Legal twists and turns hurt hopes of Mumias recovery
The main gate to Mumias Sugar Company in this picture taken on August 2018.
What you need to know:
- Poor management and years of mounting losses led to the company's eventual closure.
- The sugar millers’ loans stood at Sh12.5 billion at the end of June 2018.
Is there hope for the revival of the once Western Kenya gem Mumias Sugar Company? It seemed so when the High Court appointed Mr PVR Rao as the administrator of the ailing miller in November 2021.
The sugar miller used to be the country’s leading producer of the sweetener, producing over 250,000 tonnes a year. But poor management, debilitating debts, and years of mounting losses saw its eventual closure.
The company’s shares were later suspended from the Nairobi bourse after being placed under receivership by KCB Group in September 2019.
Mr Rao took over the management of the once giant miller and sought to complete the leasing process, which he told the court, was the best option to roar Mumias Sugar back to life.
The leasing deal was keenly being watched by shareholders, including the State with a 20 per cent interest and creditors who are owed over Sh12 billion.
The millers’ loans stood at Sh12.5 billion at the end of June 2018. Apart from KCB’s Sh545 million, it also owed Ecobank Kenya (Sh2 billion), French development finance institution Proparco (Sh1.9 billion), which financed the construction of the power plant a Mumias, and Commercial Bank of Africa (Sh401 million).
Other creditors include the Treasury (Sh3.1 billion) and Kenya Sugar Board (Sh1.6 billion). Mumias was also operating on bank overdrafts worth Sh2.7 billion from various lenders. Victoria Bank later took over the debts from Eco Bank and Proparco and later transferred the debt to Dubai-based firm Vartox, which is now claiming Sh6 billion from Mumias.
Mr Rao explained that he settled on Sarrai Group to run the firm for 20 years because of its extensive experience in the sugar industry. The company has three sugar plants in Uganda with a crushing capacity of 19,000 tonnes per day and employs over 22,000 employees, he said.
The Uganda-based company moved in on December 24 and immediately started tilling the land, paving roads, repairs, and maintenance of the distillery and the factory among other activities in the revival plans.
But soon after making the announcement, a plethora of cases were filed in court challenging the lease and the whole process undertaken by Mr Rao.
At the end of January, a total of six cases had been filed in court, including one before the Public Procurement Administrative Review Board, which was later dismissed.
Another suit was also filed before the High Court in Kakamega by the county government, which insisted on proceeding with the matter, arguing that agriculture is a devolved function. The county government argued that agricultural sector, which forms the backbone of the economy of the county, was vital for its revenue generation.
And apart from the much-needed revenue, the miller was also the main source of employment and income for the residents of Kakamega, before its fall under a hail of debts running into millions.
More losing bidders joined the case followed by other secured and unsecured creditors, former workers, suppliers, and even the millers’ workers union.
Ms Jackline Kimeto, who filed the insolvency case, seeking over Sh76 million after acting for the company in various cases, also complained that Mr Rao’s conduct was not in the best interest of Mumias and other creditors.
She even called for a forensic audit of the company’s accounts arguing that despite being appointed the interim administrator, Mr Rao has failed to operationalise the administration process in accordance with the Insolvency Act.
The lawyer said the accounts tabled by Mr Rao in court, since he took over running of the company showed that he had generated Sh1.4 billion from the ethanol plant and which was enough to clear the debt owed to KCB. The request for the audit was rejected as was the application to cross-examine Mr Rao and a site visit to the miller in Mumias.
But last week, Justice Alfred Mabeya agreed with aggrieved creditors and losing bidders that Mr Rao was conflicted as both administrator and the receiver-manager. The Judge said it was in the best interest of the company and other stakeholders for the revival of the miller.
According to the Judge, receivership in the country has been nothing but a kiss of death to struggling firms. Receivers, he added, were hell-bent to line their pockets at the expense of other creditors and shareholders.
“On the other hand the insolvency act was enacted to give a kiss of life to financially distressed companies. It introduced the notion of public interest. The objective set out are the guiding spirit that is the root Rao and KCB should have taken,” he said.
And in his view, Mr Rao had not acted openly. The Judge noted that Mumias was not just an ordinary company but it was the largest sugar company in this region and its collapse will have dire social and economic consequences.
“If Rao found it difficult to juggle the two hats he had been bestowed with, he should have moved back to court to seek direction. The court, which appointed him to double as both the administrator and receiver manager was not short of wisdom to what should have been done,” he said.
