Equity Bank has received the court's approval to sell a fleet of 30 motor vehicles owned by a Nairobi businessman Patrick Nthiga Mvungu to recover an outstanding loan of Sh302 million advanced to his trading company Paddy Kenya nearly eight years ago.
This is the latest case highlighting the rising non-performing loans in the country's banking sector and the increased portfolio of collaterals being sold by banks to recover their money.
High Court Judge Benjamin Musyoki dismissed the application filed by Mr Mvungu seeking to stop the lender and auctioneer George Mbagu from disposing of his assets.
The judge found that Mr Mvungu and his partner Joyce Wangui had guaranteed repayment of the loan and hence were bound by the same.
"They properly signed the guarantee and indemnity dated August 16, 2017, and they remain so bound. A guarantor remains bound to a debt they guarantee until the amount guaranteed is fully paid and settled," said the judge.
The motor vehicles were mortgaged to the bank as security for credit facilities. The bank went for the motor vehicles and trailers after the auction of the businessman's land valued at Sh90 million failed to fully offset the outstanding debt.
The businessman told the court that he was doing well until sometime in 2020 when the coronavirus ravaged the world. He was as a result forced to approach the bank, which gave them two options; either they auction the property or sell it by private treaty.
Justice Musyoki allowed a claim filed by the bank countering the one lodged by Paddy Kenya against the intended sale.
Equity had claimed the debt was Sh378 million as at the time of filing the counterclaim in July 2022 but the judge found that there were subsequent credits in the accounts reducing the outstanding debt.
The court dismissed Mr Mvungu's claim that he and Ms Wangui signed the loan documents as directors of Paddy, not as guarantors of the loan.
"I have considered the evidence and found that Mr Mvungu and Ms Wangui signed the guarantee and indemnity dated August 16, 2017, despite Paddy’s witness alleging that they signed as directors and not as guarantors. The guarantee and indemnity are drawn in English, a language the witness fluently used in his testimony and which he did not say that he did not understand. I do not buy the argument that they did not know that they were signing a guarantee," said the judge.
Joel Mulumi Musyoka, a bank manager, testified that the lender advanced various credit facilities to Paddy Kenya, including asset finance loans, a term loan, guarantee loans, and an overdraft facility.
He added that all existing facilities advanced to Paddy were amalgamated into a revolving uncleared effects facility, a revolving bank guarantees facility, and a term loan facility all totaling Sh395 million.
The manager said that the facilities were to be secured by various securities including a charge over the property, chattels mortgage on the motor vehicles, and personal guarantees and indemnities by Mr Mvungu and Ms Wangui.
Paddy failed to pay and in June 2019 wrote to the bank proposing to pay Sh2 million immediately and Sh1.5 million per month going forward due to the challenges in its business.
They had also offered their suit property situated along North Airport Road in Nairobi which was charged to the bank as security.
Paddy sued alleging that after getting a buyer of the property through a private treaty at Sh100 million, which the bank approved and the sale was concluded, the lender still went after the businessman despite their agreement that the sale of the property at the said price would be in full settlement of the loan.
Paddy contended that it was surprised when the bank sought to go for the motor vehicles belonging to the loan guarantors.
According to Mr Mvungu, there would not have been a need to sell the property at a loss if the same was not clearing the loan in full.
