Cytonn Investments Management CEO Edwin Dande.
The Court of Appeal has frozen five properties owned by companies under the Cytonn group and ordered that the Official Receiver take custody of them.
Justices Mumbi Ngugi, Pauline Nyamweya and Weldon Korir have ordered that the Official Receiver preserves the assets until the next hearing date of appeals against liquidation of two Cytonn subsidiaries.
High Court judge Alfred Mabeya ordered the liquidation of Cytonn High Yields Solutions (CHYS) and Cytonn Real Estate Project Notes (CPN) in January 2023.
Justice Mabeya further appointed the Official Receiver, Mark Gakuru, as the liquidator.
The preservation orders have also frozen a 12.5 per cent stake in real estate developer Superior Homes, which Cytonn Investment Partners Fifteen LLP bought using funds from the two collapsed subsidiaries.
Goal Advisory Africa Ltd, Cytonn Integrated Project LLP, Cytonn Investment Management PLC, Birguy Lamizana and 81 other individuals have filed appeals against Justice Mabeya’s liquidation order.
The Official Receiver has filed an application seeking to dismiss all the appeals and to allow him to sell the five assets to recover money that investors lost in the controversial investment scheme.
“The status quo that shall be maintained until the next hearing date shall be that the Official Receiver (1st respondent) shall collect, preserve and be in possession of the suit properties that are the subject of the consolidated applications, and shall not transfer, charge, dispose, waste, or otherwise deal with the said properties in any manner detrimental to the parties hereto,” the judges said in their ruling.
The five properties affected are Applewood Miotoni in Karen, Mystic Plains in Athi River, The Ridge in Ridgeways, Taraji Heights in Ruaka and Cysuites in Westlands.
Statutory requirements
Some of the properties have been developed and apartments sold to third parties. Following the consent of stakeholders, units that were sold before the liquidation orders will not be affected by the Official Receiver’s recovery project.
Before the judges set a hearing date for the main case, they will determine Mr Gakuru’s application seeking to throw out all appeals against the liquidation orders.
The ruling on Mr Gakuru’s application will be delivered on April 11, 2025, after which the judges will move to determine other applications filed at the Court of Appeal, before setting a hearing date for the main case.
In a separate suit before the High Court, a section of investors sought to remove Mr Gakuru as the liquidator, arguing that the Official Receiver breached the law in failing to call for a creditors’ meeting within three months of Justice Mabeya’s orders, for purposes of appointing a substantive liquidator.
The case was filed by CHYS against the Official Receiver, but has seen other individuals enjoined.
Justice Freda Mugambi last month held that an exception to the law is made when the Official Receiver has been appointed the substantive liquidator by the courts.
As Justice Mabeya appointed Mr Gakuru the liquidator in his 2023 judgment, the argument by that section of investors was dismissed.
“I note that the Official Receiver has provided evidence demonstrating compliance with the statutory requirements for the role as liquidator. Specifically, it has been shown that a notice of appointment as liquidator was published in the Kenya Gazette; that a notice for the first creditors’ meeting held on 7th March 2023 was issued; and that the Official Receiver has been regularly updating the creditors on the progress of the liquidation process,” Justice Mugambi added in her ruling.
Justice Mugambi also declined to lift preservation orders on assets the Official Receiver had listed as having been acquired using CHYS and CPN investors’ funds.
Debt settlement proposal
“In line with the reasoning above, in the rulings of 6th January 2023 and 17th January 2024 the court reiterated that the doctrine of tracing was properly invoked and demonstrated and that there is a chain linking the creditors’ money and the preserved properties acquired by the SPVs,” the judge added.
A group of seven investors also asked Justice Mugambi to compel the Official Receiver to consider a debt settlement proposal, and present it for voting by creditors.
The seven claimed to represent over 600 other investors who are cumulatively owed Sh4.8 billion by CHYS and CPN.
Justice Mugambi dismissed the request, agreeing with Mr Gakuru that the proposal had inadequate supporting documents and had no solid foundation to guarantee recovery of over Sh14 billion owed to investors.
“It amounts to little more than a colourful presentation of hope, rather than a practical and actionable plan. The proposal is purportedly designed to achieve a 100% recovery of the principal debt through the sale of CHYS’s assets; ironically, the very course of action the Official Receiver is already undertaking,” the judge said.
“Yet, the applicants oppose the Official Receiver’s efforts and instead propose to take over the sale and distribution of assets themselves. This is a clear encroachment on the statutory responsibilities vested in the Official Receiver as the liquidator, responsibilities that cannot be lawfully assumed by any other party,” Justice Mugambi added.
Justice Mugambi, however, allowed Edwin Dande, the majority shareholder of the parent entity – Cytonn Investment Management PLC – to join the case as an interested party.
Mr Dande had argued that his majority ownership of the parent Cytonn entity, and the fact that he personally invested in CHYS and CPN mean that he has a substantive stake in the outcome of the case.
Cytonn Investment Managers PLC is also listed as the investment manager of the collapsed CHYS and CPN.
