Mumias Sugar gets reprieve as court halts Dubai Bank winding up petition

The High Court has stopped Dubai Bank from initiating the winding up of Kenya’s biggest sugar miller Mumias over a Sh92 million debt.

The bank claims that the debt accrued from a guarantee given to the sugar firm in November last year to help it secure release of sugar stocks that it had bought from Sudan’s Kenana Sugar Company.

This a reprieve for Mumias, which moved to court last month under a certificate of urgency claiming that Dubai Bank had threatened to initiate a winding up process in a bid to coerce the miller to pay the alleged outstanding debt.

“To safeguard the subject matter of the application, an injunction be and is hereby issued forthwith to restrain the defendant from presenting to court or advertising any winding up proceedings against the plaintiff,” ordered Justice Fred Ochieng.

Mumias disputes the validity of the alleged guarantee agreement with Dubai Bank.

On July 11, Justice Ochieng directed Dubai Bank to respond to the claim within two weeks and Mumias Sugar was given seven days to file a further affidavit if necessary upon receiving the bank’s response.

READ: Mumias stock falls to all-time low as woes persist

The judge extended the orders stopping Dubai Bank from initiating winding up until September 30, when the case will be heard.

Mumias claims it received a letter from Dubai Bank in June demanding the outstanding amount in respect of the guarantee.

Dubai Bank alleges that Mumias agreed to pay an unspecified amount to guarantee release of some sugar stocks by the Sudanese miller.

Coutts Otolo, who was appointed Mumias acting managing director in April, says he instructed internal investigations to ascertain the validity of the transactions since he is not familiar with the claim.

Mr Otolo says the investigations revealed that the letter of undertaking and guarantee was not properly issued since the guarantee was not issued under seal and the resolution to issue it was not passed by Mumias’ directors.

Mumias thereafter asked Dubai Bank to furnish it with the original copy of the agreements to establish its status, which the bank allegedly failed to avail.

The sugar firm says having failed to confirm the validity from Dubai Bank, it instructed its auditors, KPMG, to carry out forensic audit of the account to establish validity of the agreement.

On June 5, before the audit by KPMG was completed, Dubai Bank served Mumias with a winding up notice. Mumias claimed the petition was meant to force it to pay the debt.

Mr Otolo says Mumias management “highly doubt this debt” and argues that issue of the winding up notice before the audit is completed is not justified and would be detrimental to business.

He further argues that Mumias is not insolvent and has the ability to pay the bank if the forensic auditors confirm that the lender’s claim is valid.