Foreign administrators of a secret slush fund that CMC Motors’ bosses set up in Jersey Island have moved to court seeking damages from the former directors for using them as a conduit to illegally enrich themselves.
RBC Trust Company and Regent Trust, which provided corporate services for the CMC slush fund, have successfully won a bid to enjoin former CMC chairman Jeremiah Kiereini, former Attorney-General Charles Njonjo, former CMC chief executive Martin Forster and the estates of founder, Jack Mordejay Benzima and businessman Prahlai Kalyani Jani (both deceased).
The administrators also want the former CMC directors to refund the auto dealer more than £5 million (Sh640 million) that was paid to the board members from the secret slush fund that was financed through inflated invoice prices for imported vehicles and parts.
The Royal Court of Jersey has allowed the trustees of the scheme to seek indemnity from the former CMC chiefs — referred to as core defaulting directors — who benefited from the illegal fund.
“The second and third defendants (RBC and Regent Trust) do have a prima facie case in the sense that they have a case which is arguable to seek a contribution or an indemnity on the basis of unjust enrichment,” ruled Matthew John Thompson, master of the Royal Court.
The court said it was free to use its inherent jurisdiction to apportion liability between RBC and Regent Trust as well as the core defaulting directors as third parties on the basis of unjust enrichment.
The Jersey court ruled that the former CMC directors be served the ruling ‘through a process agent given that Kenya is a Commonwealth country’ and scheduled Mr Kiereini, Mr Njonjo and Mr Forster to appear in court.
“Each of the core defaulting directors is liable to account for any sums actually received pursuant to the alleged scheme, and to repay the same to the plaintiffs (CMC Holdings), with compound or alternatively with simple interest calculated for the date of each payment,” the trustees say.
CMC Holdings moved to the Royal Court of Jersey in mid-2016 seeking to recover more than £5 million, plus interest, from the trustees of the secret scheme as well as Mr Forster, citing breach of fiduciary duty.
Court papers show that the CMC directors received secret commissions from the slush fund between 1977 and 2011, before former chief executive Bill Lay lifted the lid on the underground scheme.
Mr Lay, who became CMC CEO in May 2011, told the court in his affidavit that he unearthed the scheme upon assuming leadership of the company and contacted RBC Trust and Regent Trust, who voluntarily disclosed 29 files relating to the phony slush fund.
The auto firm’s directors orchestrated a scheme where overseas suppliers of motor vehicles invoiced CMC Motors for amounts greater than the true price of vehicles, inflated at between one per cent and two per cent, according to court documents.
The overstated amounts were secretly siphoned to bank accounts in Jersey operated by CMC directors, the court was told, and the cash was wired to them semi-annually as salary increments and bonuses.
RBC Trust and Regent Trust have denied assisting the CMC directors to unjustly enrich themselves. Instead, the trustees accuse Mr Kiereini, Mr Njonjo, Mr Forster and the estates of Benzimra and Jani of breaching their fiduciary duties as CMC directors.
“The core defaulting directors are the persons primarily liable for the said breaches of duty,” said RBC Trust and Regent Trust in their filings.
But CMC Holdings has also made a claim against the trustees, “for their dishonest assistance in those breaches” and is seeking damages. Court papers show the CMC directors set up multiple offshore companies to receive the secret payments.
Corival Overseas Investments Inc., registered in Panama, received the scheme’s funds between 1977 and 1984.
It was replaced by Corival Overseas Investments Inc., registered in Liberia, which ran the show till 1998. Others were Fair Valley Investments Inc. (1981 to 1999), and Jersey-based The Fairvalley Trust (1989 to present).
Corival 1996 Ltd, a Jersey based firm incorporated on November 12, 1996 and dissolved on June 16, 2007; and CMC Group Ltd, a British Virgin Islands company set up in December 1999 and dissolved in 2007 were also used.