The troubled empire of late politician and business tycoon Njenga Karume is facing a litmus test with the planned auction of the prime Jacaranda Hotel in Nairobi to clear a bank loan.
The hotel, which is among the few surviving businesses that the late politician left behind, has been earmarked for sale to recover a Sh257.6 million loan owed to Guaranty Trust Bank.
Karume, a former minister for Defence, died barely seven years ago leaving behind multi-billion shilling properties.
The shrewd businessman had, however, also accumulated a debt load that his family and a board of trustees he appointed to oversee his estate have struggled to clear.
In his prime, Karume was the biggest distributor of beer maker East African Breweries Limited’s #ticker:EABL products, a lucrative, long-term contract that earned him billions of shillings over the years.
The Business Daily has seen a letter written by Regent Auctioneers notifying the management of Jacaranda Hotel, located in the affluent Westlands suburb, of the impending auction.
"We have been advised by our client, Guaranty Trust Bank Ltd, that you are still in arrears amounting to Sh257,645,708.53 as at 5th July 2019. We have set the auction date as 21st July 2019 at our auction mart new Kireita building, Kirinyaga Road, at 11.00am.
If you wish to stop the auction, you will have to pay all the debt due together with the interest and costs incidental thereto," the auctioneers notified the hotel.
The auction notice comes after the Kenya Revenue Authority last year lined up auctioneers to recover value added tax (VAT) and Pay as You Earn (PAYE) arrears amounting to Sh153 million owed by the hotel.
The taxman issued the Jacaranda Hotels Limited with an enforcement notice on January 12, 2018, seeking immediate payment of tax arrears amounting to Sh197 million and on the same day moved to secure goods at the hotel in Westlands, Nairobi, to recover the tax.
The matter was settled after KRA agreed to a repayment plan of Sh50 million monthly instalments and a payoff of Sh7.9 million to auctioneers who had already secured the hotel’s property to recover the tax.
One of the trustees, Mr Kung'u Gatabaki, Tuesday downplayed the auction threat by the bank which he said was ‘fulfilling its regulatory requirements’ in following up on the debt. Mr Gatabaki maintained that the matter was being addressed through the sale of other property to repay the loan.
"We are looking for money to settle them. This is the jewel of the Karume empire and is not to be sold just like that. As trustees, we oversight the board to run the business and I believe they will settle it once we are able to sell the land, which is where we will get the funds to settle our arrears with KRA as well," said Mr Gatabaki in an interview.
Mr Karume’s Village Inn and 11 parcels of land totalling to 111.24 acres in the Kacharoba Farm in Kiambu County were advertised for sale last year in what is said to have caught Mr Karume’s children and their lawyers by surprise.
A mediation council chaired by former ambassador Stephen Karau had a hard time trying to quell an imminent family split over the sale of properties meant to settle some Sh2.5 billion debts owed by the estate.
Karume left the vast estate under the management of trustees before he succumbed to cancer in 2012. The estate has been the subject of a bitter dispute between some of his children and the trustees, spilling even to the court, with the latest effort to call a truce through mediation seemingly faltering.
Estate planning expert Peter Wairegi who wrote the book, Wealth Preservation -- The 7-Key Steps of Effective Wills and Estate Planning Strategy, says handing over the estate to trusts was a good idea, but management of the property is still key to its success or failure.
"Karume’s decision was very important, but as long as the family feels left out or cheated then it will not be a smooth sail.
“It is still an idea not widely understood but a very noble one for people who want their wealth to survive longer after their demise," Mr Wairegi said in an interview.