KCB suffers setback as it’s administrator is removed from managing struggling Mumias sugar.
The ruling by High Court Judge Alfred Mabeya is a major win for west sugar company which is fighting for a larger control of the western region sugar belt.
The judge ruled that the lease is unlawful as it failed to cater for the interests of creditors.
The High court cancelled the Mumias Sugar Company lease issued to Sarai group and removes the KCB appointed administrator Ponangipali Ramana Rao and appointed Kereto Marima of KR Consult limited as the new administrator.
Court noted that leasing the sugar company for 20 billions meant that it would permanently remain an asset to kCB and would not be able to repay a single creditor.
In his ruling, Justice Mabeya found that he released the assets of the company to the lowest bidder, Sarrai holdings at Sh5.8billion and left out the highest bidder, West Kenya Sugar company limited that put a Sh36.7billion bid.
The court said that Rao was appointed by the Kenya Commercial Bank (KCB) and he appeared to serve the interest of the bank and not farmers or creditors.
In a petition, activist Omtatah alluded that the receiver manager was engaged in a secretive bidding process to purportedly identify a strategic investor for the Company.
In the petition, Omtatah says it is only when Rao was summoned to the Senate that he disclosed that he had invited eight investors.
The companies include Catalysis Group of Russia, Sarrai Group of Uganda, Kruman Associates (France), Kibos Sugar and Devki Group, which are both from Kenya, Premier JV (India), Third Gate Capital Management and Godavari Enterprises, India.
It also emerged that none of the eight bidders he secretly invited to bid had the capacity to revive the company, leading to fears that a plan was underway to dispose the company off to Rao’s cronies for a song.
He also claimed the receiver manager took over the Mumias Sugar Company to ostensibly “protect its assets and to the best extent maintain its operations,” yet the company was processing ethanol, from molasses bought mainly from the neighbouring Butali and Busia sugar companies.
In the court documents, Omtatah says that instead of reviving the company, Rao has mismanaged the ethanol operations and shut them down in March 2021, thus halting all manufacturing operations at the company.
Also, without proper planning, he ploughed 677 hectares of the Nucleus Estate but failed to plant sugarcane on some 307 HA, letting the effort go to waste.
He adds that he is aggrieved that close to two years after taking over in 2021, the receiver manager has not published a general statement of affairs on the assets and liabilities of the company as at the time he took over and made known the efforts he has taken to protect the assets of the company and the interests of investors (including farmers), creditors, and other parties.
He also said Rao has not published periodic reports on what he has done to reduce the KCB Group debt that is responsible for the receivership or published a general statement of affairs on the current state of the assets and liabilities of the company.
The judge also said that he had not shown how he was going to pay the debt owed to farmers and creditors.
Justice Alfred Mabeya’s decision comes as a reprieve for some local sugar millers and bidders who had complained of being denied the lease despite placing higher bids. They will now have a second attempt to take over management of the firm.
The judge ordered the Ugandan miller to immediately vacate the Mumias premises and remove any machinery it had put in place.
He said there was open bias and conflict of interest when Mr Rao awarded the lease to Sarrai Group while disregarding other bidders that had quoted higher amounts capable of paying off the miller’s creditors and bringing the company back to its feet.
Justice Mabeya said if the lowest lease amount of Sh5.8 billion by Sarrai Group was accepted, the sugar miller will never bounce back to profit. He said the amount was not even sufficient to settle the debt owed, pay cane farmers and resume the company’s operations.
“The receiver manager cum administrator was seriously conflicted in awarding the lease to Sarrai Group,” the judge said, adding: “The lease should have been awarded to a company with financial muscle to bring the company back to life. I do not understand why he disregarded the highest bidders.”
While revoking Mr Rao’s appointment, Justice Mabeya said the administrator acted with impunity to protect the interest of KCB Bank, while ignoring other creditors who were looking forward to the company’s operation to recover their investment.
He said Mr Rao failed to notify creditors when he was appointed and since he was acting on behalf of KCB, it was necessary to have a neutral person to handle administration and oversee fresh bidding for leasing of the firm.
“He should have asked the court to be removed as an administrator instead of acting with impunity. His actions failed to protect the company’s assets and which will only bind Mumias Sugar to unending disputes with creditors,” ruled Justice Mabeya.
The judge, however, said Mr Rao would remain the receiver manager on behalf of KCB and asked him to formally prepare and hand over to the new administrator within seven days, failure to which his position as receiver manager would be suspended.
Justice Mabeya directed that upon taking over, the new administrator would call a meeting of all creditors within 60 days to kick-start the fresh process of leasing the company.
Mr Rao had last year awarded the lease for Mumias Sugar to Sarrai Group but several companies that had their bids rejected challenged the decision in court. Among them was West Kenya Sugar Company, which argued, through lawyer Mr Paul Muite, that Sarrai Group did not validly win the tender and that the former ought to have won the same as it had floated the highest financial bid.
Mr Muite submitted that the bidding process was unfair and tainted with vagueness.
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