Ugandan-based
Presiding Judge at the Milimani Commercial Court, Justice
"This court has considered the allegations made against the leasing process. Rao awarded the lease to the lowest bidder while there were higher bidders, without giving any justifiable explanation. He explained that his rejection for the bid of Sh36billion was to avoid monopoly, and that bidder (West
The judge said the court expected Rao to act as a professional insolvency practitioner who would undertake his duties strictly in accordance with statutory provisions of administration and the competition Act, it did not expect him to undertake the duties of the
The judge also noted there were no other reasons given by Rao to explain why all the other bids that were higher than that of
"It would have been essential to even have a pre-evaluation of Mumias which would have informed a result price that would have achieved the purpose of paying off Mumias debts and release it from receivership and administration. The manner in which Rao handled the leasing process did not tally with what was expected of him as an administrator. His actions were meant to protect the interests of KCB and if the lease is upheld, the same would be tantamount to blessing KCB with an extra asset known as Mumias for the next 20 years, and of course, would be the greatest miscarriage of justice."
The judge ruled that the lease was not in line with the best interest of the company, and it is unfortunate Rao did not produce the lease in court and enable it to determine whether it was in the best interest of Mumias as a going concern.
"The same was withheld from the court without any explanation. What did it contain that Rao did not want the court to see? " The judge posed.
"A simple calculation would show leasing Mumias at Ksh 5.8billion for 20 years Mumias would perpetually remain under receivership and administration. It would permanently remain an asset under KCB and maybe a retirement home for Rao,"
The leasing, the court noted, only favors KCB and does not favour the other creditors, and that at best, it is an undervalue entered into without evaluation or expert consultation and under no circumstances can the lease be in the best interest of Mumias as a going concern. It will only bind Mumias in a never ending receivership and administration which in the end would not have paid off Mumias debts.
"Simply put, the lease does not promote the purpose of Mumias' administration. In the circumstances, the court will interfere with Rao's administration and cancel the lease,"
The judge said records show the loans of KCB became undeforming in 2017 and KCB never took any action, and it waited until after insolvency proceedings were instituted to wake up from its slumber. It waited for another six months in
After this appointment, receivership continued between the two and according to the receivership accounts filed in court the receiver had collected in excess of Sh800million between
Out of the amount, the court observed, none was applied towards repayment of the debts, with Rao stating that there was no surplus for debt repayment. The receivership accounts disclosed that while there were no monies for repayment of debt, there were monies available to pay donations, facilitations, PR exercise among others.
"KCB was all happy with that state of affairs and advanced Rao yet another handsome amount of Sh200million and continue charging interests for alleged operations. KCB was impressed with the lease which was grossly undervalued and folded its hands to continue sitting on Mumias for another 20 years. All the foregoing is evidence of an uncaring lender who alleges to have been financing Mumias since 1974 and would be happy to continue doing so," the court ruled.
Rao had informed court that he has been a receiver manager for more than 25 years and was the first insolvency practitioner who was licensed under the Insolvency Act in 2015, has undertaken various administrations and receiverships of more than 50 companies. The court ruled that Rao is an unwilling suitor, and was aggrieved by his appointment as an administrator, yet he was already a receiver. He is conflicted as an administrator as well as a receiver.
While delivering the ruling today, the notion of public interest weighed heavily on the court, with
The court also took judicial notice that the collapse of
If Rao found it difficult to juggle the two hats he had been bestowed upon by the court, he should have come back to court to seek directions. The court which had appointed him to double as a receiver and administrator was not short of wisdom of what to be done. It would have directed him, the judge stated.
"Rao was simply running away from his responsibilities as an administrator. In the present case, Rao shunned administration and opted for receivership. It is not denied he leased the assets of Mumias to
Rao had argued that this was the first time he was combining functions of a receiver manager and administrator. The judge said Rao was seriously conflicted and this was detrimental to the body of creditors.
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