Uchumi wins battle with UBA for Sh2.8bn land cash

What you need to know:

The claim by UBA Bank, which is one of the Uchumi Supermarkets creditors, was dismissed on the basis that the land is owned by a subsidiary of the retailer that was not party to the court case.
Justice Mary Kasango dismissed the application in which the lender wanted access to proceeds of the sale on grounds that Kasarani Mall Limited is a separate legal entity from Uchumi, which is facing an insolvency petition.
UBA Bank told the court that the troubled retailer has entered into an agreement with Jewel Complex Limited to sell the land for Sh2.8 billion and that a Sh330 million deposit has already been paid.
The bank sought transfer of the Sh330 million and any further payment of Sh2.8 billion to the court for purposes of paying all creditors who are enjoined in an ongoing winding up petition.

Uchumi Supermarkets revival efforts got a shot in the arm after the High Court dismissed an application by UBA Bank seeking a priority share from the anticipated Sh2.8 billion sale of the retail chain’s prime land in Kasarani.

The claim by UBA Bank, which is one of the Uchumi Supermarkets creditors, was dismissed on the basis that the land is owned by a subsidiary of the retailer that was not party to the court case.

Justice Mary Kasango dismissed the application in which the lender wanted access to proceeds of the sale on grounds that Kasarani Mall Limited is a separate legal entity from Uchumi, which is facing an insolvency petition.

UBA Bank told the court that the troubled retailer has entered into an agreement with Jewel Complex Limited to sell the land for Sh2.8 billion and that a Sh330 million deposit has already been paid.

The bank sought transfer of the Sh330 million and any further payment of Sh2.8 billion to the court for purposes of paying all creditors who are enjoined in an ongoing winding up petition.

“The preliminary objection filed by Kasarani Mall Ltd dated November 27, 2018 is upheld. Accordingly, the notice of motion dated November 12, 2018 is hereby struck out with costs,” ordered Justice Kasango.

In her ruling, the judge noted that Kasarani Mall Limited cannot be enjoined in a suit seeking to wind up another separate legal entity unless it is a creditor.

The judge also directed UBA Bank to settle the costs incurred by Kasarani Mall Ltd defending itself against being enjoined in the suit.

UBA had told the court that Kasarani Mall Limited is fully owned by Uchumi, and therefore any proceeds from the land should be preserved.

Uchumi, however, argued that Kasarani Mall Limited is not a debtor in the winding up petition before the court because it is a separate legal entity and that whether or not a sale of one of its assets was disclosed is therefore immaterial.

The retail chain, which owes suppliers over Sh3.6 billion, further noted that UBA got the confidential information after it pressured Uchumi to demonstrate how the company intended to optimise its operations. Uchumi’s management had in the past revealed plans to use proceeds of the sale to shore up its flagging operations and pay certain unsecured creditors.

UBA has been seeking to dispose of Uchumi’s land situated along Nairobi’s Langata Road to settle a Sh172 million debt, but the retail chain obtained orders restraining all creditors from auctioning its properties.

The bank now wants the order restraining it from disposing off the Langata land vacated, arguing that Uchumi failed to disclose that it was in the process of selling its assets when it obtained the orders.

Uchumi says sale of any asset to enable the company run as a going concern or optimise the funds available to creditors is in alignment with the objectives of the Insolvency Act.

The firm has been fighting creditors to stave off an ongoing scramble for its assets.

Claims filed against the struggling retail chain in the ongoing winding up petition are approaching the Sh900 million mark with 34 companies having joined the petition filed by Githunguri Dairy Farmers Co-operative Society.