Equity Bank #ticker:EQTY chairman Peter Munga has lost his bid to dismiss a bankruptcy petition that a Mauritian private equity fund filed accusing him of refusing to repay a $590,000 (Sh60.7 million) loan advanced to his company four years ago.
Mr Munga’s quest to dislodge the petition suffered a fatal blow when the judge allowed African Seed Investment Fund LLC’s case to proceed, arguing that the Equity chairman did not produce enough evidence to dispute the Mauritian fund’s claim.
High Court judge Louis Onguto dismissed Mr Munga’s argument that African Seed should have pursued Freshco Limited, a firm he fully owns, before lodging the bankruptcy suit.
The Sh60.7 million loan was extended to Freshco in five instalments between March and September 2013, according to court documents.
The loan was to attract interest at the rate of 6.5 per cent per annum and was secured by a debenture on all of Freshco’s assets, alongside Mr Munga’s personal guarantee as a director of the firm.
Mr Munga had argued in his application that African Seed has never taken steps to recover the debt from Freshco, whose assets are sufficient to cover the debt.
The Equity chairman added that African Seed had overstated the amount owed, and that the bankruptcy petition was only aimed at embarrassing and arm-twisting him into paying the disputed debt.
Justice Onguto, however, ruled that Mr Munga did not produce enough evidence to dispute African Seed’s claim.
The judge added that African Seed had a free hand to choose between realising security issued by Freshco or demanding payment from Mr Munga.
“The debt was disputed but I have not found that it was disputed on substantial grounds. Mr Munga has not shown any substantial grounds for disputing the debt. By contrast, African Seed has shown that the debt was clearly owed.
“Freshco opted to call in the guarantee and no payment has been made. The mere existence of a secured remedy against another party is not a substantial ground for refusing to allow a creditor to pursue a remedy in bankruptcy against a guarantor,” Justice Onguto ruled.
The ruling means that the judge will proceed to hear and determine whether Mr Munga should be declared bankrupt for failing to repay the debt claimed by African Seed.
African Seed has also filed a separate bankruptcy petition against James Karanja, Mr Munga’s co-director at Freshco. Mr Karanja issued a similar guarantee to Freshco.
Mr Karanja, also Freshco’s CEO, has filed an application similar to Mr Munga’s, arguing that the Mauritian fund should have pursued Freshco before filing for bankruptcy against him.
He insists that African Seed has overstated the amount owed, and that the suit is aimed at embarrassing him as well.
“The statutory demand herein issued is solely to publicly embarrass me as there are other forms of execution available to African Seed, this being the most draconian,” Mr Karanja said.
But African Seed says the application is similar to the one Mr Munga filed and should be dismissed on the same grounds.
The petition against Mr Karanja is before another judge, Grace Nzioka.