Asset management firm, Amana Capital Ltd has lost a bid to quash a directive by the capital markets regulator requiring it to refund an investor more than Sh21 million.
Capital Markets Tribunal chaired by Paul Lilan dismissed the fund manager’s application saying Amana cannot run away from the contract and obligations signed with Susan Mukuhi Kagiri.
Amana wanted the tribunal to quash the enforcement of the decision by the Capital Markets Authority (CMA) on February 7, 2022, directing it to compensate Ms Kagiri Sh7.7 million. The regulator had also directed Amana to pay Ms Kagiri a balance of Sh13.7 million of her funds invested with the fund manager.
Evidence tabled in court showed that Ms Kahiri invested with Amana in May 2016. In the deal, Amana was to serve as a portfolio manager for Ms Kagiri as she invested Sh26.8 million in the Amana Unit Trust Funds Scheme, which she paid in two instalments of Sh11 million and Sh15 million. Subsequently, Amana advised the investor to switch her investment from the shilling fund.
Amana had invested in the Nakumatt Commercial Paper Programme through the Amana Shilling Fund, a unit trust fund within the Amana collective investment schemes.
On August 15, 2019, Ms Kagiri applied to withdraw her entire investment in the Amana Unit Trust Fund.
The fund manager then wrote to her acknowledging her account had a balance of Sh25.7 million as it committed to pay the amount in installments.
However, Amana allegedly held an extraordinary general meeting in 2018 and members resolved that due to the financial distress Nakumatt Holdings Ltd was experiencing, they would freeze the Nakumatt asset held in the shilling fund.
ASF said by then, it expected either Nakumatt’s investment would eventually become fully impaired (written off entirely as a loss), or there would be a recovery or restructuring of the investment that would thereby restore liquidity.
In yet another EGM in February 2020, it was allegedly resolved that the moratorium period for redemptions in the shilling fund class B units was extended from the initial 28 days to 6 months.
The asset manager said between 22 October 2019 and 20 January 2020, it paid Ms Kagiri Sh8 million and defaulted in repaying the balance of Sh17.7 million, prompting her to appeal to the CMA.
CMA then directed Amana to compensate the investor within 14 days.
The fund manager said to manage this financial impact, it was further resolved to segregate the units into two distinct categories, Class A Units, representing the initially frozen units (the impaired 29 percent), were directly linked to the problematic Nakumatt asset and Class B Units, which represented the unfrozen units, were not affected by the freezing decision and could be freely redeemed or managed by investors as usual.
Amana submitted that on December 11, 2018, Ms Kagiri signed a new investment management agreement for an investment of Sh26.5 million, which she applied to withdraw in August 2019.
The fund manager further claimed that Ms Kagiri attended the February 28, 2020, EGM and voted to extend the moratorium on the ASF.
The fund manager further claimed that despite filing a redemption form on 15 August 2019, Ms Kagiri remained an ASF member and continued receiving monthly interest and monthly statements.
Amana added that Ms Kagiri was, therefore, bound by the resolutions, especially of the September 25, 2020, AGM, converting 59 percent of ASF Class B investments into equity.
The tribunal dismissed the claim stating that there is no proof that she received the notice.
“Accordingly, the Appellant (Amana) cannot run away from the new contract and its obligations that they signed with the Interested Party. Hence, these happenings undermine the claim that the EGM impairment took effect against her,” the tribunal said.
The tribunal further noted that by October 2019, Ms Kagiri had already lodged a complete redemption request and the fund manager accepted and clearly stated that the outstanding amount was Sh25.7 million and agreed to pay out in set instalments.
