ABC, I&M banks in Sh1.3bn fight for control of gas firm

I&M #ticker:I&M and ABC banks are locked in a bitter fight for control of a firm that the Kenyan government contracted to supply cheap cooking gas cylinders for poor households.

The banks, which had advanced Allied East Africa loans totalling more than Sh1.3 billion, have both laid claim to the firm, seeking to recover their money.

Allied East Africa owes I&M Bank Sh1.295 billion, while ABC Bank loaned the company Sh60 million.

ABC on November 15 appointed Julius Mumo Ngonga and Anthony Makenzi Muthusi of consulting firm Ernst & Young as administrators of the firm and subsequently filed a notice at the High Court on November 19, kicking off the battle with I&M.

On November 28, I&M got court orders restraining ABC from continuing with administration of the firm pending determination of the objection it had filed.

Allied East Africa is the lead supplier in a consortium of four firms that won the tender to supply gas cylinders for the government-backed affordable gas project.

I&M had told court that the loan agreement that ABC had signed does not expressly give it authority to appoint an administrator in the event of default.

I&M further reckons that its Sh1.295 billion debt means its exposure to Allied East Africa is much higher than ABC’s Sh60 million.

It argued that replacing the administrators appointed by ABC with its own would better secure the interest of all creditors. Having secured the first court victory over ABC, I&M on November 30 returned to court with a fresh application.

The bank told the court that the order suspending the ABC-appointed administrators had left a vacuum that needed to be filled because no one was available to run the affairs of the company.

I&M therefore asked the court to appoint P.V.R Rao or the official government receiver Mark Gakuru as interim administrators, a prayer that the court granted on December 3.
The court further directed the newly appointed administrators to file in court reports on the affairs of the company every two weeks.

Documents filed in court show that the battle for Allied East Africa began on November 15 when I&M informed ABC of its intention to place the gas firm under receivership after it defaulted on a Sh1.295 billion loan.

The day after, ABC placed Allied East Africa under administration and appointed consulting firm Ernst & Young as administrator, before subsequently filing a notice in court on November 19.

ABC has objected to the turn of events in court that led to suspension of its administrators from the gas firm. ABC accused I&M of misleading the court by failing to disclose material facts.

The bank claims that it holds a debenture that gives it priority among all creditors of the gas firm.

The lender further claims that Allied East Africa has never validated its company registration on e-Citizen platform since it changed its name from Hillport Limited.

ABC reckons that it registered its floating debenture on July 8, 2014 under Hillport Limited since Allied East Africa was not a recognised entity and remains an unregistered corporate body.

ABC alleges that I&M having indicated that it has a loan agreement with Allied East Africa makes the deal defective since the firm is not a recognised legal entity.
ABC further claims that Allied East Africa had sought its permission to take a loan from I&M prior to inking the deal in March 2017.

The bank pleaded with court to reinstate its administrators, arguing that I&M’s application was made in bad faith. ABC further insists that its administrators had taken over the running of the business and should have been left to continue.

The government had awarded Allied East Africa a contract to supply 148,750 gas cylinders valued at Sh327 million ($3.27 million) but the company only delivered 61,380 cylinders, 47,534 of which were rejected for being faulty.

The High Court in a separate suit filed by Consumers Federation of Kenya (Cofek) suspended the cheaper gas project and directed the government not to use public funds to repair the faulty cylinders until the matter is heard and determined on March 19 next year.

The Director of Criminal Investigations also ordered a probe into how fraudulent suppliers delivered faulty gas cylinders in a government project designed to provide poor homes with cheaper cooking gas.

Under the Sh3 billion plan, dubbed the Mwananchi Gas Project, the households were to receive 6kg cooking gas cylinders and burners at a discounted price of Sh2,000.