The High Court has freed DTB Kenya to auction the Athi River branch of Tusker Mattresses Limited (Tuskys) to recover its loan that had grown to Sh320 million.
The property, sitting on 2.49 acres, is among several assets that the retailer had pledged to DTB to secure total borrowings of more than Sh2.5 billion ahead of the supermarket chain's downward spiral that started in 2020.
Liquidation proceedings does not automatically suspend or fetter a secured creditor’s statutory right to exercise its power of sale, provided procedures stipulated under the law are strictly observed, the High Court has said.
While upholding the auction of the Athi River property, the court said DTB, as a secured creditor, retains the priority and may exercise the right independently of the liquidation process unless expressly restrained by the court.
“Accordingly, while the existence of liquidation proceedings places the company’s management and assets under the control of the liquidator, the law expressly recognizes that secured creditors stand outside the collective insolvency process in relation to their securities,” the court said.
The interim liquidator of Tuskys had contended that the sale of the property without the court’s approval or the involvement of the liquidator would undermine the liquidation process and interfere with the court’s supervisory role.
The liquidator pointed out that a liquidation order issued on May 31, 2023, effectively halted any dispositions or dealings with the company’s assets except through the liquidator.
The liquidator said if the sale was allowed without the permission of the court or involvement of the liquidator, it would amount to usurpation of the liquidator’s statutory functions and contempt of court.
The court was further informed that the company was also undertaking a forensic audit to ascertain its true financial position.
The lender said the former supermarket chain obtained a loan, which was secured by a property in Athi River.
The supermarket defaulted on its repayment and the bank had to auction it to recover its money.
The lender also submitted that another court had previously ruled that a bank, as a secured creditor, is entitled to exercise its statutory power of sale without recourse to the insolvency process.
The court noted that the power of sale is a statutory right, and its exercise in compliance with the law cannot be curtailed merely by the pendency of liquidation, where there is no evidence of fraud, bad faith, or non-compliance with statutory requirements.
“The Court therefore finds that while a liquidation order protects the company’s assets, it does not automatically extinguish or stay a secured creditor’s statutory power of sale. However, such enforcement must be conducted transparently, with notice to the liquidator, and under the general supervision of the Court to avoid disruption of the liquidation process,” said the court.
The court said DTB has demonstrated that the charge over the property was duly registered, that default occurred, and that the statutory notices required under Sections 90 and 96 of the Land Act were properly issued.
More than 40 creditors sought the liquidation of Tuskys over a debt of Sh4.5 billion.
The creditors included Hotpoint Appliances, which moved to court in 2020 seeking to liquidate the supermarket chain over a debt of Sh248 million, Rositalia Ltd and Syndicate Agencies Ltd, Sh11.2 million and Sh30.8 million, respectively.
Others are Brookside Dairy Ltd (Sh127 million), Rentco Africa ltd (Sh500 million), LG Harris (EA) ltd (Sh22 million), Jeff Hamilton (K) ltd (Sh10.5 million) and premier foods Industries Ltd Sh27.8 million.
Equity Bank was also allowed to sell Tuskys’ prime property on Tom Mboya Street over a debt of Sh640 million.
