SBM Bank has lost a bid to join a case filed by Ecobank seeking to place East African Cables Limited #ticker:CABL under receivership over a Sh190 million loan.
SBM wanted to join the case as it seeks to recover Sh285 million from the electrical cables maker and have the receivership stopped in preference for its suit where it’s seeking to liquidate East African Cables.
But Justice David Majanja ruled that being an unsecured creditor, SBM has no interest in the firm’s property secured in favour of Ecobank. The legal action has been taken under the Insolvency Act 2015, which provides directions for resolving companies unable to pay their obligations.
EA Cables is part of a group of companies owned by investment firm TransCentury and which have struggled to pay various creditors including bondholders and banks. “Neither administrator nor liquidator, if appointed in the insolvency petition would have an interest in the secured property of the company (cable firm),” the judge said. “I therefore find and hold that the SBM has not established a legally recognised interest in these proceedings. There are no common issues of law and fact and interest in relief...hence SBM cannot be joined to these proceedings,” said justice Majanja.
The cable firm is said to have obtained various banking facilities from Ecobank in 2011 and 2013, totalling to Sh350 million.
In December, SBM filed the insolvency petition, which triggered Ecobank to demand Sh190,536,400 from East African Cables. Ecobank then appointed Mr Kereto Marima as the receiver manager. The cable firm, however, moved to court to challenge the receiver and as the case was pending, SBM sought to join the petition to consolidate all other cases filed against the manufacturer.
The cable manufacturer’s biggest lenders, the Kenyan and Tanzanian branches of Standard Bank Plc, last year agreed to take a haircut on Sh1.56 billion and were paid Sh1.6 billion as final settlement.
EA Cables took new loans from Equity Bank and used the amounts to pay off StanChart. It disclosed negotiations with Equity Bank to also settle the remaining claims by SBM (Sh285 million) and Ecobank Kenya (Sh161 million).
SBM and Ecobank moves suggest that the cables manufacturer has been unable to restructure the remaining loans.
Prior to taking over the loans from its rivals, Equity Bank had lent more than Sh2 billion to EA Cables. Most of the cables manufacturer’s assets are pledged to Equity Bank.
Its short-term liabilities, for instance, exceeded current assets by Sh3.2 billion in the year ended December 2018.
It made a net loss of Sh568.3 million in the review period, narrowing the negative earnings from Sh662.8 million the year before.