Shareholders petition court to order CMC annual meet
Bill Lay, CMC managing director. Photo/File
A group of minority shareholders at motor dealer CMC Holdings have moved to court, seeking orders to compel the company to convene an annual general meeting (AGM) within one month. The investors also want the court to issue an injunction restraining six board members from managing the affairs of the troubled motor dealer or transferring, alienating or disposing of any assets, pending the hearing and determination of the suit.
They have accused the six board members — William Lay, Mary Ngige, Paul Ndung’u, Joel Kibe, Ashok Shah and Andrew Hamilton — of allegedly refusing to convene the AGM since March last year, which will after the end of this month exceed the 15-month maximum period allowed under capital markets regulations.
The group claims that the board members have written to the registrar of companies seeking an exemption from holding the AGM when there is no legal backing to do so since the powers of the registrar are limited to a company being directed to hold the AGM.
“There is no provision of law by which the registrar of companies can exempt a public company from holding an AGM as required by law,” say the shareholders in the application filed through Kyalo and Associates.
A shareholder, Daniel Muchiri, who has lodged the suit on behalf of fellow shareholders Alois Chami, Emmanuel Masaba and Geoffrey Maoga, says failure by the board to call the meeting was a cover-up to cling onto their offices and “skilfully hide behind the boardroom wars.”
The court has allowed the shareholders to file and prosecute a derivative action on behalf of the motor dealer to recover the assets and properties of the company they claim have been misappropriated by a section of the directors.
But CMC has responded by saying the group had not demonstrated that the other over 15,000 shareholders support the institution of the derivative action.
“If the leave is not set aside, other shareholders who may not be supporting the respondents may also seek leave to institute derivative actions to agitate their interests, which will open a floodgate of litigations,” says Mr Lay in a sworn statement.
Through the law firm of Iseme, Kamau & Maema, CMC wants the orders discharged, arguing that the minority shareholders deliberately failed to disclose the existence of three other suits in court.
Mr Lay, also the CMC managing director, argues that the orders have adversely affected the company and ought to be discharged to enable all parties affected in the proceedings to be heard.
He has stated that the orders were granted without their side of the story and “amounts to abuse of the court process because the respondents were litigating over issues that are pending determination.”
Mr Lay maintains that it was improper for the four minority shareholders to argue the case ex-parte.
The four are also seeking a temporary injunction restraining the directors from managing the affairs of the company or transferring, alienating or disposing of any assets pending the hearing and determination of the suit.
“An injunction ought to be granted so that CMC complies with the law, otherwise the six defendants will continue to benefit from their own wrongs to the detriment of the company and the minority shareholders.”
They cite an agency agreement between CMC and Pewin Motors, which they say was entered into without prior board approval, as an example of contracts that are hurting the firm through payment of hefty commissions.
Pewin Motors, according to the court papers, was paid Sh11.7 million as commission, which has been challenged by a section of the shareholders who say the payments were irregular and the money should be refunded to CMC.
“Whereas the agreed commission under the agency agreement for sales of Ford/Mazda was three per cent, CMC paid Pewin Motors at the rate of six per cent,” submitted the shareholders.
A forensic audit commissioned by the Capital Markets Authority (CMA) and conducted by a South African firm, Webber Wentzel, questioned the agency agreement between the CMC and Pewin, saying the contract was flawed.
Pewin was appointed by CMC as its sole marketing agent in Kenya with a commission of six per cent of gross sales margin per unit car sold.
The shareholders have also faulted the appointment of PricewaterhouseCoopers (PwC) by CMC to investigate logistics firm Andy Forwarders, saying the contract was done in haste “purely for purpose of settling a boardroom war.”
They say the Webber Wentzel report, which was ordered by the Capital Markets Authority, cleared Andy from any wrong doing.
Peter Muthoka, CMC Holding’s single largest shareholder, is the managing director of the logistics firm and is embroiled in a dispute with CMC after he was thrown out from board.
The shareholders are against CMC paying Sh25 million to Webber Wentzel, arguing that CMA hired the South African company and it should therefore pay the bill.
The shareholders are also accusing the six CMC directors of taking unilateral decisions to reverse staff promotions and salary increments of 61 employees, which were approved by the board. The situation, according to the shareholders, has led to low staff morale.
But Mr Lay counters that the salary issue is subject to a court case and cannot be the basis or ground for the grant of leave to commence the derivative action.
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