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Appeal court upholds Cytonn liquidation to recover Sh11bn assets
The court documents reveal an intricate financial web connecting Cytonn Investments Management PLC (the principal partner), CHYS, CPN, and numerous SPVs.
Cytonn Investments has lost all 19 appeals challenging the liquidation of its two investment vehicles, Cytonn High Yield Solutions (CHYS) and Cytonn Real Estate Project Notes (CPN), paving the way for the recovery of Sh11 billion belonging to over 3,000 investors.
The Court of Appeal upheld High Court verdicts preserving assets tied to the firms, dismissing attempts by creditors and certain investors to halt the liquidation process.
The judgments, spanning six files, affirmed that the Official Receiver acted lawfully in taking control of properties held by Cytonn-linked Special Purpose Vehicles (SPVs), rejecting arguments that these entities could shield assets from creditors.
The dispute hinged on whether the SPVs—legally separate entities that developed real estate projects using CHYS and CPN funds—could claim financial independence from Cytonn.
The court found that despite their technical corporate autonomy, the SPVs were inextricably intertwined with Cytonn Investments through shared directorship under Edwin Dande, who served as CHYS's CEO while simultaneously controlling the SPVs.
"We agree that the issuance of preservation and vesting orders are aligned with the liquidator’s statutory duty to gather, manage and distribute the insolvent estate in a manner that ensures equitable treatment of all creditors," the judges stated, upholding preservation orders issued in 2023 and 2024, to prevent asset dissipation during the legal process.
The verdict now shifts focus to asset realisation.
The court was categorical in its assessment of the SPVs' operations, noting that these entities must move beyond legal technicalities and provide a full accounting for creditor funds.
Among the major properties now preserved pending liquidation are several high-value real estate developments including The Alma (valued at Sh1.43 billion), Kilimani (Sh1.73 billion), Amara Ridge (Sh502.8 million), and Superior Homes (Sh383.9 million).
The complete list of preserved assets spans multiple prime properties across Nairobi and its environs, collectively worth billions of shillings.
The High Court had initially justified its preservation order and placing CHYS and CPN in liquidation, by emphasising the need to protect ordinary investors.
“The court must be sensitive to the plight of over 3,000 members of the public, who sank their over Sh11 billion into these projects and therefore lean towards a lesser evil, which is to preserve those assets for time being," the High Court noted in original ruling.
This judicial philosophy found full support at the appellate level, with the three-judge bench concurring that "the balance of convenience tilts overwhelmingly in favour of allowing the liquidation process to reach its natural conclusion."
The court documents reveal an intricate financial web connecting Cytonn Investments Management PLC (the principal partner), CHYS, CPN, and numerous SPVs. CHYS and CPN essentially served as collection vehicles pooling funds from retail investors, which were then channeled to various SPVs registered by Cytonn Investments Management PLC.
These SPVs were created to acquire and develop properties whose sales would generate returns for investors.
However, the court found evidence that blurred the lines between these supposedly independent entities.
Cytonn's financial troubles first became public knowledge in 2021 when it's promoters (Mr Dande and Cytonn Investments Management PLC) petitioned the court for administration orders regarding CHYS and CPN, admitting their inability to meet financial obligations.
While the SPVs were registered under the Limited Liability Partnership Act as distinct legal persons, company records (Form CR12s) showed Edwin Dande appearing as the principal partner in nearly all of them - a fact that significantly undermined claims of genuine corporate separation.
The appellate court also dealt with investors who claimed bona fide purchaser status for properties acquired through sale agreements.
The judges ruled that such claims must first be properly substantiated before the liquidator rather than through direct court action.
Similarly, creditors pushing an alternative Debt Settlement Proposal were rebuffed, with the court dismissing their plan as "fundamentally speculative" and an improper encroachment on the Official Receiver's statutory mandate.
In perhaps its most damning assessment, the Court of Appeal endorsed the High Court's characterization of the SPVs' operations as "a scheme akin to fraud."
The judges clarified that this strong language was not indicative of judicial bias but rather an accurate description of the financial arrangements under scrutiny.
The court also rejected arguments that the trial judge erred in applying the doctrine of tracing - a legal principle that establishes connections between misappropriated funds and current assets.
"The tracing in this instance was appropriately limited to preservation purposes rather than confiscation or disposal," the appellate judges explained.
The subsequent administrator's investigation revealed shocking deficiencies - the companies lacked credible funding models and showed no realistic prospects of rehabilitation.
This led to the administrator's recommendation for orderly wind-down proceedings, including appointment of specialized financial managers.
When competing applications emerged in 2023 - one seeking extension of administration and another pushing for liquidation - the High Court decisively terminated the administration regime and placed the companies under the Official Receiver's control.
The appellate rulings mark the final legal chapter in a saga that began four years ago when the Capital Markets Authority first sounded alarm bells by declaring CHYS and CPN unregulated investment schemes.
In September of this year the High Court upheld the CMA's decision to limit investments by Cytonn-affiliated funds, dealing a blow to Mr Dande's attempt to overturn the regulator's restrictions.
The court dismissed Mr Dande's petition challenging CMA's June 2020 directive that capped investments by Cytonn Asset Managers and Cytonn High Yield Fund at 10 percent of their portfolio for Cytonn-related projects.
Founded in 2014 by Mr Dande and other partners, Cytonn became popular for offering a range of residential and mixed-use properties to retail and institutional investors in the real estate sector, structured solutions, private equity and advisory. It also established 17 SPVs for investment purposes.
