Collapsed Moi-era lenders sue State for Sh7.3bn payout
What you need to know:
Capital Finance Limited (CFL) and Pioneer Building Society (PBS) say they were placed under receivership in November 1986 as part of a scheme to forcibly acquire their assets.
CFL and PBS hold that they were of sound financial standing at the time they were placed under receivership and that the government did not follow procedure in taking over their operations.
Two lending institutions that were placed under statutory management during retired President Daniel Moi’s era have sued the Attorney General for Sh7.3 billion, arguing that the move was part of a looting scheme by government officials.
Capital Finance Limited (CFL) and Pioneer Building Society (PBS) say in court papers that the then Registrar of Building Society placed them under receivership in November 1986 as part of a scheme to forcibly acquire their assets, which would have been worth Sh7.3 billion today.
The Registrar of Building Societies then held that the two institutions had violated the law and had to be liquidated. The two lenders are currently being dissolved and argue that their liquidator violated a court order calling for an audit of their books of accounts.
CFL and PBS hold that they were of sound financial standing at the time they were placed under receivership and that the government did not follow procedure in taking over their operations as no notification was issued to them.
“The purported takeover of PBS under the instructions of the Registrar of Building Societies was a move orchestrated to gain access to both CFL and PBS in order to lay basis for grabbing of the two entities. No notice was ever issued to PBS by the Registrar and the society was never accorded an opportunity to be heard,” the two firms say.
CFL and PBS alongside their owners Mugo Mungai, Associated Registrars Limited and Mercantile & Agricultural Limited have sued the government.
They have enjoined Attorney General Githu Muigai, their official receivers and the Registrar General in the suit. None of the respondents has filed an answer to the suit.
The two lenders had a massive asset portfolio that included Buruburu’s Pioneer phase I and II estates estimated to be worth Sh1.7 billion, several parcels of land in Nairobi, Nakuru, Thika, Kiambu, Sigona and Nanyuki worth Sh5.4 billion.
They had also deposited Sh30.2 million in Commercial Bank of Africa, Housing Finance, Thabiti Credit Finance and Continental Credit Finance Limited alongside recoverable loans and miscellaneous investments to the tune of Sh285 million.
Mr Mungai, the lenders’ founder, says the receiver managers have also defied a court order issued in 2009 that called for an audit on their books of accounts. He wants them cited for their alleged violation of the court order.
He is also seeking financial compensation for damages caused by the State’s “violation” of his right to ownership of property.
“Mr Mungai took the initiative to scout for a reputable firm. He proposed Mazars. A copy of the firm’s proposal was sent to the Registrar General. Since March 2014 to date there has been no response. It shows the respondents have no intention of having the audits conducted,” lawyer Njoroge Regeru adds.
CFL and PBS aver that they also lost a lot of moveable property worth millions of shillings as they have no clue where motor vehicles and safes went.
The two institutions are the latest of several Moi-era institutions to be dissolved in the past few years. Inter-Africa Credit Finance and Central Finance were in 2012 liquidated in a move that saw depositors lose Sh225 million.
Inter-Africa Credit Finance was put under statutory management in January 1993 with Sh138 million in deposits, while the other lender, Central Finance, was taken over by the board in May the same year with Sh106 million in deposits.
Inter-Africa Credit Finance had total outstanding loans of Sh155 million at the time of collapse, but only Sh35.9 million was recovered during its liquidation.
Central Finance Ltd had outstanding loans of Sh111 million at the time of liquidation, of which Sh110.38 million was recovered and Sh104.10 million paid out as dividends.