A section of the vast Karuturi Limited flower farm that was under cultivation. File Photo | MACHARIA MWANGI | NMG
Summary
- Karuturi accuses Stanbic Bank of working with the receiver managers to suppress the company’s sales and inflate expenses to justify the granting of fresh loans.
- Karuturi made the claims in response to a suit that Stanbic Bank filed in court seeking settlement of a Sh1.8 billion debt.
- Karuturi, which exports more than one million stems annually, went into receivership in February 2014 after it failed to pay Sh400 million loan from CfC Stanbic.
Troubled flower firm Karuturi has accused a local lender that
assumed control of the company during receivership of using the
receivers and managers to suppress its sales by more than Sh2 billion to
justify disbursement of more loans and prevent it from coming out of
forced management.
Karuturi, which is one of the world’s largest flower firms, accuses Stanbic Bank
of working with the receiver managers to suppress the company’s sales
and inflate expenses to justify the granting of fresh loans in form of
bank overdrafts to the flower firm. The bank denies the allegations.
Karuturi made the claims in response to a suit that Stanbic Bank filed in court seeking settlement of a Sh1.8 billion debt.
Stanbic-appointed
receiver managers are accused of suppressing flower sales and of using
suppressed currency exchange rate to the disadvantage of Karuturi during
the receivership.
Minui Thoithi and Kuria Mucheru were appointed Karuturi’s
receiver managers in 2014 after Stabic went to court over the flower
firm failure to meet its financial obligations.
Two
months ago, High Court Judge Francis Tuiyott directed owners of Karuturi
- Surya Holdings Limited and RHEA Holdings Limited- to settle Stanbic’s
Sh1.8 billion loan in 90 days or face auction in default.
Karuturi,
which exports more than one million stems annually, went into
receivership in February 2014 after it failed to pay Sh400 million loan
from CfC Stanbic.
The debt has since grown to Sh1.8
billion, including expenses the bank incurred in the receivership
operations in the wake of a trading deficit.
Owners of the flower firm have disputed the amount.
“In
any event, there was no trading deficit as alleged, or at all. What was
happening was a total manipulation of the trading figures to generate a
trading deficit, and as a justification for the bank to inject
additional funds, at the expense of the plaintiffs herein, who were not
party to the said trading activities,” Karuturi owners have argued.
Justice
Tuiyot however directed that the whole amount to be settled, noting
that the owners -- Surya Holdings Limited and RHEA Holdings Limited —
had admitted the pre-receivership debt and the post-receivership debt
had been assessed by an audit firm selected by their consent.
Owners
of Karuturi have disputed the Sh1.3 billion debt accrued during the
receivership, but the judge ruled that the amount can be refunded if
owners prove their case at the end of the trial which is pending in the
commercial division of the High Court.
Justice Tuiyott
declined to delve into the merits of Karuturi owners’ claims of
impropriety during the receivership noting that although the report had
given the bank and receivers a clean bill of health, a decision on the
allegations could only be made after full hearing and upon hearing the
auditor’s defence of the report.
“The court will grant
the plaintiffs an opportunity to disprove the findings of the auditor.
For that reason the court restrains itself from making a holding that
the findings of the auditor constitutes a final ascertainment of the
post receivership debt,” said Justice Tuiyott.
Karuturi
owners have argued that the report failed to point out instances of
mismanagement by the receivers and ignored the facts made available to
them.
Audit firm Deloitte, has compiled a report showing that Karuturi accumulated $6.7 million (Sh676 million) debt during receivership, which has accrued a $2.7 million (272 million) interest, bringing the total amount to $ 9.1 million (Sh9191 million).
Audit firm Deloitte, has compiled a report showing that Karuturi accumulated $6.7 million (Sh676 million) debt during receivership, which has accrued a $2.7 million (272 million) interest, bringing the total amount to $ 9.1 million (Sh9191 million).
Owners
of Karuturi have asked the court not to hold them liable for the new
debt, because it was disbursed without their consent.
Productions of stem
Karuturi
owners have challenged the alleged discrepancies in the volume of
flower stems produced, and the sales as contained in Deloitte report.
The
flower firm has maintained that there was no justification for
classifying about 86 million flower stems out of the total 474 million
flower stems graded as rejects.
The Deloitte report had
indicated that only 9 million flower stems were unaccounted for and
that total production peaked at 403 million out of which the receivers
reported that only 373 million stems were sold.
The audit firm is accused of producing an erroneous report that excluded re-bunched and mixed flowers.
Karuturi
owners claim that at the rate of 0.09 Euros per stem and using exchange
rate of 1.05 of Euros to the dollar, the 86 million stems allegedly
unaccounted for translates to $8.1 million (Sh818 million).
The
owners further claim that the Sh2.7 billion sales that the bank
reported translate to 305 million flowers, leaving about 70 million
flowers worth $9 million (Sh909 million) unaccounted for.
The
Deloitte report indicates that in October 2014 the Karuturi receiver
incorporated a company called Twiga BV in the Netherlands to help it
handle marketing, sales and invoicing and that most of the sales were
thereafter channeled through Twiga BV’s bank accounts.
Stanbic,
through the receiver managers, is further accused of using suppressed
exchange rates when converting from Euro to the dollar leading to loss
of $4 million (Sh404 million).
Stanbic has in response
argued that the alleged discrepancies are erroneously derived and meant
to divert the attention from the findings of the audit report. The bank
has asked the court to dismiss the allegations.
Owners Karuturi this week announced they had reached an
agreement with Phoenix Group for a “blend of debt and equity” that will
help them meet current debt obligations and restart operations.
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