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Shareholder fights rock Credit Bank over Nyachae ties
Three minority shareholders filed the court petition citing breach of regulatory rules and preferential treatment of entities associated with the Nyache family.
A shareholder dispute at Credit Bank been referred to arbitration amid allegations of irregular insider lending, favouritism of top owners and weak recoveries of unpaid loans.
The High Court has ordered the warring parties to resolve the row, which has sucked in the family of former Cabinet minister Simeon Nyachae, through international arbitration in line with a shareholder agreement.
Three minority shareholders, including Ketan Devram Morjaria and Jay Rajnikant Karia, filed the court petition citing breach of regulatory rules and preferential treatment of entities associated with the Nyache family.
Mr Morjaria, who has 6.7 percent stake in the bank, wanted the court to hear the petition that also cited irregular insider lending, non-performing loans, failure to pursue unpaid loans and exclusion from Annual General Meetings (AGM).
He and Karia, who has a 3.3 percent stake in Credit Bank, reckoned that they are not getting returns on investments from dividends.
The majority shareholders, through Leon Nyandusi Nyachae, denied the allegations and argued that the dispute stems from the parties’ contractual relationship and should be referred for arbitration.
They maintained that the claims raised by the petitioners, including those touching on governance and shareholder conduct, fall within agreements and should therefore be resolved through arbitration and not in court.
The High Court backed the push to settle the dispute via arbitration.
"This court is satisfied that the reliefs being sought in the petition, including declaratory reliefs, inquiries, accounts, and orders for the purchase of shares, are capable of being determined within an arbitral process," said the judge.
It also noted that the agreements provide that disputes arising from the shareholders’ relationship should be resolved through arbitration under the London Court of International Arbitration rules.
“The dispute shall be referred to and finally resolved by arbitration under the arbitration rules and procedures of the London Court of International Arbitration,” the court observed, citing the agreement.
It rejected the petitioners’ argument that claims under the Companies Act could only be handled by the High Court.
Mr Morjaria maintained that the dispute is anchored on breaches of the Banking Act, arguing that they are outside the scope of arbitration.
He added that the statutory reliefs they are seeking in court cannot be granted by an arbitrator.
The minority shareholders sought court orders compelling investigations into the bank’s management, an account of transactions and the possible compulsory purchase of their shares.
In their petition, the minority shareholders accused the controlling investors of conducting the bank’s affairs “in a manner that is unfairly prejudicial” to them.
They alleged breach of the Companies Act, 2015, the Banking Act, the Prudential Guidelines issued by the Central Bank of Kenya, and Credit Bank’s internal policies.
They asked the court to declare that the respondents were managing the bank in a way that oppressed minority shareholders and undermined their interests.
The investors also sought orders requiring a full inquiry and accounting to determine how the controlling shareholders and their directors may have benefited from the transactions mentioned in the petition.
They further asked the court to compel the respondents to buy out their shares at a price to be determined by the court.
Credit Bank posted a loss of Sh207 million in the nine months to September compared to Sh144 million in the same period in 2024.
The petition claims the bank’s leadership allowed insider and related-party lending that exposed the institution to financial risk while benefiting entities associated with the Nyachae family.
The minority shareholders allege that the lender engaged in regulatory breaches and governance failures.
The petition alleges the lender was systematically exploited through insider and related-party lending.
From the bank’s financial statements, loans to shareholders and their associates stood Sh651 million in September from Sh695 million in December 2021.
However, Mr Nyandusi, a director in the companies representing the controlling shareholders, swore an affidavit opposing the petition and defended the lenders’ governance structure.
He told the court that the companies named in the case are shareholders in Credit Bank and that their relationship with the minority investors is governed by shareholder agreements signed in May 2022.
The agreements were entered into when new investor Shorecap III LP acquired a stake in the lender as part of a broader restructuring aimed at strengthening the bank’s capital position.
Shorecap III acquired a 20 percent stake in the bank in 2023 following regulatory approvals, marking one of the biggest recent investments in the lender.
Documents from the registrar show that a firm known as Shangriles Villas Company Limited is the fourth shareholder with a 56 percent stake. It is not clear if the Nyachae family is associated with the company.
In court, the companies named as respondents include Sansora Group Limited, Sanama Investments Limited, Chanzu Enterprises Limited, Nomura Nominees Limited and P.B. Lema Holdings Limited.
Court documents show that some of the companies are associated with the Nyachae family.
