BY SAM ALFAN.
West Kenya Sugar has welcomed a High Court decision cancelling 20-year-lease awarded to Sarrai Group of Uganda and the removal of KCB appointed receiver manager PVR Rao.
Through lead counsel Paul Muite and Martin Gitonga, the company said the decision was a breakthrough because the leasing process was shrouded in mystery and had to be cancelled.
Dubai based company- Vartox Resources Inc through lawyer Ismael Abbas also hailed the decision saying it was historic.
In the decision on Thursday, Commercial Division Judge Alfred Mabea revoked the 20-year lease for the management of Mumias Sugar, which had been awarded to Sarrai Group. The Judge appointed Kereto Marima as the new administrator.
Muite said the decision was a win for the public, especially the people of Kakamega County who depend on sugarcane farming for a living.
“Mumias is a major anchor for the economy of Kakamega County and there never was no rational basis for Rao to have awarded the lease to the lowest bidder Sarrai Group at Sh6 billion when the highest bidder had put in a bid at Sh.36 billion,” Muite SC said.
Veteran Senior Counsel said Rao never explained why he didn’t award the lease to other highest bidder, after failing to give the lease to West Kenya Sugar Company.
“If for whatever reasons Rao did not wish to give the lease to the highest bidder at Sh.36 billion, he had never explained why he didn’t award the lease to the second, third, fourth and others bidder who had placed high bids than Sarrai Group and went direct to give Sarrai who was the sixth lowest bidder,” he added.
He said there must have been extraneous consideration for Rao to award the lease to the Ugandan sugar firm.
SC Muite reiterated that KCB CEO should explain to Kenyans why he gave a greenlight to Rao to award the lease to lowest bidder the Sarrai Group. He added that Rao could not have proceeded to give the Sarrai Group the lease without the greenlight from KCB CEO Joshua Oigara.
“With Sh.6 billion KCB would not have been repaid the money they are owed by Mumias Company during the 20 year old lease period. Why would KCB sanctioned a lease that would not have secured the payments of money owed to them?” Muite wondered.
The veteran lawyer said this is a public interest dimension that taxpayers’ money won’t go down to drain.
“It is expected the new court appointed administrator will act transparently and with the best interests of Mumias at heart and when this is done there can be no doubt Mumias will be on its feet again and all creditors unsecured and secured will be paid their debt. The interest of shareholders including Kenyans taxpayers, their interest will be taken care off,” Muite added.
He said it was amazing the county of Kakamega including some leading politicians were supporting this lease given to the lowest bidder compromising the interests of farmers and the economy of the County.
Lawyer Gitonga said West Kenya raised pertinent questions as to how the lease was awarded to the lowest bidder as opposed to the highest bidder.
“The court has made scathing remarks on the conduct of the receiver and KCB as it were. We have been vindicated, we consider the position of West Kenya Sugar has been vindicated and we are looking forward to a proper administration process that is fair and is in accordance with the law by the new administrator,” said lawyer Gitonga.
Abbas on his part said Rao has been operating affairs of Mumias Sugar with impunity and all his actions in the way he leased the assets of the ailing miller, were shrouded with secrecy.
“Today court has emphatically found that Rao did exactly the opposite. In fact the court has stated that Rao was acting with impunity and all his actions were to ensure Mumias is perpetually in debt and it never got itself out of the chuckles of receivership”, said lawyer Ishmael.
He said that Mumias was given away to foreigners so that foreigners can cannibalize all its assets, because the important point the judge noted is that the lease of Sh19.5 million is a gross undervalue.
“Despite the existence of higher bids, how could Rao have ignored all those bids? And for the West Kenya Sugar who was the highest bidder, the judge has emphatically said Rao could not usurp the role of Competition Authority,” Abbas said.
He said it was a historical day for insolvency practice in Kenya because the judge said that insolvencies are not going to be managed the way Rao has done.
He added that they hope the new administrator will help creditors gain confidence which Rao had destroyed.
In a hard hitting ruling ,the Ugandan firm Sarrai Group was further ordered to vacate Mumias Sugar Company premises and for RAO to hand over to the new receiver in an orderly manner within seven days.
Justice Alfred Mabeya accused RAO of wanting to use Mumias as his retirement home.
Court noted that leasing the sugar company for 20 billion meant that it would permanently remain an asset to kCB and would not be able to repay a single creditor.
“His actions was only meant to protect the interest of KCB and if the lease is upheld, it would be tantamount to blessing KCB with an asset known as Mumias,” the Judge said.
Court added that Rao was conflicted as both an administrator and a receiver-manager.
In its ruling, the court noted that a simple calculation would show that, leasing Mumias at Sh 5.8 billion for 20 years, Mumias would perpetually remain under receivership and administration. It would permanently remain an asset under KCB and be a retirement place for Rao.
The latter would superintend administration and receivership for 20years and yet not be able to fully repay a single creditor. That won’t do.
The Judge said the above circumstances justified the Court to interfere with the administration.
“It is trite that the threshold for interference is a high one, and an administrator is generally given a wide measure of latitude when exercising his duties and powers and the Courts will only intervene in circumstances where an administrator is proposing to take a course of action which is based on either the wrong appreciation of the law or is conspicuously unfair to a particular creditor or creditors of the company”, he said
Justice Mabaye said that the Lease meets the standard of unfair harm and it only favours KCB and unfairly prejudices other creditors. At best, it is an undervalue entered into without previous valuation or expert consultation on market value.
“Under no circumstances can the Lease purport to be in the best interests of Mumias as an ongoing concern and it will only bind Mumias in a never ending receivership and administration which at the end will not have paid off Mumias debts”, Judge observed.
Simply putting, the Lease does not promote the purpose of Mumias’ administration and it is the court’s finding that the lease meets the threshold to be interfered with.”In the circumstances, the Court will interfere with Rao’s administration and cancel the Lease”.
