Liquidation, payout orders put Cytonn managers in tight spot
Cytonn Investments Management CEO Edwin Dande.
Thousands of investors who put billions of shillings into real estate projects owned by Cytonn hope to get back their money following a recent decision by the High Court to liquidate the company.
It was also a double blow for the company as the court rejected its plans to extend the term of the administrator appointed in 2021 to keep the company as a going concern.
Justice Alfred Mabeya said the administrator, Kereto Marima, seems to have had links with and has been very accommodating to the promoters of Cytonn Real Estate Project Notes (CPN) to the detriment of investors.
In a different case, Justice Mabeya also allowed an application by another investor, Esther Wangui, to be paid more than Sh2 million by the company in a lump sum.
The investor won the award before an arbitrator but the company sought to pay her in monthly installments of Sh100,000.
The company alleged that it was still reeling from the effects of Covid-19 and that the repayment should be staggered.
Justice Mabeya, however, said Ms Wangui was entitled to the award forthwith, without much delay.
"The delay should only be allowed where there is really warranted. The bona fides of the judgment-debtor must be demonstrated," said the judge as he rejected to pay the money in installments.
In the CPN matter, the ruling now paves the way for the sale of the properties to recover the billions the investors put in, hoping for better returns.
The projects that were being undertaken by Cytonn were houses in gated communities in high-end areas, with clients who would purchase houses off-plan, being the target.
Other than real estate, Cytonn has been marketing several funds as private placements, which until two years ago remained untouched despite complaints from investors because they did not fall under the ambit of the regulator the Capital Markets Authority (CMA).
In the ruling, Justice Mabeya noted that the administrator admitted that CPN cannot be rescued as a going concern because it has no credible funding model.
"In this regard, there is no likelihood of turning the company around and therefore there is no justification for extending the term of the administrator or appointing a new one," he said.
Housing projects
The judge ordered the preservation of the company's assets and housing projects identified as "the Alma, Applewood/Miotoni, Riverrun, Ridge and Taraji" until the liquidation by the official receiver is concluded.
It was noted that more than 3,000 members of the public sank in more than Sh11 billion through Cytonn High Yield Solutions (CHYS) and 886 others invested more than Sh4 billion in the Cytonn Real Estate Project Notes.
"The court must be sensitive and alive to the plight of over 3,000 members of the public who sank their over Sh11 billion and 886 others whose over Sh4 billion was sunk into these projects and therefore lean towards a lesser evil, which is to preserve those assets for the time being," he stated.
It was the chief executive of the company Edwin Harold Dande who in 2021 moved to court and asked Cytonn to be placed under administration.
Mr Dande argued that the company had capital contributions from 886 investors amounting to Sh4,180,992,923.
The court granted the administration Order and appointed Mr Marima, who had been proposed by CPN directors, as the administrator.
But in a 2022 application, creditors of CPN sought the court to terminate and lift the company's administration orders.
The creditors stated that the administrator had done little, if any, to aid the administration.
They further pointed out that the questions and issues they had raised remained unanswered and that they were apprehensive as the management of the company continued to be in charge of the company.
The judge agreed noting: "It is, therefore, no wonder that even after the administration order, Edwin Harold Dayan Dande, who describes himself as the chief executive officer of CIMP is the one swearing and filing affidavits."
They also revealed that the company was reaching out to creditors independently and offering them apartments in the settlement of the debt.
Mr Dande and the administrator opposed the application stating that the process of administration had been stalled by the creditors' committee who failed to sign the required documents such as the non-disclosure document and the code of conduct, among others.
Mr Marima said contrary to the creditors' assertions, he developed a statement of proposal, which recommended an orderly wind-down of CPN and had updated all the creditors on the progress of the administration.
Justice Mabeya rejected the application saying there was no way that the firm's fortunes could be turned around as the administrator had confirmed that the company has no credible funding source.
"It is not in dispute that Cytonn Real Estate Project Notes is seriously ailing and the creditors have suffered and continue to suffer as CPN is unable to pay what it owes them. The court is therefore of the view that the viable option would be to liquidate the company and appoint a
a liquidator who will have the interests of the creditors at heart," said Justice Mabeya.
Four projects
The creditors also sought the court's intervention in the preservation of four projects: Cytonn Integrated Project LLP, Cytonn Investments Partners 18 LLP, Cytonn Investments Partners Five LLP, Cytonn Partners Eleven LLP, and Cytonn Investments Partners 10 LLP.
The creditors accused the management of CPN of engaging in conversions and advertising the sale of some of its assets.
CPN, through an affidavit sworn by Mr Dande, averred that the Special Purpose Vehicles (SPVs) were separate legal entities from CPN and were not under its administration. CPN stated that it was owed more than Sh3 billion by the five SPVs.
Mr Dande stated that CPN was a collection basket that collected funds raised by investors and the SPVs would then borrow from them in the form of loan notes.
He said the SPVs were being condemned without being heard.
The court refuted claims by Cytonn that the SPVs were different entities and stated that the projects were under the control of Cytonn Properties.
"It may be that the said entities are separate and independent of the CPN but not the projects. All of them are CYTONNS."
The judge further ordered that all other legal proceedings against Cytonn be suspended to await liquidation and that those claims be lodged with and be proved before the liquidator.
"From the foregoing, it is clear to this Court that the Administrator was not acting in the best interest of the creditors. His actions were contrary to the objectives of the Administration," the judge said adding that the administrator was more of shielding the promoters of the company than the company and the creditors.
The judge said nothing was being done to restructure the balance sheet or add value as had been originally pleaded.
"The administrator was dilly-dallying with the Administration while the SPVs may be busy putting up the assets for sale," he said.
