Equity Bank loses bid to take over TransCentury in Sh4.8b debt case

The commercial court in Nairobi has blocked Equity Bank from taking over TransCentury and its subsidiary East Africa Cables Limited over Sh4.8 billion loan row.

Equity had placed the two firms under receivership claiming that they had declined to pay back USD 20 million (Sh2.8 billion) debt owed by TransCentury and a further Sh1.948 billion owed by East African Cables.

The lender had appointed George Weru and Múniú Thoithi as receiver managers of the two companies in 2023.

However, Justice Alfred Mabeya found that the bank jumped the gun as the two companies had demonstrated that they had the means to repay the loans.

The Judge agreed with their lawyer Phillip Nyachoti that they only needed time to to settle the amount.

He gave the two companies 120 days grace period to settle the debt. 

“The court acknowledges that premature action can disrupt the viability of a business, which ultimately affects not only the debtor but also its employees, customers, other stakeholders and the economy in general. In this regard the court finds that the applicant has established a prima facie case with probability of success and is entitled to the orders sought and in the manner proposed by the court,” said Justice Mabeya.

In the case,TransCentury and and East Africa Cables argued that despite raising a Sh2 billion rights issue, the two receiver managers had already forcefully taken over.

Their lawyer asserted that Equity had violated the receivership law by failing to issue a notice and giving it time to settle the debt.

Nyachoti asserted that receivership ought to be the last resort in an effort to recover a loan.

According to him, TransCentury had made payments exceeding USD 13.7 million (Sh1.7 billion) to Equity to help liquidate the debt.

He said that in 2016, TransCentury’s subsidiaries faced significant cash flow challenges following a substantial capital investment which constrained its operations.

“No demand had been issued and the appointment was unlawful. The applicant had been liquidating the outstanding debt and had made efforts to negotiate and agree on a workable program but that did not bear fruit,” argued Nyachoti.

He argued that appointment of receiver managers would cripple down his clients operations especially projects that were ongoing.

According to Nyachoti, efforts to negotiate with the lender had hit a dead end.

“The appointment would completely cripple the applicant’s operations especially the massive projects. The court should issue order to prevent the respondents from denying the directors and authorised officials access to the applicant’s assets, offices, and security keys,” he argued.

TransCentury is an infrastructure investment holding company with interests in Energy, transport, water, industrial, and agriculture technology.

In the meantime, East Africa Cables is a major manufacturer of electrical cables.

On the other hand, Equity urged the court not to intervene.

Its lawyers Kiragu Kimani and Lawson Ondieki said that the two had  failed to disclose some important information to the court as to how Múniú and Thoithi were appointed.

In his argument, Kiragu said that TransCentury and East Africa Cables had first acknowledged that they owed the bank the demanded loan.

He further said that his client had given the two companies a 90 days grace period during negotiations.

"This is a party that approached the court in bad faith by failing to disclose material facts," the senior lawyer argued.

He asserted that the firms could not repay the loan as TransCentury which is the parent company had onky managed to raise Sh828 million from the rights issue.

Kiragu also told the court that East Africa Cables had failed to make cessary payments on the credit facilities, leading to a demand made on June 8,2023. It then sought for a moratorium of 24 months on the principal debt.

“There was no further possibility of the applicant raising additional funds. That the rights issue was unsuccessful as the projected Sh2 billion was not achieved as the performance was rated at 40 per cent.”

“It was inaccurate to claim that the applicant was finalizing the rights issue as the process was complete and the shares had already begun trading on the NSE. Even if the rights issue had been successful and raised 2 billion, this amount would not have been sufficient to offset the debt,” replied Kiragu.