The court-appointed administrator of Cytonn Investment’s insolvent funds has called for an extension of the administration period for a further one year, increasing the anxiety of the over 800 investors due to delayed returns.
Court papers indicate that investors may recover their full investments by the end of the year 2028.
The administrator, Kereto Marima, says the administration process of the two troubled investment funds, Cytonn High Yield Fund and Cytonn Projects Notes LLP, which started on October 6, 2021 is yet to achieve its purpose but he anticipates this will be done in the next 12 months if the extension is granted.
Court documents indicate that the total clients’ liability for the two funds as of August 31, 2021 was Sh14.1 billion.
The two funds also have another liability of Sh480 million, which comprises administration and advisory expenses. The total pending liability is Sh10.2 billion.
The administration orders expired last week on October 6 and Mr Marima is sitting on interim extension order that is set to end on October 18 when his request for a 12-month extension will be heard by Judge Alfred Mabeya at Milimani Law Courts Nairobi.
Claiming there are no sufficient assets to settle the liabilities of the insolvent funds, Mr Marima says in the absence of incomplete administration and non-extension of the administration process, there is the likelihood of inequitable distribution of the assets owned by the insolvent entities.
"Should the administration not be extended as requested, and given the various claims already made (including arbitral awards as well as execution orders) and others in the works, in all likelihood the very peril which the law sought to cure, a disorderly inequitable and unfair distribution of the assets will come to pass,” says Mr Marima in the court papers.
He argues that the consequences of not granting the extension is that: “The ugly beggar in the neighbourhood will inevitably ensue as each creditor desperately scrambles for the assets as they are able to lay their hands on to the disadvantage of all as there are not sufficient assets to settle the liabilities”.
“One of the greatest challenges I have faced is in respect to funding of the Administration. There are presently no funds available to run the administration. Apart from funding for the first creditors meeting, none of the administrative costs (including my fees) have been paid. I would request this court to fix fees for this assignment as well as allow the Administrator to take security for all the administrative costs,” says Mr Marima.
Purpose of the extension of his term of office, he says, is to enable him verify the claims by various creditors and effectively take appropriate action in protecting the interest of the creditors and the insolvent investment scheme.
In his supporting affidavit, the official receiver says since his appointment among the things he has been able to achieve is putting advertisements inviting known and potential creditors to submit their claims.
As at June 13, 2022 he had received 672 claims and 200 had not been received. He says the total number of Cytonn Real Estate Project Notes LLP accounts is 872. The total number of investors is 860, says Mr Marima in the court papers.
“There is still an ongoing verification and proving of the claims,” he says, adding that throughout the Administration process he has issued creditors with six updates.
He also developed Administrator’s Statement of proposals (ASOP) as required by law and shared the same with the known creditors.
In the statement he indicated that winding down of the investment scheme was the only objective that could be pursued in the Administration.
He adds that the Cytonn Investment Management Plc has also passed a resolution to wind down the fund, therefore rescue of the scheme is not a going concern.
According to the administrator, the business model of Cytonn has been overtaken by events in the market and is no longer viable.
“Consequently, the only option that can be pursued in my professional view as an Insolvency Practitioner is that of an orderly wind down,” says Mr Marima adding that he has various pending tasks to be completed in the Administration. An orderly wind down should not be interpreted as a fire/forced sale of Cytonn’s assets, he says.
The insolvent investment scheme was put under administration by the court following a request by the company’s Chief Executive Edwin Dande so as to give the funds time to restructure, recover and return value to investors.
A business is said to be insolvent when it cannot be able to raise enough cash to meet its obligations. Mr Marima says during this period he has been dealing with numerous legal proceedings before various courts and arbitration matters.
On why he has been unable to achieve the objective of winding up the investment scheme, Mr Marima says it is because of lack of funding to fund the activities of the Administration, in particular fund the second creditors meeting that was ordered by the court.
The first meeting was held on March 2, 2022 at a cost of Sh552,192. During that meeting, the creditors elected a five-member Creditors’ Committee comprising James Gitau, Bosco Matheka, Moses Edwin Owuor, Patrick Wanjau and Irene Kalii.
Another reason is the delay by Cytonn Investment Management Plc to provide the information he had requested so as to be able to carry out his function as well as answer queries by the creditors.
According to him, the extension is in the best interest of the creditors and investors.