The High Court has allowed Stanbic Bank to auction the property of a cooking oil manufacturer, including a refinery processing plant, over an outstanding loan of Sh2 billion.
The verdict piles more woes on Convex Commodity Merchants Limited, and its subsidiary Convex Commercial Logistics Limited currently wrestling with financial lenders and auctioneers due to financial struggles.
Justice Alfred Mabeya allowed the bank's intention to sell the property of Convex Commodity Merchant Limited after finding that the balance of convenience tilted in favour of letting the bank recoup its money since it was clear the borrower was in default.
The companies attributed the loan default to hard economic times and delayed loan disbursement.
"There is no doubt that once a property has been charged to secure financial accommodation, it becomes a commodity for sale once there is default and there is no commodity for sale whose loss cannot be compensated by an award in damages. A chargor who offers his property as security clearly anticipates the sale of the property in the event that he fails to service the loan," said the judge.
The firm had borrowed Sh1.5 billion from the bank in December 2020 to set up an edible oil refinery plant. It engaged the bank to grant financing for the completion of the plant.
It offered the two suit properties, including one where the edible oil factory was being constructed, as security for the advance.
It said there were occasional delays in disbursement of the loan by the bank forcing the company and its subsidiary to divert funds from trading and logistics business into the construction of the oil refinery. They said this affected the flow of their finances.
The construction was further beset by numerous challenges brought about by the Covid-19 outbreak.
The judge said the companies did not specifically prove the alleged delayed disbursements, the amounts, and the periods applicable for the court to appreciate the gravity or the extent the same led to the default.
In June 2023 the bank hired an auctioneer who threatened to sell off by public auction the edible oil processing plant together with machinery housed on the suit properties on account of an alleged debt owed by Convex Commodity Merchants Limited to the bank in the sum of Sh2 billion and a further $15,795 respectively.
The companies moved to court to challenge the planned public auction. Through their representative James Waithaka, they asked the court to stop the auction because they had since secured alternative financing from Kenya Development Corporation (KDC) in the amount of Sh500 million towards the completion and commissioning of the refinery.
They disclosed that they were negotiating a facility for $18.4 million with Ethos Asset Management Inc, a project finance lender based in America for purposes of taking over the facilities.
The court heard that all this information had been disclosed to the bank, which still persisted with its intention to auction off the refinery.
They wanted the court to bar the bank and its agents from interfering or dealing with their property described as the Edible Oil processing plant together with machinery erected on two land parcels or any other assets registered in favour of the companies.
But Justice Mabeya said there was no concrete evidence that the companies had applied for the alternative funding and there was a process by those alternative sources to release the alleged financing.
"There was no specific prayer and timelines to procure the same with certainty," said the judge.
The companies had also contended that the bank had clogged the company's equity of redemption by listing it in the Credit Reference Bureau (CRB) and thereby blocking it from accessing alternative financing.
However, Justice Mabeya ruled that there should have been a separate application to unclog the issue of CRB before pursuing the injunction against the auction.
"That would have helped the plaintiff access alternative financing and offset the outstanding. To some extent, this court opines that it is wrong for a lender to list a defaulting borrower with the CRB and refuse to lift such listing and expect the borrower to get alternative financing to repay. However, since the Law is silent on that issue, I say no more," said the judge.
The court declined their claim that the auction would render the companies destitute or lose their processing plant.
The judge said this argument was not helpful to the companies' case.
"The Court is therefore not convinced that there is any evidence that the applicants would suffer irreparable damages if the injunction is not granted," said the judge.
Further, the court said it was not enough for the companies to claim that the facility agreement failed to provide for a moratorium on payment during the construction phase thus it was an unenforceable contract for being an unconscionable bargain.
The court questioned at what time the applicants realized that they had entered into an unconscionable bargain, before or after accruing the debt.
They wanted the court to compel the bank to afford them 12 months to acquire alternative financing for the completion of the edible oil processing factory.
They said the assets, including the processing plant, were valued at Sh5 billion.
