Customers of the collapsed Chase Bank wait outside one of its Nairobi
branches on April 7, 2016. PHOTO | EVANS HABIL | NATION MEDIA GROUP
Law firm Muma & Kanjama
Advocates and two church groups have sued the Central Bank of Kenya,
consultancy Deloitte & Touche and owners of collapsed Chase Bank in
what could open the floodgates for thousands of clients in collapsed
lenders to get refunds for their losses, if the suit succeeds.
The
plaintiffs have faulted Deloitte & Touche and the CBK for giving
Chase Bank a clean bill of health despite the lender’s questionable
operations that saw it close for over two years before being sold to
Mauritius’ SBM Bank.
Chase
Bank’s former chairman Zafrullah Khan and ex-managing director Duncan
Kabui have also been enjoined as respondents in the suit.
THE TAKEOVER
SBM
took over Chase Bank in August, 2018 after investing Sh8.6 billion in
the collapsed lender. Chase Bank’s 3,100 depositors will access 75 per
cent of their savings in three phases over three years.
The
remaining 25 per cent will depend on whether the Kenya Deposit
Insurance Corporation wins a recovery suit it has filed against Chase
Bank’s shareholders.
The CBK placed Chase Bank under
the care of the Kenya Deposit Insurance Corporation in April, 2016 after
the lender was forced to reclassify its Islamic banking assets as
insider loans.
In the end, this meant that Chase Bank had initially underreported its insider loans which were actually Sh8 billion.
FRESH TWIST
In
a fresh twist, Good News Church of Africa and The Gospel Furthering
Bible Church Trust have joined Muma & Kanjama Advocates in asking
the High Court to order Chase Bank’s auditors and the CBK to cover the
uncertain 25 per cent balance of their deposits.
The
suit is likely to attract the keen eyes of audit firms, especially
those that offer services to banks, as well as thousands of Kenyans who
have lost money in collapsed banks over the years.
The
period between August, 2015 and April, 2016 saw Dubai Bank, Imperial
Bank and Chase Bank collapse while holding deposits of nearly Sh100
billion.
The plaintiffs
want the court to award them Sh127.6 million to cater for the 25 per
cent hit they may take with Chase Bank’s collapse, and interest that
they would have earned on their deposits.
DELOITTE'S DEFENCE
Both
Deloitte & Touche East Africa and its sister firm Deloitte &
Touche Tohmatsu Limited have been enjoined in the case that has been
presented in the format of a class action suit.
Deloitte & Touche insists that it carried out its duties as Chase Bank’s external auditors.
The
East African wing of the global consultancy insists that Deloitte &
Touche Tohmatsu is a UK-based company limited by guarantee and cannot
be punished for the sins of a sister company.
The
plaintiffs in the suit argue that Deloitte & Touche East Africa
audited Chase Bank’s Islamic banking arm for three years, hence cannot
claim to have not known that the Islamic banking assets were being
wrongly classified as “other assets”.
They
also blame the CBK for opting to place Chase Bank under receivership
despite receiving five takeover bids for the collapsed lender.
But
Deloitte & Touche East Africa insists that it did not owe Chase
Bank’s customers any duty to ensure that the lender was financially
healthy. The case returns to court on June 16.
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