well among the people.

Optimism was high, and among the entrepreneurs, investment, particularly in real estate, held promising returns.

Against this backdrop, Synergy Industrial Credit Limited approached Cape Holdings Limited for a piece of the real estate empire that the latter had built over generations.

Soon, an agreement was reached for the purchase of two blocks within the prime 14 Riverside Drive Complex, that also hosts the DusitD2 Hotel.

And over a period of a year, Sh750 million was paid to Cape Holdings but according to court documents, it failed to transfer the said property to Synergy Industrial Credit.

What resulted after this was a decade-long court process that saw the two parties put aside their familial dealings and go after each other first through an arbitrator, then through the judicial system, with the matter ending up at the Supreme Court.

The apex court ruled in favour of the creditor at almost every turn, including on March 25, 2021, when it allowed Synergy to claim Sh4.4 billion and interest at 18 per cent per from Cape Holdings.

Supreme Court Building, August 20, 2021. [Collins Kweyu, Standard]

But even with a determination from the highest court in the land, Cape Holdings then challenged the decree issued at the Supreme Court alleging insolvency and getting itself into administration.

This was done through the introduction of a third party into the ten-year debt, I and M Bank, an institution that had been a banker for both parties and was aware of this fractious history that bound these two companies together.

Less than a month after the decree had been made, I and M Bank as well as Cape Holdings created a debenture of some Sh2.5 billion and the bank proceeded to appoint an administrator named in court documents as Ms Vruti Shantilala Shah.

Effectively, this meant that the order to pay the Sh4.4 billion debt to Synergy Credit as ordered by the courts could not be done by Cape Holdings.

In its arguments before court, I and M said that it had advanced Cape Holdings several facilities against its assets including the 14 Riverside Property.

This property that has been under a caveat since September of 2011.

“The whole world, including the bank was thereby forewarned about the suit property. With such a caveat, that property was not free to be given as a security yet less than a month after the court of appeal entered a judgement in favour of Synergy in November 2020, I and M Bank and Cape Holdings created a debenture crafted to float over the assets of the company to cushion it on a rainy day, which was on its way,” Justice A Mabeya said in the latest ruling from the High Court.

In addition, the court heard that there was no evidence presented by Cape Holdings to support its insolvency claims.

In fact, bank statements produced by I and M Bank in court showed that Cape Holdings wasn’t anywhere near insolvency as it continued to receive rental income from the property.

“There was no averment that the company had defaulted in its obligations. There is nothing to show that the company was on the verge of collapsing financially to warrant its being placed under administration. What triggered the administration was that an order had been issued and served on the bank in April 2021,” Justice Mabeya said.

“The advances for which the debenture was created were made to hinder or defeat the judgement of the court of appeal. The bank did not take any action whatsoever against Cape Holdings until only immediately after Cape Holdings lost its bid of getting a stay in the Supreme Court…the timing of the administration was meant to buy a moratorium for the company to enable it evade its legal obligations under a lawful decree.”

The apex court on March 25, 2021, allowed Synergy to claim Sh4.4 billion and interest at 18 per cent per from Cape Holdings. [Courtesy]

In his ruling, the judge also said that I and M Bank and Cape Holdings cannot be said to be acting in good faith.

“Courts in this country are under duty to support and enforce legal relations that are entered into in good faith. Legal processes that are entered with ulterior motive have no place in the halls of justice. Justice will shy away from recognizing processes that are visibly engaged in with the intention of frustrating lawful processes.”

He added that the court analysed the circumstances under which the debenture was created and found them to have been suspect.

“The bank at all times knew the applicant’s claim over the suit property since 2011…further, it was not denied that the debt attributed to the debenture is in respect of the debt of a sister company.”

In this latest ruling in the court case that has pitted two multibillion companies with family relations dating back decades against each other, Synergy had filed another application at the High Court’s Commercial and Tax Division seeking permission to proceed with executing the decree earlier issued against Cape Holdings after the latter put itself into administration.

In this latest case, Cape Holdings and I and M Bank pleaded with the court to declare that Synergy’s intention to execute the decree was premature and that Synergy should first have sought the consent of the administrator appointed by I and M Bank to in execution of the decree.

“I have carefully considered the respective contestations, the submissions, the law and the authorities relied on. The only issue for determination is whether leave should be granted to the applicant to proceed with execution against Cape Holdings,” Justice Mabea wrote.

He added that in his view, Cape Holdings and I and M Bank connived to try and defeat the process of justice through administration…this is not what our legal system stands for.” 

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