Companies

Mauritian company in Sh68m debt row with Equity’s Munga

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Mr Peter Munga. FILE PHOTO |

Mauritian private equity firm African Seed Investment Fund LLC has opened a legal battle with Equity Bank founder and chairman Peter Munga, seeking to have him declared bankrupt for failing to repay a $590,000 (Sh60.7 million) loan advanced to his company four years ago.

African Seed claims in a suit it has filed in the High Court that the Sh60.7 million loan was extended to Freshco Kenya Limited – a company owned by Mr Munga – in five instalments between March and September 2013.

The loan was to attract interest at the rate of 6.5 per cent every year and was secured by a debenture on all of Freshco’s assets, alongside Mr Munga’s personal guarantee as a director of the firm.

“The failure by Freshco accelerated the debt and the full amount of the loan plus interest due from the debtor has now risen to $664,569 (Sh68.4 million). Twenty one days have passed since the statutory demand was served and Mr Munga has neither complied with nor set aside the demand in accordance with the insolvency regulations,” the Mauritian firm says.

Terms of the loan stated that it was to be paid in 12 quarterly instalments that were to be remitted on the first day of January, April, July and October.

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Agreed plan

Freshco was to make the payments between 2015 and 2018, but African Seed now says no such payments have been made despite several demands and has asked the court to declare Mr Munga bankrupt for failing to keep to the agreed instalment plan.

“Peter Munga is unable or has no reasonable prospect of paying the debt. We, African Seed Investment Fund LLC do apply to the court to appoint someone fit and proper person as trustee of the property of the said Peter Munga in accordance with the provisions of the Insolvency Act,” says the Mauritian firm.

Mr Munga has, however, responded to the suit with the filing of an application seeking to dismiss the bankruptcy petition arguing that it is premature as the Mauritian firm has not taken any recovery steps against the principal borrower — Freshco — which used all its assets as security.

The Equity Bank chairman argues that Freshco’s assets are worth over Sh100 million or way beyond the amount it owes African Seed.

Mr Munga made a $103,672 (Sh10.6 million) payment in September last year through another firm he owns — Equatorial Nut Processors (ENP).

The Mauritian private equity fund has also filed a bankruptcy petition against Mr Munga’s co-director at Freshco, businessman James Karanja Gichangi.

Mr Munga has filed in court financial statements listing two other directors—Johnson Muriuki Muhara, and James Kamau Muhoro. The statements list Chase Bank Riverside Branch as Freshco’s primary banker.

Mr Munga insists that lenders must exhaust all remedies against principal borrowers before pursuing guarantors.

He has also faulted the Mauritian private equity firm’s demand, arguing that it does not factor in the Sh10.6 million payment he made through ENP in September.

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Taking advantage

The Equity Bank founder claims that African Seed is taking advantage of his prominence, and only wants to force payment of the sum by dragging his name through bankruptcy proceedings.

“I can confirm that no steps whatsoever have been taken by African Seed against Freshco in spite of the existing debenture over all the company’s properties.

"A perusal of the financial statements will confirm that the company’s assets are sufficient to cover the debt claimed. Freshco’s assets topped Sh115,998,746 in December, 2015,” Mr Munga says.

“It is my firm belief that that the statutory demand herein is issued solely to publicly embarrass me as there are other forms of execution available to African Seed, this being the most draconian,” he adds.

African Seed has dug into the fight, seeking dismissal of Mr Munga’s quest to quash the statutory demand dated October 21, last year.

The Mauritian firm argues that the statutory demand could only be quashed within 21 days of being served on Mr Munga, but no steps were taken to challenge it within the window provided for by law.

African Seed says the petition is necessary as it holds no security on Mr Munga’s estate for payment of the loan.

Hearing of the case is set for March 29 when the parties will highlight their arguments and receive further directions on how to proceed.

The loan agreement between Mr Munga’s Freshco and African Seed provided for a penalty of two per cent interest in the event of delays in remittance of quarterly instalments.

The agreement also allowed African Seed to demand full payment in the event that Mr Munga’s Freshco delayed quarterly payments by more than 10 days.

African Seed in its statutory demand held that Mr Munga should either remit to it the entire loan amount plus interest and penalties, or forward the payment to its subsidiary in Uganda—Pearl Capital Partners.

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