CBK fights bid to stop Dubai Bank liquidation

The Central Bank of Kenya (CBK) has opposed a suit filed by collapsed lender Dubai Bank’s second-largest customer seeking to stop its ongoing liquidation.

The regulator argues that no court has the authority to issue orders stopping winding up of a bank once the process has started.

The CBK wants Justice Eric Ogola to dismiss a suit filed by Richardson and David, arguing that the supplies firm can sue for damages if it feels aggrieved by Dubai Bank’s liquidation.

Richardson and David, which had a total of Sh142 million in several accounts with Dubai Bank, says CBK is winding up Dubai Bank prematurely and that the decision could see it and other depositors lose substantial funds.

The firm says CBK should have left the lender under the care of a receiver for at least 12 months as that would have helped restore its operations. But the regulator says the bank was in violation of several provisions of the Banking Act and that its capital was below the Sh1 billion required by law.

“The application is late in the day as the liquidation process is at an advanced stage and the orders sought have been overtaken by events. Under section 46 of the Kenya Deposit Insurance Act no injunction can be issued against the defendant once it has assumed control of an institution,” says CBK.

Richardson and David in its application says it is ready to have its Sh142 million deposit transformed into equity as part of a rescue plan for Dubai Bank. The firm says it is aware that Dubai Bank’s shareholders are also willing to inject more capital to ensure the lender stays afloat.

CBK and the Kenya Deposit Insurance Corporation Thursday told Justice Ogola that there were strong grounds to wind up Dubai Bank. Lawyer Ochieng Oduol for the regulator confirmed that leases for all of Dubai Bank’s Nairobi, Nakuru and Mombasa branches had already been terminated.

Justice Ogola ordered the parties to appear before him Friday for a hearing. He however declined to issue orders stopping the lender’s winding up.

The regulator in a separate suit wants the High Court to freeze bank founder Hassan Zubeidi’s bank accounts and assets after it discovered that he amassed substantial wealth through what it termed irregular insider lending deals that he covered up by cooking books.

Court papers indicate that aside from the civil suit that the KDIC has filed against Mr Zubeidi, the Dubai Bank founder could also face criminal charges for alleged misuse of depositors’ funds.