Businesswoman Mary Wambui Mungai has lost a bid to remove an administrator appointed by Equity Bank to manage her luxury Glee Hotel Limited over a debt of more than Sh7.75 billion.
The High Court dismissed an application by the hotel’s management challenging the appointment of Kamal Anantroy Bhatt as administrator and seeking to revert control to its directors.
The court upheld Mr Bhatt’s appointment, ruling that Equity Bank, as a secured lender holding a qualifying first-ranking floating charge, was lawfully and validly made, in strict accordance with the requirements of the Insolvency Act.
The court also issued orders restraining the company’s directors and agents from interfering with the administrator’s functions, disrupting the hotel’s operations or dealing with its assets.
The officer commanding Runda police station was directed to provide security to ensure compliance with the orders.
The court also rejected the argument that administration should be used as a last resort where a lender has other forms of security available.
It said that a secured creditor was entitled to choose the recovery mechanism it considered most appropriate, provided it complied with the law.
“A duly appointed administrator may only be removed for cause, and the burden of proving sufficient cause rests on the party seeking removal,” the court said.
Equity Bank appointed Mr Bhatt, of Anant Bhatt LLP, as administrator with effect from July 6.
The dispute arose after the hotel defaulted on its obligations to Equity Bank. The company challenged the appointment, arguing that the bank had failed to disclose relevant court proceedings and other information in the statutory documents used to place it under administration.
It also argued that the bank should have pursued other securities before resorting to administration and that the process was disproportionate given the value of the assets securing the debt.
The company further claimed that the bank’s statement of facts did not adequately set out the basis for its belief that Glee Hotel was unable to pay its debts.
But the High Court found that Equity had demonstrated that it held enforceable qualifying floating charges and had complied with the requirements of Part VIII of the Insolvency Act.
The judge said the bank had provided the required statutory declarations and other documents and that there was no basis to invalidate the appointment merely because the documents did not provide a detailed account of every default, judgment debt or related court proceeding.
The court noted that the company had signed the security instruments with full knowledge of their contents and legal effect.
“The company benefitted from the credit facilities so advanced, and it must be taken to have known, at the time of executing the debentures, that it was thereby creating in favour of the Bank a qualifying floating charge over its assets,” the court said.
The High Court also rejected the company’s argument that Equity should have pursued other securities before appointing an administrator.
It said the existence of other forms of security did not automatically mean that enforcing them would result in a better recovery for the bank.
The judge also found evidence that the administrator was making progress towards rescuing Glee Hotel as a going concern, which is the primary objective of administration under the Insolvency Act.
Mr Bhatt told the court that he had engaged a marketing consortium and contracted World Travel Group UK Limited to increase bookings. He had also reviewed the hotel’s wage bill, which accounted for more than 47 percent of its gross income.
The administrator reported that room occupancy had increased from 7.51 percent on July 1 to 24.41 percent by July 12.
“This trajectory is, in my view, probative of genuine progress toward the discharge of the statutory objective of rescue. As to the Company's complaint of lost business, the Administrator's account attributes this substantially to the very interference by the company's directors of which he separately complains, and that consequence cannot fairly be visited upon him,” said the judge.
The court noted that Glee Hotel had other creditors who had filed claims in the administration process, showing that its financial difficulties were not limited to its dispute with Equity Bank.
The administrator had sought protection after the directors allegedly attempted to interfere with his work, including seeking to evict him from the hotel premises and carrying out transactions on behalf of the company.
The court said the administration could end if the company secures funds to settle its debts through related entities.
“Should that materialize, there is no reason why the administration could not come to an end at that point,” she said.
