The fall of a flowers giant: The case of Karuturi vs Stanbic Bank
Kenya is one of the top exporters of fresh flowers in the world, with a majority of them going to the European Union (EU). Kenya’s flowers are also popular in the US, China, Japan and Russia.
According to the Kenya Flower Council, the country exported Ksh. 100 billion worth of flowers in 2017. The sector also employs over 100,000 people who work in the flower farms and indirectly benefits many more. The main cut flowers grown in Kenya are roses, carnations, Alstromeria plus a range of summer flowers. The flowers are grown in flower farms in Naivasha, Nairobi, Thika, Kitale, Nakuru, Kiambu, Athi River and Kericho, among other places. These flower farms produce millions of fresh flowers daily.
In Naivasha, the farms are concentrated around Lake Naivasha. Naivasha is popular with flower farms because of the availability of water from the fresh water lake, its proximity to Nairobi and the ready availability of skilled labour.
Naivasha is also the home of Karuturi Flowers. In its heyday, The company was producing over 330 million flowers at its Naivasha farm for export. It was also employing thousands and even sponsored a football team (Sher Karuturi). The good days were cut short by among others, the failed repayment of a loan from Stanbic Bank. The company has since been embroiled in a 4 year battle with the bank over the intended sale of its assets over the loan.
Here is what transpired.
Karuturi applied for and received a loan of Ksh. 259,000,000 (USD 2,590,000) from Stanbic Bank. The loan was disbursed on 27th December 2012.
According to the loan agreement, the flower company was supposed repay the loan in 60 months in monthly installments of Ksh. 5,212,736 (USD 52,127.36). The agreement further stipulated that any default in payment would lead to the entire loan becoming immediately due and payable.
The security of the loan was parcels of land where the farm stood.
2. Loan default
Karuturi made the first repayment installment of Ksh. 5,212,736 on January 31 2013. They however failed to make repayments in February, March and April 2013. This, according to the loan agreement, made the entire loan due and payable.
3. Appointment of receiver managers
By 10th February 2014, the amount due had ballooned to Ksh. 441,724,733 (USD 4,417,247.33). The bank decided to appoint Ian Small and Kieran Day to take over Karuturi as receiver managers. The plan was to restart production and normalize operations in the flower farm before selling it.
4. Karuturi gets injunction
Karuturi directors went to court on 28th February 2014 and applied for an injunction against the appointment of the receiver managers and the planned sale of the land. They court granted an injunction in June blocking the disposal of the land until the determination of the case. The court however declined to block the appointment of the receiver managers.
5. Liquidation orders
On March 30 2016, the Milimani Commercial Court made an order to wind up the operations of the company. In effect, the receiver managers previously appointed by Stanbic were terminated.
6. Appointment of liquidators
On April 5 2016, the bank obtained a temporary order appointing Muniu and Muchiru from Price Waterhouse Cooper (PWC) as liquidators of the bank until further orders from the court.
At this time, the loan amount due to the bank had risen to Ksh. 626,460,271 (USD 6,264,602.71) due to interest accrued and additional expenses that included valuation and legal fees.
7. Karuturi directors get injuction
The directors moved to court to stop the appointment of the liquidators from PWC by the bank and urged the court to appoint an independent and qualified liquidator to immediately take over the operations of the company.
8. Stanbic Bank gets go ahead to sell Karuturi
The High Court in March 2018 gave the bank the go ahead to Karuturi’s assets should its owners fail to settle the debt within 90 days.
The amount was at this time standing at Ksh. 1,572,618,660 (USD 15,726,186.60) being the loan amount, interest & penalties, and additional overdraft facility extended to maintain the day to day operations of the company.
9. Karuturi sale stopped
Justice Francis Tuiyott in May 2018 stopped the bank from going ahead with the sale of Karuturi assets until the case filed by Karuturi was heard. The judge however directed that the process of evaluation of interested buyers could continue.
10. Ongoing case
The case is ongoing and is due for hearing on 20th December 2018.