Cytonn, creditors suffer a streak of losses at the Court of Appeal

When it rains, it pours, so they say.

This statement resonates too well with Cytonn Investment Management Limited (CIML) director Edwin Dande and some creditors after losing 23 appeals.

Court of Appeal judges Patrick Kiage, George Odunga and Jamila Mohammed upheld the finding by High Court judge Alfred Mabeya, that special-purpose vehicles that were at the heart of Sh 11 billion saga ought to have proved that the finances Cytonn was using were to acquire properties as a result of contributions by third parties.

The judges also upheld another ruling by the same judge, paving the way for liquidation.

The Court of Appeal further upheld Justice Mabeya’s orders, terminating the administration process, and instead ordered that all properties and documents be handed over to the official receiver manager.

They then found no fault in Justice Freda Mugambi’s verdict, allowing the receiver manager to take over properties and evict Cytonn Investment. The properties included Ridge, Applewood Miotoni, Taraji, Cysuites, Riverrun, Athi River and Newtown.

“Having considered these appeals, we find no merit in them and consequently dismiss them all with costs to the respondent and the creditor’s committee,” the bench headed by Justice Kiage decreed.

The judgments by the three now pave the way for the folding and sale of prime assets of two Cytonn real estate funds after the administrator failed to salvage them.

Justice Mabeya declined to extend the administrator’s term. The court noted that Cytonn High Yields Solutions LLP (CHYS) and Cytonn Real Estate Project Notes LLP (CPN) are seriously ailing, and the only viable option is to wind them down.

They observed that the prime movers of the two firms were CIML and Dande, and once the money was collected, it would be ‘loaned’ to the SPVs, which CIML established. The vehicles were then supposed to identify projects into which the collected money was to be invested, and then the ‘loan’ ought to be secured by legal charges on the projects.

The judges, however, noted this was not done while CIML executed a guarantee in favour of the investors.

And when things went south for CHYS and CPN, Dande and CIML sought the court’s protection by proposing an administrator to take over the two SPVs.

However, the trio said, it would emerge that the administrator had been retained by the two SPVs before his appointment. They said the same was never disclosed.

Nevertheless, the administrator recommended that the two should fold as they could not be sustained.

“In these circumstances, surely the learned judge cannot be faulted for concluding that the manner in which CHYS, CPN and the SPVs were conducting themselves was akin to fraud. Since there was no express finding of fraud, the stringent standard of proof required in findings of fraud was not applicable… Looked at wholistically, the learned judge cannot be faulted for arriving at that conclusion, which was not the same thing as saying that the two entities were involved in fraud,” ruled the Court of Appeal judges.

The three judges were determining a cocktail of appeals filed by Cytonn Investments Partners Sixteen LLP, Goal Advisory Africa Limited (trustee), CIML and Cytonn Integrated Project LLP against the official receiver.

Others are Benedicta Mukulu Musembi and 24 others, Charles Wambu and six others, Pokamu Ventures Limited (now Rudium Holdings Limited and eight others, Ephraim Karangi, Cytonn Investment Partners Four LLP and 10 others, Mamelodi Holdings Company and seven others, Goal Advisory Africa Limited who sued as the trustee of CHYS, Valerina Jiwa and 289 others who sued the official receiver, Cytonn Integrated Project and SBM Bank.

In addition, another appeal was filed by CIMP against the official receiver. Then there was Cytonn Investment Partners Five (CIP5 LLP), Cytonn Investment Partners Twelve (CIP12 LLP against the official receiver, and Cytonn Investment Partners Sixteen LLP, CIMP against the official receiver.

Before the Court of Appeal, they faulted the High Court judges for their findings on the SPVs and insolvency, accused Justice Mabeya of bias and making comments which allegedly influenced public perception, and allegedly undermining their right to a fair hearing. They also claimed Justice Mugambi had no power to order for eviction.

At the High Court, Justice Mabeya observed that CHYS went under with Sh11 billion owed to creditors, while at least 886 members of the public were enticed to invest their money in CPN.

The firm owes Sh3.6 billion broken down into Cytonn Integrated Project LLP (The Alma) at Sh562,326, Cytonn Investments Partners 18 LLP, (Applewood/Miotoni) at Sh 177 million, Cytonn Investments Partners Five LLP, (Riverrun) at Sh 119 million, Cytonn Partners, Eleven LLP, (Ridge) at Sh861 million and Cytonn Investments Partners 10 LLP (Taraji) at Sh1.6 billion.

In a revelation regarding the dealings by CPN, the judge stated that investors’ hope of retrieving their money was based on mere papers. He said projects under CPN had sunk more than Sh4 billion.

“There is evidence on record that the monies paid by the creditors of CPN were sunk in these projects and all that CPN has in its possession are mere pieces of paper called Loan Notes for the same. There are no securities held by way of charges for what the investors sunk in CPN who in turn sunk the same into these projects,” said Mabeya.

In the case, the administrator admitted that CPN couldn’t be rescued as a going concern because it has no credible funding model.

Following the admission, the judge ordered that the administrator surrender all the properties under CPN to the official receiver, together with the administration documents.

“In this regard, there is no likelihood of turning the company around and therefore, there is no justification for extending the term of the administrator or appointing a new one,” he ruled.

On CHYS, the judge said that the administrator had not taken care of the creditors’ interests as the administration was still in its initial stages.

According to the judge, the administrator was rooting for the promoters of CHYS as there was no security for the loans handed to eleven special purpose vehicles (SPVs).

“He is dilly-dallying and doing absolutely nothing towards achieving any of the objectives of the Administration. He stated that he only had Loan Notes given by SPVs, which he had demanded but received nothing,” said Justice Mabeya.