Reprieve for Guardian Bank in Sh2.5 billion shares dispute
The Guardian Bank has received a brief reprieve after a court barred four former shareholders of the defunct Guilders Bank from demanding Sh2.5 billion in compensation as the legal row on their merger moves to the Court of Appeal.
Justice Alfred Mabeya yesterday also slammed the brakes on the planned auction of assets of Guardian Bank to offset the payout, after finding that the intended sale and warrants of attachments were irregularly and illegally authorised.
In the pending appeal, Guardian Bank claims its acquisition of Guilders International Bank in 1999 was smooth although it suffered a loss because the true value of the defunct lender was misrepresented.
Court papers indicate that some of the loan securities transferred to Guardian Bank by Guilders Bank during the merger were illegal as they belonged to properties unlawfully acquired from the public. It says the High Court erred in awarding shareholders of the defunct lender the payout.
“The court erred in directing Guardian Bank to discharge the securities provided by shareholders of Guilders Bank and to return the same or pay their value as of the date of their submission. Some of the securities, having been found to have been illegally acquired by the High Court, were surrendered to the Registrar of lands for cancellation,” says Guardian Bank in the appeal.
The appeal is against a High Court order to Guardian Bank to pay the shareholders of four companies that owned Guilders Bank who sold their 200,000 shares when the lender took over Guilders in 1999.
The total price of the shares was Sh196 million as per the memorandum of understanding (MoU) of the merger. Justice Mabeya, in the judgment delivered on February 17, 2023, directed that the shareholders be paid with a 12 per cent interest backdated to 2001.
MoU vs Sale Agreement
But in the appeal, Guardian Bank argues that its acquisition of Guilders Bank was not based on the MoU but on a sale agreement dated December 30, 1999, on the purchase of shares. The MoU was dated October 13, 1999.
“The judge erred in law and fact in failing to recognise that the MoU was a preliminary agreement and could not supersede the agreement between the appellants and the respondents,” says Guardian Bank through its lawyer, Mr James Ochieng Oduol.
Further, he argued, it was wrong for the court to order Guardian Bank and its eight associates to pay the consideration price of the shares, and interest and return the securities when there was no such obligation under the MoU and the agreement.
He wants the Court of Appeal to set aside the High Court’s judgement and enter judgment in favour of Guardian Bank. Pending the determination of the appeal, Justice Mabeya stayed the execution of the judgement and warrants of attachment and sale of Guardian Bank’s assets.
The case will be mentioned on May 4 for further directions.