Listed food producer Kakuzi has petitioned a tribunal to stop the Capital Markets Authority (CMA) from investigating it over allegations of shifting profits abroad and corporate governance breaches perpetrated by its majority shareholder Camellia Plc.
Kakuzi and its directors have asked the Capital Markets Tribunal to stop the regulatory investigations, saying the CMA summons are illegal because the watchdog has failed to identify the complaint, show records of conflict of interest and evidence of irregular financial dealings.
They argue in court papers that they are unable to defend themselves in the absence of explicit charges.
Suit papers reveal that the CMA is questioning the directors over weak management and board governance structures, Sh696 million pay for human rights abuses by Kakuzi security guards and business dealings between the firm and subsidiaries owned by Camellia Plc amid allegations of conflict of interest.
The CMA has ordered Kakuzi to provide letters of appointment for top executives, including the chief executive and CFO, receipts and bank statements for all its sales as well as invoices from firms Camellia Plc owns.
But the listed company has protested, arguing the CMA should summon its whole board instead of summoning each member separately for the probe. The firm says the CMA has threatened to push for criminal investigations against the directors if they fail to appear for grilling, prompting the suit at the tribunal.
“It is proposed to ask the Tribunal for orders that the directions and the decisions of the respondent (CMA) contained in the summons for information dated 14 June 2021 and 1 September 2022 be set aside in their entirety,” said Kakuzi in suit papers at the Tribunal.
“An order directing the respondent to supply the appellants (Kakuzi and directors) with the documentation and other evidence of the allegations of conflict of interest and financial impropriety prior to the intended hearing and conclusion of the inquiry.”
Minority shareholders had previously complained of being locked out of the board, which was controlled by Camellia Plc. The multinational, by virtue of its interests in Bordure Limited and Lintak Investments, owns a controlling 50.7 percent stake in Kakuzi.
The Kakuzi dealings with its fellow subsidiaries were worth Sh369.4 million last year and involved Eastern Produce Kenya Limited, Robertson Bois Dickson Anderson (RBDA) Kenya Branch and Eastern Produce Regional Services Limited.
Camellia Plc agreed to pay Sh696 million to settle claims arising from Kakuzi for abuses, including allegations of rape, attacks on local villagers and a man being beaten to death.
Now, the CMA is demanding Kakuzi’s board resolution over the settlement and records showing the beneficiaries of the payout and their advocates.
The regulator demanded to see contracts signed between Kakuzi and Robertson Bois Dickson Anderson (RBDA) and Eastern Produce Regional Services Limited as well as business dealings with Eastern Produce Kenya, Lintak, Linton and Siret Tea.
Mr Ketan Shah was questioned on his role as a finance director at Kakuzi yet at the same time overseeing the finance function of Camelia subsidiaries in Kenya, including serving as an accountant at Eastern Produce Regional Services Limited and RBDA.
The UK company restructured RBDA in 2018, moving operations from the UK into a branch in Kenya when Kakuzi board signed a management deal with the company.
In 2021, the management contract was moved to another Camelia company -- Eastern Produce Regional Services Limited-- when the UK company sought to restructure the technical knowhow and marketing contract to a locally incorporated company.
Mr Shah said that although he worked for both Kakuzi and RBDA when they signed a management contract that saw Kakuzi pay the subsidiary of its parent company Sh314.9 million, there was no conflict of interest because he declared his directorships when the agreement was signed.
“I do not think I was conflicted when I signed as a witness since the agreement was approved at the respective board. I was a director of both these companies at the time they were approved and declared I was a director when the agreements were being discussed,” Mr Shah said.
He said he was questioned over the transfer of Sh314.9 million to RBDA since 2018, which he claimed were for managing and finance director salaries and Kakuzi employees.
Kakuzi was paying RBDA all costs incurred in providing management services, including salaries, benefits and bonuses plus a mark-up of seven percent.
The agricultural company would also pay for indirect costs like electricity, rent and printing also with a seven percent mark-up as well as cost of staff, accommodation of RBA staff on Kakuzi businesses.
RBDA also charged Kakuzi third party costs like internal audit, human resource support, training, transport, warehousing, shipping and other logistics.
Mr Shah said RBDA paid him Sh3.5 million as reimbursement for employment entitlement, school fees for his children’s medical expenses and some business-related expenditures.
Kakuzi managing director Chris Flowers said the firm also paid its parent company Sh107.1 million as part of their contribution to legal fees incurred in the UK to defend the company against allegations of human rights violations.
The appeal offers Kakuzi directors respite given that the tribunal is not fully constituted due to a dispute over the appointing authority.
A court ruling in favour of activist Okiya Omtatah to move appointment of tribunals from the executive to the judiciary has been appealed, leaving cases at the CMA tribunal on delays to appoint a secretary and another member of the five-man team meant to serve three-year terms.
The transition has taken a while which has seen tribunal member terms end, rendering the markets tribunal ineffectual over quorum.
The CMA recently raised concerns that delays in appointing tribunal members has created a loophole for rogue players to hide from regulatory fines.