The owner of a building where DusitD2 hotel sits has been dealt a blow after the Court of Appeal dismissed a plea by I&M Bank seeking to stop the sale of the premises over a botched deal.
The Court of Appeal ruled on Friday that the placing of Cape Holdings under administration by the lender was a well-calculated move resorted to by the bank “in thinly veiled collusion as one last ditch attempt to aid Cape Holdings in its spirited quest to evade execution of the long-outstanding decree”, once all room for legal stratagems had been exhausted.
Justice Patrick Kiage noted that the administration was activated under the most suspicious timing –immediately the Supreme Court dismissed yet another appeal and placed “the final nail on the coffin of legal manoeuvring”.
The judge said the bank took the drastic action against a company that was not in default and whose accounts clearly indicated that it was patently solvent. “I am thus persuaded, on a balance of probabilities, in fact more, that the statutory management was executed for the sole purpose of aiding Cape Holdings to escape execution.”
Justice Lydia Achode and Mwaniki Gachoka concurred with Justice Kiage’s finding.
“My inevitable answer on the question whether the bank did sufficiently establish its legal interest in the suit property is in the negative,” Justice Kiage added.
Synergy Industrial Capital, which is demanding about Sh5.5 billion from Cape Holdings after a botched sale, had advertised the complex last year but I&M Bank blocked the sale through a court order arguing that the building is charged to the lender over a loan of Sh2.82 billion.
Cape Holdings Limited had been put under administration on October 12, 2021, but was terminated on June 9, 2023 due to non-performance by the administrator.
The bank through lawyer William Kabaiku submitted that from the duly registered debenture, (the bank) acquired a legal interest in the subject property.
Consequently, a first priority right was created in favor of the Bank over the company’s assets, overriding any other party’s rights, including those of Synergy.
He said the bank lawfully placed Cape Holdings under administration and in view of the fact that when the debenture crystallised the subject property had not been sold, the Bank had priority over the said property and was entitled to prevent it from being sold.
Mr Kabaiku said that by allowing Synergy to continue with execution proceedings defeated the essence of administration and distracted the administrator’s attention from his statutory duties.
Senior counsel Allen Gichuhi for Cape Holdings supported the bank’s argument submitting that as a secured creditor by virtue of the debenture, the Bank had a superseding legal interest in Cape Holdings properties, including the suit property.
Synergy Credit through senior counsel Ahmednasir Abdullahi opposed the application saying it was yet another attempt by Cape Holdings to stop the execution.
Mr Abdullahi pointed out that Synergy gave instructions to Moran Auctioneers who advertised the suit property for sale by public auction, on February 8, 2022.
He said Cape Holdings filed an appeal in the High Court against the deputy registrar’s action but by then, the execution was complete. Justice Kiage said a schedule to the debenture does not list the suit property.
“The effect is that it has no bearing whatsoever to the suit property over which no legal charge was ever created by the Bank. The said property remained free of encumbrances. Absent such charge, I would think there is substance in Synergy’s contention that it is false and misleading for the Bank to refer to the suit property as the charged property in its submissions,” the judge said.
Justice Kiage added that the record was clear that the charge was registered over a different property, Riverside Towers.
