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Borrowers Tie Lenders in Web of Litigation as Defaults Rise

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Borrowers Tie Lenders in Web of Litigation as Defaults Rise
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Borrowers Tie Lenders in Web of Litigation as Defaults Rise

Companies and individuals fight years in court to prevent auctions, which eventually end up in the hands of banks

Borrowers are seeking temporary shelter in the corridors of justice to shield themselves from banks that are forced to seize properties following a rise in loan defaults. Central Bank of Kenya (CBK) data shows gross non-performing loans (NPLs) – the amount of loans on which interest and principal have not been paid for at least three months – hit Ksh611.4 billion in August, a 25.4% jump of Ksh123. 7 billion, since January.

This has reduced bank profits through provisioning and lenders have reacted by increasing recovery efforts including auctions and placing guaranteed property under administration. But borrowers have not taken repossession and recovery lightly falling back on lengthy litigation processes hoping to buy time or limit of property the bankers can be allowed to seize.

In early June, Equity placed TransCentury and East Africa Cables under receivership after declining a request to write off over Ksh2.8 billion ($20 million) debt owed by TransCentury Plc and another Ksh1.948 billion owed by its subsidiary. The companies had failed to raise enough cash from shareholders to pay part of the debt.

However, on 19th June, the debt-straddled companies countered by seeking court orders to bar Equity from appointing receiver managers. The court granted these orders on June 26th.

Borrowers Tie Lenders in Web of Litigation as Defaults Rise

The High court slammed the brakes on Equity Bank’s attempt to seize TransCentury and East Africa Cables, both listed at the NSE, over unpaid debt, stating that the move was premature.

KCB Group last year seized English Point Marina and placed Pearl Beach Hotels, the real estate firm that owns it, under statutory management in June last year after the Kanji family, defaulted on a Ksh5.2 billion loan.

The court allowed KCB to auction English Point Marina, and in case the assets were insufficient to recover the full amount, go after the assets owned by the directors including Pinewood Beach Resort and Spa.

However, when KCB tried to seize Pinewood, which was part of the security to the loan taken for the construction of the fully serviced five-star English Point Marina, it set up the lender and borrower in extensive court battles.

In ensuing court battles, Pearl Beach sought to frustrate the appointment of the receiver manager by obtaining temporary injunctions and lodging multiple applications in court.

Kamal Anantroy Bhatt, English Point Marina Receiver Manager, says despite a validly issued deed of appointment of a receiver, appointing him over the assets of Pinewood Beach Resort, they had been denied access that recently led to an altercation.

Pinewood owners insist they have conservatory orders pending full hearing of the matter and vowed to stay put. “We wish to clarify that there is a validly issued deed of appointment of a receiver, appointing Kamal Anantroy Bhatt, in accordance with the applicable law as the Receiver Manager over the assets of Pinewood Beach Resort,” Bhatt said. “We are, therefore, well within the receiver’s mandate to access and secure the assets and property in furtherance of the interests of the appointing creditor.”

KCB claims they have extended a lot of goodwill to Alnoor Kanji, his wife Leila, brother Alnoor, sister-in-law Nafisa, and Nazir Jinnah who own the properties including repeated restructuring attempts and accommodations by KCB.

Years of court fights

Even during the extensive litigation, KCB entered an agreement to transfer the funds held in its current accounts with DTB to current accounts held with KCB but the family not only violated the pact but got caught up in allegations of fraud.

Companies and individuals fight years in court to prevent auctions, which eventually still end up in the hands of banks.

Borrowers Tie Lenders in Web of Litigation as Defaults Rise

The Court of Appeal has cleared National Bank of Kenya to auction Lamu property of the late Mombasa tycoon Tahir Sheikh Said-TSS over a Ksh3.7 billion loan after a four-year court battle with his son. The TSS Company took two overdraft facilities, pre-shipment and post-shipment facilities with NBK in 2013 and 2016 that were secured by the land as well as other securities but stopped making payments in 2015.

Tuskys, Nakumatt and Uchumi, which were some of the recent companies to default all fought years of lengthy court battles before lenders were finally allowed to exercise their charges.

KCB Bank Kenya and TMB win 2023 Best Bank of the Year Awards

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