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Nyachae’s Son And His Associates Sued For Running Down Family Owned Company

Eureka Holdings, a shareholder in Associated Auto Centre alongside AJS Investments and Associated Motors, has sued the three, seeking to bar them from acting as directors of the firm.

Published

1 month ago

November 9, 2024

Agencies

Michael Moragia Nyachae.

A son of former minister Simeon Nyachae and his two business partners have been taken to court over the management of a family-owned company.

In a suit pending before the Commercial division of the High Court, Michael Moragia Nyachae, whose father died in 2021, has been sued together with Mr Aminmohamed Shamsudin and Mr Moez Ismael Jamal, over the management of Associated Auto Centre.

Eureka Holdings, a shareholder in Associated Auto Centre alongside AJS Investments and Associated Motors, has sued the three, seeking to bar them from acting as directors of the firm.

It alleges that their continued holding of office is likely to harm the company including but not limited to financial losses and mismanagement.

Through lawyer George Ouma, Eureka Holdings is also seeking court orders to freeze several bank accounts, shares and properties registered in the names of the three directors pending the determination of the case.

Further, the company has sought an order to search and obtain information and financial records of Associated Auto Centre from the company secretary, for the past 10 years.

“The applicant (Eureka) requires access to the [company’s] information and records from the year 2014 to effectively participate in the arbitration proceedings and to protect their interests,” the lawyer says in the application.

Court filings state that the three directors of Associated Auto have defaulted on loans borrowed from Diamond Trust Bank, Credit Bank Limited, and Sidian Bank Limited.

“It is apparent that the inaction by the [the three directors] is detrimental to [Associated Auto Centre] and value of the applicant’s shareholders therein, in contravention or the memorandum and articles dated August 18, 2003, wherein the [three] respondents are mandated to in their capacity as directors to act in the best interest of the shareholders of Associated Auto Centre,” the lawyer states in the application.

Mr Ouma alleges that on October 4, 2024, Credit Bank issued a notice demanding repayment of an outstanding debt of Sh82 million.

Further, Kenya Revenue Authority reportedly issued a demand for Sh77.9 million in unpaid taxes.

The lawyer adds that additional default notices were issued on March 12, 2022, and March 29, 2022, concerning other debts.

He contends that responsibility for the financial management of Associated Auto lies with the three directors, whose alleged inaction has jeopardised the company’s stability.

“That it is necessary to bar the 1st, 2nd and 3rd respondents from acting as the directors of Associated Auto Centre to prevent harm to the applicant (Eureka) as a shareholder,” he submits.

Mr Ouma says in the application that the directors have failed to act in the shareholders’ best interests by purportedly securing loans without shareholder consent.

He alleges that the inability to service the debts is an indicator that the funds were allegedly being misused to the detriment of the shareholders’ interest, leading to the loss in value and investment.

“That without a freezing order, dissipation of the 1st, 2nd and 3rd respondent of their assets would place the applicant at risk of being required to settle the nominal respondent’s debts that it either sanctioned or benefited from,” he says.

Mr Ouma alleges that the directors had replaced Eureka Holdings’ shares with those of Shanzu Enterprises Limited without approval.

He says the substitution of Eureka Holdings’ shareholding in Associated Auto with Shanzu Enterprises Limited further required the consent of the shareholders and that of Credit Bank.

The lawyer states that in 2016, the directors sought a backstop loan of $2.2 million (Sh258.3 million) to purchase inventory from Ashok Leyland Motors Kenya, as well as a Sh2 million bank guarantee and overdraft for Rigian Investment Limited.

The backstop loan incurred a 14.5 percent monthly interest rate.

Additionally, a Sh233.9 million loan from Diamond Trust Bank, carrying a 13 percent interest, remains outstanding, with Sh52.2 million overdue.

By November 2019, Eureka Holdings discovered the directors had secured a $1 million (Sh129.7 million) debenture on Associated Auto’s assets.

He said the company now owes Sh121 million to Credit Bank.

With Associated Auto facing potential liquidation and a seven-day notice from the Kenya Revenue Authority over the Sh77 million tax obligation, Eureka Holdings has petitioned the court to freeze Associated Auto’s assets and requested arbitration.

Upon granting the orders sought, Eureka Holdings will be asking the court to refer the matter to arbitration for resolution.

“The dispute in question falls within the scope of the arbitration agreement in memorandum and articles of association of Associated Auto Centre,” the company says through an application filed through Murgor & Murgor Advocates.

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