Nairobi-based investment bank Genghis Capital has won a reprieve after a court rejected an application to freeze its bank accounts over a debt feud with a South African businessman.
Justice Alfred Mabeya rejected the application by Auswel Mashaba, seeking to freeze the bank accounts of Genghis Capital and to block the investment bank from selling its assets.
According to the South African investor, Genghis Capital was disposing of its assets to defeat his pending claim of about Sh355 million.
The judge rejected the application noting that there were proceedings initiated by the investor, seeking to attach Genghis assets.
“Those proceedings are execution in nature. They are meant to sequester accounts of the respondent and recover debts owed to it by either its bankers or its other debtors. I think it will be wrong at the same time to freeze the respondent’s accounts in these proceedings while those
garnishee proceedings are still pending,” Justice Mabeya said.
The judge said his view was to allow the application challenging the demand by Mashaba first before other proceedings are undertaken.
“Accordingly, I find the application dated 15/5/2024 to be without merit and hereby dismiss the same with costs,” said the judge.
Evidence tabled in court showed that the South African loaned the brokerage firm $2,265,000 (Sh293.08 million at current exchange rates) on January 25, 2017.
The amount was allegedly to be repaid with interest at interest rates of 7.25 percent.
The South African later sought a judgment of $3,100,000 (Sh401.13 million) with interest at 7.25 percent until payment in full.
The parties entered a consent on October 18, 2021, for Genghis to pay $2,950,000 (Sh38.71million) with interest accruing at 7.25 percent from October 15, 2020, plus costs of the suit, which were to be agreed upon by the parties, failure to which it shall be taxed.
However, court documents showed that Genghis Capital only paid $1,115,565 (Sh144.35 million).
Mr Mashaba alleged that Genghis Capital was in the process of stripping its assets to defeat his claim.
According to the businessman, the appointment of a liquidator was an available remedy meant to protect the assets of the company where it is demonstrated that a winding-up order would be issued.
He told the court that Genghis Capital engages in robust capital market business and has not paid the debt.
The investor submitted that it has not been demonstrated that the assets were being disposed of with plans to settle his debt.
The capital-markets licensed firm opposed the application through Mr Edward Wachira, who submitted that it was premature as the firm had filed another application, challenging the demand.
Genghis Capital submitted that it had an investment portfolio of Sh2 billion with 152,000 active investors.
He said the order restraining it from accessing its bank accounts would have far-reaching consequences as it would affect its operations. He said the investment bank is required to invest and pay its investors regularly.
Mr Wachira added that third-party investors and the wider banking sector would be negatively affected if the orders sought were issued.
He also submitted that granting the orders sought would be counter-productive as the investment bank was a solvent company.
“In the view of this court, the pendency of that application means that the solvency or otherwise of the company has not been considered and it would be premature to appoint an interim liquidator. It would be presumptuous to do so,” said Justice Mabeya.
According to the judge, such orders can be granted whether there is clear evidence that a company is insolvent. “That is not the case here. The application to set aside the statutory demand must be dealt with first,” said the judge.
He added that the allegations that the company was stripping its assets were not proven. “Allegations based on mere belief are not enough,” Judge Mabeya said.
