The High Court has issued orders stopping Equity Bank Kenya Limited from taking over East African Cables PLC over Sh 1.7 billion loan.
Justice Alfred Mabeya issued a temporary injunction restraining the lender from appointing administrators for a period of about four months.
“A temporary injunction is hereby granted, restraining the 1st respondent (Equity Bank) from exercising its power under the debentures to appoint administrators for a period 120 days from the date hereof,” Justice Mabeya ruled.
The court further directed that if after the lapse of that period East African Cables will not have repaid the debt, the injunction shall automatically lapse and the consequential right to enforce the securities shall attach.
In addition, the court restrained George Weru and Muniu Thoithi who had been appointed by Equity Bank from acting as administrators of the company for a period of 120 days from the date hereof.
East African Cables moved to court seeking orders to prevent the 1st respondent from appointing receivers, receiver managers, or administrators, and from exercising its powers under the debenture dated 6th June 2012, the supplemental debenture dated 20th January 2012 and the second further debenture dated 11th November 2014.
The loan
Through lawyer Philip Nyachoti, applicant claimed that it entered into several loan agreements with Equity Bank.
These facilities were allegedly secured by an all asset debenture charge of Sh 1,700,000,000 over the current and future assets of the applicant, and charges over various properties as well as a security trustee agreement.
Nyachoti told the court that the appointment of the 2nd and 3rd respondents (Weru and Thoithi) on the ground that the process of their appointment was illegal and unlawful as it was in disregard of the mandatory procedure.
The applicant argued that it had made substantial payments of Sh 669,576,229 towards settling the debt.
It was further submitted that East African Cables was in the process of negotiating a subordinated debt financing and had obtained a credit line for a working capital of Sh 170,000,000.
The applicant stated that it was a manufacturing company and its operations would be stalled if the administration was reinstated.
Nyachoti submitted that as a show of good faith, the company had made re-payments even as the matter was in court.
On its part, Equity Bank submitted that the amounts paid by the applicant were intermittent and not as per the agreed installments of Sh 27,442,887.
The court heard that the lender had accommodated the applicant even when it defaulted and thus ought to be allowed to realize its security and place the company under administration.
Equity Bank further argued that the East African Cables failed to inform it of the rights issue in its holding company Transcentury PLC.
The court found that this is not a case where a borrower is running away from its obligations but rather seeks an arrangement to ensure the company is spared as it restructures the debt.
“There is further a show of good faith on the part of the applicant whereby even during the pendency of this suit, re-payments were made,” the court ruled.
Justice Mabeya added that given the circumstances in this case, the applicant has demonstrated that given adequate time, it has the means and the will to repay the debt.
Transcentury PLC had also filed a similar case and similar orders were granted.