Why Cofek is seeking impeachment of receivers in Transcentury tax arrears

A receivership dispute between investment holding firm Transcentury PLC and Equity Bank over a Sh6 billion debt has taken a new turn, with a fresh case seeking the removal of the appointed receiver managers.

Equity Bank had appointed George Weru and Muniu Thoithi as receiver managers.

However, Consumer Federation of Kenya (Cofek), in its case filed before the Commercial High Court, wants the two liquidators thrown out.

According to the consumers lobby, Weru and Thoithi have allegedly failed to factor in that Transcentury had unpaid taxes, which made KRA also a creditor.

Cofek sued the two receiver managers, Kenya Revenue Authority (KRA), the National Assembly and the Attorney General.

It also listed Equity and the National Taxpayers Association (NTA) as interested parties.

Cofek accused the receiver managers of failing to balance Equity’s interests against those of the government.

“The first and second defendants, by reason of the circumstances of their appointment and the manner in which they have conducted the receivership, have demonstrated a clear and apparent bias in favour of the first interested party (Equity) and have failed to discharge their duties as quasi-officers of the court with the degree of impartiality, independence and fairness as required by law,” reads part of the lobby’s court papers.

In total, Cofek claimed that Transcentury and its subsidiaries owe KRA Sh1.6 billion. It accused the taxman of failing to pursue the company for the owed amount aggressively.

“The quantum, magnitude and persistent non‑discharge of these statutory obligations place beyond any doubt the fact that these are not mere private commercial claims, but monies owed to the State for the benefit of the Kenyan public, and they therefore cannot lawfully be subordinated to, extinguished by, or relegated beneath the claims of the first interested party in the course of the receivership.”

“The appointment of a privately instructed receiver manager, in circumstances where there are unresolved tax claims by the State, allegations of bias and professional conduct concerns, does not adequately serve the public interest,” argued Cofek.

Transcentury is embroiled in a separate case with Equity over the same two receiver managers. It filed its case claiming that the bank illegally took over their premises and appointed the administrators without due process.

Its lawyer Philip Nyachoti told the court that the forceful takeover had prejudiced and destabilised the company’s operations even after discussing with the bank a road map to repaying the loan.

“The company informed the bank that they are in the final stages of finalising rights issues to the tune of Sh2 billion for purposes of injecting capital into the business and have enough to offset the outstanding loan balance, but they declined,” said Nyachoti.

The dispute dates back to 2013 when the bank advanced a loan totalling Sh12.1 billion ($87 million) to the company between June 2013 and November 2014.

According to the company, they had been paying a substantial amount to repay the loan and had done so until June 2023, when the bank demanded that they settle all the outstanding balance.

Nyachoti argued that the bank did not calculate the correct figure owed to the company, as they demanded Sh6 billion as a balance, which is way above what the company is supposed to pay.

He added that the company has made all efforts to negotiate with the bank for payment readjustments but the bank has declined all the proposals forwarded by them.

Equity Bank through its lawyer Kiragu Kimani said Transcentury had requested for a 24-month moratorium when Equity demanded for the balance on June 8, 2023.

“The plaintiff was under duty to make full and frank disclosure when approaching the court ex-parte. As the plaintiff failed to disclose the information set out here above , the plaintiff did not approach the court with utmost good faith and the interim orders of June 20, 2023 should be set aside,” the senior lawyer argued.

Kimani said the company is likely to dispose its assets if they remain unfrozen and the bank will lose a substantial amount of the unsettled loan.