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KCB hired receiver managers cleared to take over Proctor & Allan
The High Court has allowed receiver managers appointed by KCB Bank Kenya to take over the operations of Proctor & Allan (EA) Ltd over a debt of Sh4.9 billion.
The High Court has allowed receiver managers appointed by KCB Bank Kenya to take over the operations of Proctor & Allan (EA) Ltd, a giant cereal maker, over a debt of Sh4.9 billion.
High Court judge Njoki Mwangi ruled that the loan agreements signed by the parties expressly empowered the lender to appoint the receivers to take control of, or dispose of the charged assets in the event of default.
The judge added that it was not disputed that the cereal manufacturer defaulted on its loan obligations and that KCB Bank Kenya issued a demand for payment, which Proctor & Allan failed to comply with.
Justice Mwangi further said the lender was not under any legal obligation to issue a notice to the company before appointing PVR Rao and Swaroop Rao Ponangapali as receivers.
“In the circumstances of this case, it is my finding that the plaintiff (Proctor & Allan) has not established a prima facie case with a probability of success to warrant being granted an order of temporary injunction against the defendants,” said the judge.
The court added that the cereal maker will not suffer any irreparable injury as it is indebted to the lender.
The cereal maker moved to court in February and obtained a temporary order, blocking the two receiver managers from taking over its assets, over the loans, which were advanced to the company in November 2013 and October 2015.
Proctor & Allan further sought orders restraining the receiver managers from interfering with the company’s operations, including denying access to its directors and authorised officials to company premises, records, funds, bank accounts, and business affairs.
Mr Stephen Kyalo Nthei, a director of the company, said the firm secured credit facilities of Sh1.67 billion and that it had already repaid more than Sh506 million.
The loans were secured by various fixed and floating charges over the firm’s assets, including real property, plant, machinery, intellectual property, contracts, and receivables.
Mr Kyalo said the company was engaged in an active investor acquisition process to raise funds for repayment, information that KCB Bank was aware of, as the investor was willing to pump in Sh1.25 billion.
He said that in a letter on December 10, 2024, KCB Bank was informed that the firm had completed the due diligence exercise and that a day later, the lender acknowledged the investor’s interest to continue with the transaction and a request for a 30-day extension for financial closure.
Mr Kyalo contended that despite full disclosure and good faith cooperation, KCB Bank issued a demand notice on January 24, 2025, for Sh1 billion.
The director said the firm sought a further extension on behalf of its investor and even explored another capital investment option with an investor interested in purchasing the business at Sh800 million.
However, KCB Bank allegedly ignored the request and instead issued another demand on February 21, 2025, for Sh4.9 billion, which was far above the previously agreed figure.
Mr Kyalo said KCB Bank went ahead and appointed the receiver managers, resulting in summary termination on the same day of the services of all its employees without notice.
He contended that the appointment of receivers was premature, invalid, and done in bad faith. Mr Kyalo further disputed the alleged debt and asserted that the actual agreed amount was Sh1 billion.
In March, he said the bank also issued a statutory notice under the Land Act to sell the charged property in Limuru Town.
The firm said the ongoing supplier contract breaches may trigger litigation and financial ruin for Proctor & Allan, claiming that the harm could not be compensated by an award of damages.
KCB Bank opposed the case, arguing that it allowed time for a potential settlement through an investor, Equatorial Nut Processors Ltd, and even entered into a settlement agreement with the firm in August 2024, agreeing to payment of a compromised amount of Sh1 billion.
The amount, the court heard, was to be paid by November 30, 2024, but the company breached the agreement by failing to pay or provide proof of funds.
The lender said a new investor by the name Broadway Bakery Limited later proposed an offer of Sh800 million, which it rejected for being below the agreed settlement figure.
KCB Bank said that following the continued non-compliance, it issued a final demand, but the company failed to comply.
According to the bank, it acted within its contractual rights as the cereal maker has been in breach since 2022.
KCB Bank said receivership was its only viable remedy for debt recovery since the company’s actions risked dissipation of assets to its detriment.
The judge struck out Proctor & Allan’s case, stating that its directors should have sought authority from the receiver managers or the court before filing the case.
