The High Court has cleared Stanbic Bank Kenya to auction a Sh3.17 billion edible oil plant that was under construction in Athi River after dismissing financier Fredwoods Traders Company’s attempt to block the sale.
The court lifted the temporary orders stopping the auction, dealing a major setback to Fredwoods’ claim to priority over the asset.
Fredwoods had argued that it deserved first claim on the Export Processing Zone (EPZ) plant, having advanced Sh1.25 billion to Convex Commodity Merchants Ltd in March 2023 to construct the manufacturing plant. The project did not fully materialise due to financial constraints.
The financier claimed it had funded the construction and that a premature auction would render its investment unrecoverable.
However, Stanbic successfully countered that Fredwoods’ financing agreement lacked execution, registration, and proof of funds disbursement.
The bank also revealed that Convex had previously lost identical injunction bids at the High Court and Court of Appeal, accusing Fredwoods of “forum shopping” by concealing this history.
“The plaintiff’s purported lien, being unregistered and unsupported by any registrable instrument, cannot override the bank’s statutory power of sale,” the court ruled, citing land laws.
Stanbic’s manager for non-performing loans testified that Convex had defaulted on loans secured by registered charges over the EPZ land, an all-assets debenture, and directors’ guarantees.
The arrears totalled Sh3.17 billion and $21,904 (Sh2.8 million), triggering statutory sale notices.
The court dismissed Fredwoods’ claim that the property was undervalued at Sh2.2 billion against an independent valuation of Sh7.2 billion, noting that valuation disputes cannot halt a lender’s recovery rights in the absence of proof of bad faith.
“A chargee’s right to realise security cannot be lightly curtailed,” the court emphasised, adding that Fredwoods’ alleged losses —being monetary— could be remedied via damages if its case succeeded.
The court upheld the bank’s precedence in enforcing registered securities over unperfected creditor claims.
While declining to strike out the case entirely, the court allowed Stanbic to proceed with the auction, marking a decisive win for lenders amid rising non-performing loans in Kenya’s manufacturing sector.
The dispute stems from Stanbic’s Sh1.5 billion loan to Convex in December 2020 to construct the EPZ processing plant. The owner, James Waithaka, blamed Covid-19 pandemic disruptions for construction delays and financial troubles that saw Convex divert trading funds to sustain the project.
Stanbic moved to recover its debt through Garam Investments Auctioneers in June 2023 after Convex failed to secure repayment moratoriums from both the High Court and Court of Appeal.
