Money Markets

Shareholders demand CMC fraud probe report

Peter Muthoka, the ousted CMC board chair and CEO, Andy Forwarders. Photo/FILE
Peter Muthoka, the ousted CMC board chair and CEO, Andy Forwarders. Photo/FILE 

Minority shareholders of troubled motor dealer CMC want the capital markets regulator to file the forensic audit report on alleged fraudulent transactions at the company with the court.

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This will provide them with reliable information on fraud allegations at the company, the investors said in a court application that, if granted, could set a precedent on shareholders’ access to investigative reports by the regulator.

The shareholders, with a combined stake of about 32.41 per cent of CMC shares, told the court on Tuesday the report should be made available to them in advance to help them make an informed decision on the company’s financial position and its leadership.

The minority shareholders argued that the current situation has seen CMC’s shares get suspended from trading by the Capital Markets Authority (CMA).

“This has adversely affected our rights to trade or deal with the shares,” said the shareholders, adding that they were apprehensive that unless the court intervened and arrest the present wrangles the firm was likely to lose its exclusive agency and franchise rights.

Four shareholders including Mansuklal Chotai and Vincent Muriithi filed the application.

They said the serious allegations made against a section of the majority shareholders have caused them and the investing public great anxiety.

CMC imports more than 2,000 units of its a wide range of vehicle brands, including saloon cars, heavy commercial trucks and tractors every year.

The single largest shareholder of the company, Andy Forwarders, had petitioned for an extra-ordinary general meeting (EGM) whose agenda was to kick out some directors of the company.

The court, however, blocked the meeting, until a petition filed by Andy against CMA’s opposition to the meeting is heard and determined.

The Andy Forwarders’ chief executive, Peter Muthoka, assured the court yesterday that the company was not planning to hold any extra-ordinary general meeting since it was blocked by the court last week.

In an advertisement in the local dailies published on Monday last week, Andy Forwarders had indicated that although the EGM had been stopped by the court, preparations of the meeting were on going.

The minority shareholders wanted an assurance saying that there was confusion as to whether the meeting would go on.

Lawyer Fred Ojiambo, acting for Andy Forwarders, however, said the EGM was has since been stopped.

“The court order is very clear. We do not intend to breach the order,” said Mr Ojiambo.

The minority shareholders argued in their application that the fights between majority shareholders might cause huge losses to the company, running into billions.

“Allegations that some of the shareholders and former directors are involved in financial impropriety, is not good for the company,” said the shareholders. They also submitted that since an inquiry had been launched into financial misdeeds and allegations of secret holding of funds in Jersey Islands, the report by PricewaterhouseCoopers (PwC) should be produced in court.

The shareholders want the court to prevail in resolving the dispute saying the winding up of the company would prejudice them. The case comes up for hearing January 31.

On November 16, Lady Justice Mumbi Ngugi cancelled the EGM called by Mr Muthoka to the Bomas of Kenya on November 1 and allowed CMA to conduct investigations into alleged fraud at the motor dealer.

She declined to allow Mr Muthoka to call the meeting, arguing that “rights and freedoms can only thrive alongside those of others in the society because the alternative would be anarchy.”

The judge further observed that the petitioner’s right to property is not absolute and would be subject to the rights of all other shareholders of the company.

She agreed with CMA’s submissions that unless conservatory orders were issued to preserve the property, the regulator would suffer prejudice.

Aggrieved with her ruling, Mr Ojiambo prevailed upon her to quit from the main petition saying the import of her ruling had clearly indicted Mr Muthoka on the allegations of fraud.

“In view of the statements you have made in respect of this petition, it is clear in my mind that you cannot reach a different view in the main petition,” Mr Ojiambo said and vowed to challenge the ruling in the Court of Appeal.