Court battles reveal how Mumias boss bungled firm’s revival plan

When court appointed Mr Ramana Rao as the administrator of the fallen Mumias Sugar Company in November 2021, there were great hopes by shareholders, workers and farmers that the company would soon roar back to life and to profit-making.

But the hope was short-lived and they have to wait longer, as Mr Rao is now out over alleged mismanagement and lack of transparency in the leasing of the mill’s assets.

His five-month stint at the helm of the firm, which he was expected to revive, has been marked by vicious battles among multibillion-shilling companies interested in the contract of reviving the firm. Receiverships, in many instances in Kenya, have been nothing but kisses of death to struggling firms. 

Another mistake committed by Mr Rao was failure to call for a creditor’s meeting to discuss his proposal on leasing the assets and subject the proposal to professional discussion. He had leased the mill to Ugandan firm Sarrai Group for Sh5.8 billion.

“Rao did not produce the lease in court to enable the court to make a more informed decision as to its terms and conclude whether it would benefit Mumias a going concern or not. The same was withheld from the court without any explanation.  What did it contain that Rao did not want to be seen?” asked Justice Alfred Mabeya.

Sh5.8 billion

In his view, a simple calculation would show that, leasing Mumias at Sh5.8 billion for 20 years, Mumias would perpetually remain under receivership and administration. “It would permanently remain an asset under the Kenya Commercial Bank (KCB) and be a retirement place for Rao. The latter would superintend administration and receivership for 20 years and yet not be able to fully repay a single creditor. That won’t do,” said Justice Mabeya.

Other statutory breaches alleged against Mr Rao include failure to notify the creditors of Mumias of his appointment within 14 days and failure to lodge with the Registrar a notice of his appointment within seven days.

Mr Rao is a professional insolvency practitioner with over 25 years of experience. He was the first insolvency practitioner to be licensed under the Insolvency Act, 2015, and has undertaken administrations and receiverships of more than 50 companies.

Interestingly, the judge who appointed Mr Rao as administrator of Mumias is the one who has removed him in a hard-hitting and critical 65-page decision. The judge noted that although Mr Rao had taken over the job of managing the public-listed firm, he was “an unwilling suitor”. 

This is because Mr Rao, together with KCB, had lodged an appeal against Justice Mabeya’s decision to appoint him as administrator while at the same time acting as receiver on behalf of KCB.

His was a unique and ‘sui generis’ arrangement since it was the first time in Kenya a receivership and administration were running concurrently. “He was aggrieved by his appointment as an administrator, yet he was already a receiver. That is why he appealed against that portion of the ruling. He is conflicted as both administrator as well as receiver,” said Justice Mabeya.

When appointing Mr Rao on November 19, 2021, the court had also directed he double as the receiver manager of the sugar mill, a position he had been holding since September 2019.

It was the court’s belief that the circus surrounding Mumias would have finally ended after clothing Mr Rao as both its receiver and administrator, and endorsing him with the duties and responsibilities of an administrator under the Insolvency Act.

But barely a month after his appointment, the circus was back in the Insolvency Court more vicious than before. Six suits were filed by various entities, including Mumias itself, which sought to take control of its co-generation and ethanol plants that had been taken by creditors Victoria Commercial Bank (VCB), Eco Bank Kenya and PROPACO.

The other suits were against Mr Rao and his decision to lease Mumias assets to Ugandan firm Sarrai Group. The applicants were Vartox Ltd (two applications), Kimeto & Associates, five former employees of Mumias, Khaminwa & Khaminwa Advocates, and Wekesa & Simiyu Advocates.

“Mr Rao awarded the lease to the lowest bidder (Sarrai) while there were higher bidders without any justifiable explanation. He explained that his rejection of the bid of Sh36 billion by West Kenya Sugar Company was to avoid monopoly and that West Kenya was a competitor of Mumias. Further that it had no financial capability to execute the lease and that it was a spoiler bid,” said Justice Mabeya.

“While this court is aware that it directed Rao to proceed with the leasing process in strict compliance with the Competition Act, it did not expect him to undertake the duties of the Competition Authority of Kenya. There was no evidence that he sought advice on the same before he made the decision that the highest bidder was or would be a monopoly.

“Further, there was no explanation why all the other bids that were higher than that of Sarrai Group were disqualified. When challenged, Mr Rao did not explain how Mumias would pay off its debt to Kenya Commercial Bank and other creditors relying on that lease.”

Receiver manager

The court also noted that after appointing Mr Rao as receiver manager in September 2019, receivership continued between then to date. According to “the receivership accounts” filed in court, the receiver had collected in excess of Sh800 million between September 2019 and September 2021 when the administration order was made. 

“Of that amount, not a single cent was ever applied towards repayment of the debt. Rao stated that there was no surplus for debt repayment. However, the receivership accounts disclosed that there was money available to pay donations, facilitation, PR exercise amongst others,” said the judge, terming it doubtful whether the mill will ever survive if the management is left in the hands of the secured creditors.

Justice Mabeya concurred with Senior Counsel Paul Muite, teaming up with lawyers Esmail Abbas and Martin Gitonga, that public interest surpasses the narrow egocentric interests of creditors.

From the list obtained by the Deputy Registrar of the court, the judge appointed Kereto Marima of KR Consult Ltd to be the new administrator, who is expected to, within 60 days, call for and ascertain the claims of the secured creditors, the dates they became un-performing and the amounts outstanding as of those dates and lodge the same with the court.

The court said it considered the interest of farmers and locals.