Category Archives: Corporate governance

Case Digest – Kenyan Capital Markets Court Cases

Kenya’s Capital Markets Authority (CMA), has published a digest of legal cases that Authority has been involved in, and some of which were later appealed.

The 27 cases cover ten years, and most the largest share involve dealings at  Uchumi and others revolve around executives and directors of CMC, commercial banks, and a handful on rogue stockbrokers who preyed on retail investors during the heyday of the Nairobi Stock Exchange during the IPO listings of Kengen and Safaricom.

Some notable cases include, Solomon Alubala who was fined Ksh 104.8 million and barred from holding a position at a listed firm for ten years, Bernard Mwangi who attended Uchumi board meetings and sold shares while the company was performing poorly, CMA cases versus Jeremiah Kiereini and  Martin Foster, Chairman and CEO of CMC Motors, the CMA versus the Institute of Certified Public Accountants of Kenya (ICPAK) over audits done by its members at CMC, cases involving Chadwick Okumu, CFO of Uchumi, and CMA versus Jonathan Ciano, a CEO who was for a time celebrated for turning round the Uchumi. They also have a case of Alnashir Popat and Imperial Bank directors, and Munir Ahmed MD of National Bank who the CMA fined Kshs 5 million and barred from holding a position at a listed company for three years.

The cases are published in partnership with the National Council for Law Reporting who have an online database of over 124,000 court cases.

Cytonn Investors Briefing

On Thursday, November 8, the board and management of Cytonn Investment had a session with investors at the end of a weeklong series of meetings. Present at the cocktail were managers and directors of different Cytonn companies, a few hundred of the 3,500 Cytonn investors and a team from principal partner Taaleri Africa. 

Prof. Daniel Mugendi, the Cytonn Chairman, spoke of East Africa’s attractiveness to investments as he thanked the management for the growing the relationship with Talleri, which had just resulted in them investing a further Kshs 2 billion in real estate projects with Cytonn as well an interest to buy 20% of Cytonn in an IPO, which the board supported.

Cytonn has several arms including real estate, education, hospitality, asset management (Seriani and Cytonn Asset Managers are being merged next week), high yield solutions, and a diaspora office run from Washington DC. Edwin Dance, the CEO of Cytonn said that funds raised from investors (minimum Kshs 1 million) are primarily (~70%) put into the different real estate projects such as the Alma, Taraji, The Ridge, Newtown (1,000 acres) and RiverRun which are run as independent special purpose vehicles (SPV)] with their own boards and reporting structures.

Dande said Talleri was the first institutional investor to commit to Cytonn as he also saluted some of the early investors and supporters of Cytonn, including the Chairman, who came on board even as its founders were embroiled in a bitter tangle with their former employers.

Kati Salo, a risk specialist with the Taaleri Africa team said they had exited the Amara project successfully and were now back to do more investments with Cytonn and had signed with The Ridge, taking their investment to Kshs 5 billion. She added that they were impressed with the team who had also given them access to management, clients and advisors and had decided to take a stake in Cytonn in the planned listing of the company. Earlier this year, shareholders of Cytonn had approved a listing of the company, and going by the amended resolution, this may not necessarily be on the Nairobi Securities Exchange,GEMS segment.

Mortgage Refinance and Amendments to The CBK Act, 1966

Via a legal alert from Oraro & Company Advocates: The Finance Act, 2018 which was assented to on September 21, 2018, amended the Central Bank of Kenya (CBK) Act, 1966 to regulate Mortgage Finance Businesses (the business). The amendments include having new definitions and the introduction of new powers to the CBK. These amendments came into effect on 1st October, 2018.

New Definitions

  • A Mortgage Refinance Business is defined as the business of providing long-term financing to primary mortgage lenders for housing finance and any other activity that the bank may prescribe from time to time;
  • Mortgage Refinance Company means a non deposit-taking company established under the Companies Act of 2015 and licensed by the CBK to conduct mortgage refinance business;
  • Specified Mortgage Refinance Company means a licensed mortgage refinance company licensed under the CBK Act.

Increased CBK powers

With the introduction of new sections, CBK will now have the power to license and supervise the business. This includes:

  • Determining capital adequacy requirements;
  • Prescribe minimum liquidity requirements and permissible investments for the business;
  • Supervise the business by conducting both on and off-site supervision;
  • Assess the professional capacities of persons managing the business;
  • Approving the board management of the business;
  • Approving the appointment of external auditors;
  • Collecting regular data from the business;
  • Approving the annual audited accounts of the business before publication and presentation at the AGM;
  • Revoke or suspend a license;
  • Receiving reports from the Mortgage Refinance Business.

These are extracts from other documents from Oraro & Company with detailed implications of the passing and presidential assent of the Finance Bill 2018.

Britam vs Cytonn Executives

A dispute between insurance giant Britam and some of its former executives who left the firm and set up a rival investment management firm called Cytonn has been on and off for the last four years. Recently a judge ruled that a criminal case would continue in the courts.

After that decision, Cytonn CEO Edwin Dande issued a personal statement on the long-running case as he set out to absolve Cytonn, which is known for its real estate property developments and financial industry reports, from the case against its four executives who had been at Britam. He writes on the reasons behind the dispute and their departure  which he says was due to insider attempts to destroy a Kshs 5 billion portfolio of client funds that they had brought to Britam (excerpts) :

  • .. the resignation was due to an operating environment that was fraught with illegalities and unethical business practices that we did not agree with…
  • we could not agree to be part of actions such as illegally using client insurance funds to purchase shares of Britam to rescue a failed IPO, we objected to using insurance funds under our management to purchase a failing bank – a transaction that has now led to loss of billions of shillings of investors’ funds..  
  • ..following our resignation, Britam launched a full-scale assault in an attempt to ruin our careers by filing 7 different suits claiming up to Kshs. 9.8 billion in stolen funds… 
  • The suits were obviously malicious and designed to achieve only two objectives: first was to punish the former team for daring to leave as a team, and second was to deter competition.

He writes that his statement was released was to reassure Cytonn’s 500 employees and 3,000 clients who had invested over Kshs 20 billion in various investment products.

Britam has been silent on the dispute other than their 2014 annual report which mentions the litigation; The British-American Asset Managers Limited is the Fund manager of a Limited Liability Partnership (LLP) which has been mandated to invest in property. The LLP loaned Shs 3.9 billion to various third parties to purchase property. The company on behalf of the LLP has instituted legal suits to recover the above amounts plus costs. The court cases are ongoing and we expect that the outcome will be favourable

Both Cytonn’s managers and Britam have separately settled with Acorn that was a partner in the fund-raising plan before the dispute.

EDIT/ Update October 12: The Court of Appeal granted stay orders on October 11, meaning there is no prosecution action against the four Cytonn executives for now.

Karuturi AGM 2018

As workers of the former Karuturi flower farm in Naivasha, Kenya, await the outcome of a new appeal of the long-running court case and receivership, the Karuturi Group held an AGM in India and passed new resolutions to turn round the company.

The Bombay Stock Exchange-listed Karuturi, the world’s largest producer of cut roses, had published an annual report ahead of the AGM. According to the notice and results of the AGM, the Group proposed to increase the authorized share capital of the company to meet their long-term capital requirements.

Karuturi also plans to allocate convertible warrants to new shareholders who are; IBelive Fitness Solutions who may end with 10% if they exercise all options, Eye-3 Info Media who may end with 8% and Srinivasa Retail who will end with 14.3%. Prior to the AGM, the three had no shares in the company while the promoters of Karuturi had 25% and other public shareholders had 75%, including Deutsche Bank with 5%.

Shareholders also voted to appoint Messrs K G Rao and Co as auditors of the company and the notes showed that the previous year’s figures had not been audited by the current year auditors who had then provided a qualified opinion due to non-filing of some tax returns by the holding company. Another resolution was to ratify the appointment of the daughter of the Chairman and MD Sai Rama Karuturi, who had joined the board in September 2017. The resolutions were all passed.

The company has primary borrowings with Axis Bank in India (third largest private bank in the country), ICICI Bank of India, Axis Dubai, and smaller borrowings at the Commercial Bank of Ethiopia, Zemen Bank and Lion Bank in Ethiopia.

The accounts provided an (incorrect) link to the long-running Kenya bank case and receivership in Kenya. There are mentions in the notes that Karuturi Kenya was wound up by a court order of March 2016 and the company did not have any outstanding tax demands in Kenya or Ethiopia 

In a statement, the Board Chairman wrote that the Kenya farm should soon be back in the company’s possession following workers’ protests to various government authorities and media attention fueled by Kenyans on Twitter. On Ethiopia, he welcomed the new leadership of Prime Minister Dr. Abiy Ahmed and mentioned that the company had withdrawn all cases against the government of Ethiopia, paid compensation to the workers, and entered new lease agreements with a view to resuming operations in mid-2019.