Billionaire businessman Peter Munga has failed to block the auction of his 75 million shares in insurer Britam over Sh433.76 million defaulted bank loan that he had guaranteed one of his companies.
High Court Judge Alfred Mabeya said that the businessman had no reason to block ABC Bank from attaching his shares valued at Sh604 million as a guarantor because the loan advanced to Equatorial Nut Processors remains unsettled.
Fondly known as the founder of Equity Bank, Mr Munga has over the years become a serial entrepreneur with a foothold in different sectors from agro and insurance to education and industrials.
He has in recent years harvested hundreds of millions of shillings from the sale of Britam and Equity Bank shares.
The auction of his Britam shares marks the latest debt tussle for the billionaire investor whose properties have previously been put up for auction.
“In the absence of such payment, the court finds that the prayer for a permanent injunction preventing the 1st defendant (Africa Banking Corporation) from realising the security is untenable and is disallowed,” Justice Mabeya said Wednesday in a judgment delivered by his counterpart, Francis Gikonyo.
“Accordingly, the court finds that the notice of motion dated 4/10/2024 lacks merit and is hereby dismissed with costs.”
In October 2024, Mr Munga moved to court seeking a temporary injunction to restrain ABC Bank, ABC Capital, and Equatorial Nut Processors from advertising, selling, auctioning, transferring, disposing of, or interfering with his 75 million shares held with Britam Kenya.
The businessman further sought orders for a permanent injunction to prevent the defendants from auctioning the securities issued by Equatorial Nut Processors and ABC Bank.
In an affidavit supporting his application, Mr Munga stated that he holds the 75 million shares with Britam Kenya, originally held with Genghis Capital before being transferred to, ABC Capital.
These shares were used as security for a loan facility advanced to Equatorial Nut Processors by ABC Bank to fund a World Food Programme contract, with a lien created on them.
Mr Munga said he received a demand letter from ABC Bank for the payment of Sh433,767,398.33 after Equatorial Nut Processors defaulted on the loan repayment. The lender in its letter threatened to sell the businessman’s shares if the payment was not made.
Equatorial Nuts Processors is located a few kilometres from Maragua town and was established in 1994 to process macadamia nuts, peanuts and cashew nuts.
Official records show that Mr Munga has a 92 percent stake in Equatorial Nuts Processors and his business associate James Karanja owns 8.0 percent.
The businessman, however, opposed the bank’s demand and maintained that he planned to use his shares to secure another loan and that the securities registered before his shares should be prioritised according to the doctrine of priority.
He further contended that the demand letter violated the in-duplum rule, which provides that loan interests should not surpass the principal amount.
ABC Bank and ABC Capital, however, opposed Mr Munga’s application saying it would “distort the terms of the loan facility”.
Through an affidavit filed by its senior legal manager, Faith Nteere, ABC Bank said that it provided multiple loan facilities to Equatorial Nut Processors, with both Mr Munga and the nut processing firm signing the offer letter.
She further explained that the businessman, in his capacity as a director of Equatorial Nut Processors, signed a personal guarantee and indemnity in favour of ABC Bank, agreeing to repay the loan in the event of default.
Ms Nteere said the demand notice dated September 24, 2024 sent to Mr Munga was valid due to the businessman’s commitment to repay the loan.
She further contended that the necessary approval from the central bank will be obtained at the time the shares are sold.
In their decision, the judges said that being a guarantor and director of Equatorial Nut Processors Mr Munga committed to being liable for the repayment of the loan if the borrower defaulted on its obligations.
“By executing the deed of guarantee, the plaintiff [Mr Munga] assumed responsibility for the outstanding loan balance. This meant that the plaintiff is legally bound to repay the entire loan amount, including any outstanding principal, accrued interest, fees, and penalties arising from the 3rd defendant's default,” the court said.
“The lender is entitled to initiate recovery actions directly against the plaintiff without first being required to pursue the borrower. When a party has willingly offered his property as collateral for a facility, such a party cannot turn around and claim that the realisation of the collateral amounts to infringement of the right to property.”
The court further said that Mr Munga’s plans to use his shares as security for another loan are irrelevant to Equatorial Nut Processors’ indebtedness and his obligation to repay the loan.
“In this regard, the court is not persuaded that the plaintiff has established any prima facie case with any probability of success,” the court said.
The judges additionally shot down the businessman’s claims that he would suffer irreparable loss and damage if the planned sale of his Britam shares were allowed.
“The plaintiff contended that if the injunction is not granted, he would lose his shares which are valued at Sh280,000,000 which are inadequate to repay the amount demanded of Sh433,767,398.33,” said Justice Mabeya.
“From the pleadings, the court finds that while it is crucial to preserve the plaintiff's right to property under Article 40 of the Constitution of Kenya, it is equally important to protect the interests and rights of the 1st defendant in the lien for which it lent out a huge loan to the 3rd defendant,” the judge said.
Mr Munga directly owns 75 million shares in Britam and has significant ownership in two investment vehicles—EH Venture Capital and EHL 2022—that have a combined 405 million shares worth Sh3.26 billion.
In 2023, three properties linked to Mr Munga were set to be auctioned to recover their unpaid dues.
Mr Munga in October 2017 averted the auction of his five houses in Nairobi’s Kasarani worth Sh400 million at the time after making a last-minute payment to Jamii Bora Bank, now trading as Kingdom Bank.
