How an old law exposed Raphael Tuju to auction over Sh2.2bn debt
Wednesday April 26 2023
Former Cabinet Secretary Raphael Tuju’s Karen property was on Tuesday placed under receivership due to a Sh2.2 billion debt under an old law that favours asset auction over a rescue plan.
The East African Development Bank (EADB) appointed consultancy firm PricewaterhouseCoopers (PwC) as receiver managers for the 20-acre property and the high-end Dari hotel, which Tuju estimated to be worth Sh3.5 billion.
The hotel is currently under the management of Tamarind.
The move comes days after the Court of Appeal dismissed Mr Tuju’s petition against enforcement of a UK judgment for the debt, setting the stage for the auction of the properties.
Under the Insolvency Act that came into force in January 2016, a creditor is expected to rescue an indebted company ahead of auctioning its assets, offering a lifeline to the debtors.
But the loan deal inked in the UK between Dari Ltd and EADB was entered on April 10, 2015, before the enactment of the Insolvency Act, removing the shield that would have helped Mr Tuju to avoid auction.
Read: Raphael Tuju set for auction after losing Sh2bn UK loan suit
The regional lender announced the appointment of Muniu Thoithi and George Weru of PWC as receiver managers.
“Any person who purports to hold, receive, use or attempts to buy or sell, contract or transact or otherwise deal with the business and assets of the company without the prior written consent of the Receivers will be doing so at the own risk,” the notice said.
EADB, which is partially owned by the Kenyan government, was locked in a four-year legal battle with the former Jubilee Party secretary-general over the enforcement of the UK judgment ordering the seizure of Mr Tuju’s property under Dari Limited for sale.
Mr Tuju unsuccessfully fought the enforcement judgment up to the Court of Appeal, arguing that EADB was frustrating efforts to have other lenders, including KCB Group and equity investors, make the property profitable.
The Court of Appeal judges said Mr Tuju and EADB voluntarily chose to subject themselves to the laws of England and the judgment cannot be set aside merely on the grounds that it was erroneous.
Mr Tuju, who served as a Cabinet minister in the former administrations of Mwai Kibaki and Uhuru Kenyatta, was a prominent member of opposition leader Raila Odinga’s presidential campaign in the race won by President William Ruto last year.
Mr Odinga disputed Dr Ruto’s victory, but the country’s Supreme Court upheld it.
Mr Tuju had obtained temporary orders in 2020 barring EADB from auctioning his property and proceeding with a bankruptcy case against him.
He has also filed another pending case before the Arusha-based East African Court of Justice.
EADB says the debt, which it advanced on July 31, 2015, at $9.19 million (then Sh932.7m), has remained in default since 2017 when it fell due.
The loans were for the construction of Sh100 million two-storey, flat-roofed bungalows sitting on a 20-acre forested land dubbed Entim Sidai and the purchase of a 94-year-old bungalow built by a Scottish missionary, Albert Patterson, which currently operates as a high-end restaurant.
The London court dismissed Dari’s opposition to the bank’s claim, setting the stage for the lender to seek enforcement and auction.
The London court’s documents showed that the restaurant had entered into an agreement with the bank on April 10, 2015, under which it agreed to give Dari a $9.3 million (then Sh943.9 million) loan.
The deal gave the restaurant a 24-month grace period, which fell due in 2017.
But two years later, Dari had failed to pay $1.8 million (Sh243 million) in interest owed, according to the bank, adding that Mr Tuju had ignored a notice to clear the debt.
Mr Tuju opted to fight his battles in the Kenyan court and accused EADB of breaching the terms of the loan deal, which made it difficult to complete the high-end real estate project.
First, he accused EADB of disbursing Sh932.7 million instead of the agreed Sh943.9 million, adding that the bank had reneged on the plan to offer Sh294 million for building luxury homes for sale.
The bank directly paid Sh932.7 million to the owner of the 94-year-old bungalow sitting on 20 acres and demanded that Mr Tuju provide additional security for the construction of the Sh100 million bungalows.
Read: Tuju avoids auction in Sh1.8bn loan row
“Having failed to disburse the balance of $102, 916 (then Sh10.4 million) and further Sh294 million, the first defendant inevitably experienced cash flow challenges,” said Mr Tuju.
The Entim Sidai luxury homes development comprises five-bedroom homes worth Sh100 million each.
They have two jacuzzis in two master bedrooms with a translucent roof that lets in natural light where families live next to century-old trees and the historic bungalow.