The High Court has ordered the liquidation of investment projects owned by Cytonn Real Estate, allowing the sale of its properties in an effort to recover more than Sh14 billion the firm owes 4,000 investors.
Justice Alfred Mabeya also ordered the preservation of the company’s assets and housing projects identified as “the Alma, Applewood/Miotoni, Riverrun, Ridge and Taraji” until the liquidation is concluded.
The court noted that more than 3,000 members of the public sank in excess of Sh11 billion through Cytonn High Yield Solutions (CHYS) and 886 others invested more than Sh4 billion in the Cytonn Real Estate Project Notes (CPN).
“The court must be sensitive and alive to the plight of over 3,000 members of the public who sank their over Sh11 billion and 886 others whose over Sh4 billion was sunk into these projects and therefore lean towards a lesser evil, which is to preserve those assets for the time being,” he stated.
The ruling paves the way for the sale of Cytonn properties to recover the sums owed to the investors who have been complaining for more than five years about frustrations and delayed returns of their investments.
In declining to extend Cytonn’s Administration, Justice Mabeya said that there was no way that the firm’s fortunes could be turned around as the Administrator had confirmed that the company has no credible funding source.
“It is not in dispute that Cytonn Real Estate Project Notes (CPN) is seriously ailing and the Creditors have suffered and continue to suffer as CPN is unable to pay what it owes them. The Court is therefore of the view that the viable option would be to liquidate the company and to appoint a Liquidator who will have the interests of the Creditors at heart,” Justice Mabeya said in his judgment delivered on January 6.
In 2021, Cytonn asked to be placed under administration on grounds that it had capital contributions from 886 investors amounting to Sh4,180,992,923.
The court granted the Administration Order and Kereto Marima, who had been proposed by CPN directors, was appointed as the Administrator.
But in a 2022 application, creditors of CPN sought the court to terminate and lift the company’s Administration orders.
The creditors alleged that the Administrator had not undertaken anything substantial in the administration process and that he had failed to reveal to the Court that he was associated with CPN, having engaged in business with the company two months before his appointment as an Administrator.
The creditors also sought the court’s intervention in the preservation of four projects: Cytonn Integrated Project LLP, Cytonn Investments Partners 18 LLP, Cytonn Investments Partners Five LLP, Cytonn Partners Eleven LLP and Cytonn Investments Partners 10 LLP.
The creditors argued that the management of CPN was still in control of the company even with the Administration order in place. CPN was still engaging in conversions and advertising the sale of some of its assets.
CPN, through an affidavit sworn by Edwin Dande, averred that the Special Purpose Vehicles (SPVs) were separate legal entities from CPN and were not under its administration. CPN stated that it was owed more than Sh3 billion by the five SPVs.
CPN stated that it was a collection basket which collected funds raised by investors and the SPVs would then borrow from them in the form of Loan Notes.
CPN argued that the SPVs were being condemned without being heard. However, the creditors argued that the directors of CPN were still in full control of the SPVs.
In opposing the application by the creditors, the Administrator argued that the only assets that CPN had were the loan notes and he had been unsuccessful in getting the repayment of the loan notes from the SPVs.
He defended himself by saying that his Statement of Proposal had shown that CPN did not have any available credible funding model and its principal partner, Cytonn Investment Management Plc, had resolved to wind down the fund.
Justice Mabeya found that the Administrator had failed to tell the creditors the assets of CPN that were under his control and what he was doing to protect the interest of the creditors.
“The Administration of Cytonn High Yield Solutions (CHYS) and Cytonn Real Estate Project Notes (CPN) is hereby terminated and is placed under liquidation,” said Justice Mabeya.
The court also appointed an official receiver as the liquidator of the company following a finding that Mr Marima had links with promoters of CPN and CHYS to the detriment of the creditors.
The court acknowledged that CPN was still under the administration of its directors despite the administration order being in place.
“It is, therefore, no wonder that even after the Administration order, Edwin Harold Dayan Dande, who describes himself as the Chief Executive Officer of CIMP is the one swearing and filing affidavits,” the court noted.
The court refuted claims by Cytonn that the SPVs were different entities and stated that the projects were under the control of Cytonn Properties.
“It may be that the said entities are separate and independent of the CPN but not the projects. All of them are CYTONNS.”
Among the creditors are retirees and entrepreneurs. Some sued and others lodged petitions at the National Assembly following fears of losing their funds.
The judge further ordered that all other legal proceedings against Cytonn be suspended to await liquidation and that those claims be lodged with and be proved before the liquidator.
Some of the projects undertaken by Cytonn were houses in gated communities in high-end districts such as Karen targeting clients who would purchase houses off-plan.
