Creditor, Mumias Sugar receiver-manager clash over lease process

Packets of 2kg Mumias Sugar on the shelf. [File, Standard]

Parties battling over the lease of Mumias Sugar Company yesterday clashed over whether receiver-manager Ramana Rao should be kicked out.

Commercial Court judge Alfred Mabeya, in an insolvency case, heard that Mr Rao had defied court orders and had not properly managed the receivership process.

Lawyer Judy Kimeto wants the court to order for a forensic audit and further direct that a fresh bidding process for the miller be done.

According to Ms Kimeto, the leasing process ought to have been done strictly under the Competition of Kenya Authority requirements. She claimed that creditors never chose the receiver manager; instead, he was allegedly imposed on them.

The lawyer claimed that Mr Rao lacks the integrity and competence to undertake the leasing process. At the same time, she alleged that the leasing process has collapsed due to numerous cases filed over the leasing.

"It is now common knowledge that the proposed leasing of the third respondent company (Mumias) has altogether collapsed … His conduct, the administrator, has demonstrated a complete lack of integrity in undertaking the leasing process,” Ms Kimeto said.

However, Mr Rao says the case filed by Kimeto’s law firm, M/S Kimeto and Associates Advocates, is among many meant to stall leasing Mumias to Ugandan miller Sarrai Group.

Ms Kimeto's law firm is an unsecured creditor and is owed Sh76 million in legal fees.

Mr Rao's lawyer Kiragu Kimani argued that the insolvency case was based on emotions and distortion of facts.

According to him, Mr Rao was appointed following a court order in November last year. The lawyer argued that the lease to Sarrai was out of a competitive process, and in which all factors away from the financial bond had to be factored in.

“The petitioner has not demonstrated any basis for the nullification of the lease,” Mr Kiragu said, adding that there is a separate case challenging the lease.

In the separate case, before the same judge, the battle is centred on whether Sarrai validly won the lease tender and if West Kenya Sugar Company ought to have won the same as it had floated the highest financial bid.

West Kenya argued that the bidding process was unfair and tainted with vagueness and that the selection of Sarrai as the successful bidder, despite submitting the lowest bid, was "unreasonable and economically unconscionable".

"West Kenya was the highest bidder at Sh36 billion compared to Sarrai Group that bid at under Sh6 billion, a difference of Sh30.2 billion,” its lawyer Paul Muite said.

Mr Rao in his reply argued that West Kenya was knocked out of the race as it would have allegedly dominated the sugar industry in Kenya. He said West Kenya would have controlled 41 per cent of the industry if it was offered the lease.

“If Rai Group, which owns West Kenya Sugar Company Ltd, is awarded the lease of assets of the company, then the Rai Group of Companies will control at least 41.95 per cent of the total sugar crushing capacity in Kenya. This amounts to a dominant position in the Kenya sugar industry,” claimed Mr Rao.

The case involves KCB Bank, Attorney General Kihara Kariuki, Agriculture ministry, Competition Authority of Kenya, Capital Markets Authority, Chief Lands Registrar, County Government of Kakamega, Sarrai and Tumaz and Tumaz Enterprises.

Back to the insolvency case, lawyer Kiragu argued that the leasing process was delayed by court orders and not Mr Rao's own making.

He said that owing to the cases filed in court, the administrator has to go through more than 14,000 court papers and consult his lawyers to give a clear picture of what happened.

“There is no basis for a prayer to remove or replace the interim receiver administrator with the official receiver. There is no basis for a forensic audit. The second respondent prays that the application be dismissed with costs,” said Mr Kiragu.

According to Mr Rao, the court had acknowledged that the only means to revive Mumias was through leasing, and it allowed him to go ahead and advertise for bids.

“It is clear that the petitioner is not happy with the ruling. They must not be shy to say this. The avenue to address their dissatisfaction, however, was an appeal and not an application made barely two months after the ruling to upset that decision,” his lawyer said.

According to him, hurdle after another has been mounted to ensure that the leasing process does not go through.

“Things are not always as they seem to be or made out to be. The only impediment to the proper implementation of the order of November 19, 2021, is the numerous cases without proper basis filed by various parties,” Mr Kiragu said.

Mr Rao argued that if the court removed him as prayed and have another receiver continue with the leasing process, then the court would be depriving the secured creditors of their rights in the securities.