NCBA risks Sh1bn loss as revival attempt for insolvent firm flops


NCBA premises in Nairobi. FILE PHOTO | NMG

The NCBA bank #ticker:NCBA is set to incur a loss of over Sh900 million after attempts to revive operations of an insolvent company failed.

The company, Arvind Engineering Limited, was put under administration in 2019 after defaulting a Sh840 million loan owed to the bank and as at October 14, 2021 the debt had increased to Sh1,056,090,365.

As a relief to the lender, the High Court in Milimani Nairobi has allowed the proceeds of the sale of the company’s assets, valued at Sh145 million, be applied to offset the debt owed to the bank.

The court said this will help the lender from losing the entire amount of the outstanding debt.

Justice Alfred Mabeya said considering the debt that the company owes the bank, he was satisfied that this was a proper case whereby the court should depart from the general rule.

“In the premises, it will cause less loss and harm in acceding to the application rather than to confirm and enforce the general rule,” said the judge while allowing the bank’s request to be paid the proceeds of the company assets.

NCBA’s request was based on the huge difference between the value of the assets of the company and the debt.

It urged court to exempt the administrator of the company from complying with a provision of the Insolvency Act, which requires 20 per cent of the value of the proceeds be distributed to the unsecured creditors under the law.

The bank contended that if the 20 per cent of the sale proceeds were distributed as such, it would be extremely unfair to the lender considering the debt owing. The bank therefore sought that the entire sum (of Sh145 million) be distributed to it.

“The bank is a secured creditor. Its application was served but not opposed. However, the law requires that a portion of the proceeds of an entity under administration be reserved or distributed to the unsecured creditors,” said the judge.

In the application, the lender contended that between 2013 and 2015, the company took facilities secured by two Debentures for US dollars 4,050,000 and Sh137 million. It also got a further loan of Sh219,108,000.

The Company fell into hard times and there was default in the repayment of the facilities and was placed under administration in 2019. The administrator was unable to revive the operations of the Company for reasons including that a huge capital was required to revive the operations.

The administrator thereafter opined that in the interests of the company, its assets should be disposed off.

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