Why court rejected Sh10 billion offer to save Savannah Cement
Savannah Cement Company in Athi River.
Faced with an imminent seizure by its creditors, KCB and Absa banks, Athi River-based Savannah Cement was thrown into a frantic search for survival options, court proceedings have now revealed even as the company lost its fight to stay free of external administration.
Among the options was a Sh10 billion cash injection offer by an investor, Savannah Clinker to clear claims by the two lenders and steer the cement maker back to sound financial health.
W. General Trading LLC claimed that it was the largest creditor to the tune of $4,463,569 (Sh635.51 million) and that parties were in talks before an administrator was appointed by Absa Bank May this year to run operations of Savannah Cement.
The company asked to be allowed to undertake restructuring to turn it into a profit-making entity.
Through Mr Samson Shivinah, the company proposed to pay Absa and KCB Sh5 billion each. He said the firm was willing to supply clinker to Savannah to sustain it as a going concern.
It held that if clinker is provided, the firm would be able to raise Sh2.1 billion in monthly revenues and save creditors losses of having the cement firm placed under administration.
High Court Judge Alfred Mabeya, however, rejected the proposal by W. General Trading LLC saying that apart from claiming that another creditor was willing to supply clinker and help the company get revenue, there is nothing tangible about plans to repay the debts to the two lenders.
Sh10 billion cash injection
“I have considered the affidavits on record. I am satisfied that there are no grounds at all that were advanced to warrant the grant of the orders sought,” the judge said. He said the application was an abuse of the court process and threw it out.
The application for the Sh10 billion cash injection was opposed by Absa through Faith Mutuku who said it was made with the mistaken belief that the cement manufacturer would be liquidated. She said the administration process is a controlled and regulated process and all stakeholders are considered.
She further said no meaningful proposals had been made to the secured creditors on how to settle the debt. The lender said it has accommodated the company for quite some time and nothing tangible was forthcoming.
And soon after the dismissal of the two applications, an administrator Harveen Gadhoke placed a notice in the newspapers inviting creditors to file their claims against the troubled cement firm.
Mr Gadhoke invited any party with claims against Savannah to submit their claims by next month.
“Any party having a claim against the company should submit their claim in writing, together with relevant supporting documentation and a proof of debt form, to the administrator on or before 25 August 2023 for consideration,” the notice by Mr Gadhoke read.
Trouble for the Athi River-based company started on November 24, last year when Absa appointed Mr Gadhoke as the administrator. The company moved to court and managed to suspend the move.
Several applications were made in court until last week when Justice Mabeya noted that despite being accommodated for more than a year, the firm has not made substantial or any repayments to the two secured creditors.
“No substantial or any repayments were shown to have been made for over a year. If any had been made, of course, the negotiations the applicants wished to undertake with the Absa Bank respondent would have borne fruits," said the judge.
The directors had also claimed that Mr Gadhoke visited the company soon after he was appointed and tried to kick out staff, freeze the firm’s bank accounts and chase away suppliers but the claims were dismissed by the court.
New management
The court was also informed that there were changes in the ownership and management of the company and the new management was committed to settling the secured creditors.
The judge, however, said the centre of administration is to keep the company as a going concern and upon examining the allegations and the steps taken by the administrator, there is nothing to show that he had the intention of closing down the company.
“If any had been made, of course, the negotiations the applicants wished to undertake would have borne fruits,” he said.
The directors of the firm have in separate cases involved in a bitter row over the ownership of Savannah Cement.
The court fight was triggered by the purchase of a stake in the company, which was initially held by Chinese investors, by a Kenyan director.
The shares were purchased by Mr Benson Ndeta for Sh1.5 billion and transferred to Seruji Ltd, a move founder shareholders- Donald Mwaura and John Gachanga challenged as illegal. After moving to court, the High Court appointed an interim board to run the affairs of the company, pending the determination of the case.
But the decision was overturned by a bench of three judges of the Court of Appeal saying the appointment of interim directors by Justice Farah Amin amounted to usurping the powers of the shareholders of Savannah Cement.
“It follows, therefore, that the learned judge acted ultra vires,” Justices William Ouko, Daniel Musinga, and Gatembu Kairu ruled.
The judges said courts will only interfere with the internal management of a company where actions complained of are illegal, fraudulent, or not rectifiable by an ordinary resolution.
The company was formed by a group of Kenyan and Chinese investors to join the lucrative cement market.
Local shareholders came under Savannah Heights Ltd with Mr Mwaura holding 30 per cent, Mr Gachanga through Isinya Plains Limited holding 35 per cent, and Benson Ndeta, 35 per cent.
The Chinese invested in the company through two companies- Wanho International Limited and ACME Wanji Investment Limited.
Wanho International and ACME Wanji Investment owned 60 per cent of Savannah Cement Limited while Savannah Heights acquired the remaining 40 per cent in a deal that was cemented through a Memorandum of Understanding.
Under the MoU, Savannah Heights owned by the Kenyans was to contribute two parcels of land. LR No. 25517 and LR No. 18474 in Athi River (75 acres) on which a cement plant would be built while Wanho International and Acme Wanji Investment were to inject the cash to start the plant with a capacity to produce 1.5 million tonnes of cement annually.
The partners later fell out after it emerged that Mr Ndeta bought off the Chinese and transferred the shares to Seruji Ltd, a move that was approved by Competition Authority of Kenya.
Mr Mwaura and Mr Gachanga later moved to court seeking to quash shares transferred to Seruji and the Registrar of Companies to expunge all the documents transferring shares from the Chinese-owned shares to Seruji.
