Inside the Mumias Sugar legal battles over billions owed to creditors

Claims filed by creditors against the insolvent Mumias Sugar Company are at the centre of a storm that has roped in, among others, President William Ruto.

A review of court documents reveals an intricate web of petitioners, money in billions of shillings and shadows of powerful, opposing forces revolving around rival business interests.

The affidavit, sworn by former Treasury Principal Secretary Dr. Julius Monzi Muia in 2022, chronicles the company's changing fortunes from its first incorporation in June 1971 and privatisation in 2001 with the government, through the exchequer, retaining 20% ownership and ceding 75.43% to individuals, while institutions got 4.57% ownership of the then lucrative company.

Things however started going wrong for the sugar miller in the financial year 2012/2013 when it started recording net losses before collapsing by the end of 2018 having incurred losses amounting to Ksh.39.44 billion.

As at June 2018, the company's borrowings, principal loans and interests from in and out of government stood at Ksh.12.59 billion.

In the same affidavit, the former PS said that back then Mumias owed Proparco Ksh.1.9 billion secured using the electricity generation plant.

The court document also show that the miller owed Ecobank Ksh.2.08 billion while the government, through the Kenya Sugar Board Commodity Fund and the National T6reasury, was owed a collective Ksh.4.81 billion which was unsecured with no loan agreement executed.

Loans procured from KCB, CBA, Barclays and Stanbic Banks were secured with Mumias' prime agriculture land.

Mumias went into a court ordered insolvency in 2019, but all creditors agreed to give the administration a chance before resorting to liquidation to recover their monies.

The first administrator, Ponangipali Venkata Raman Rao is accused by one creditor, advocate Jackline Kimetto who is owed close to Ksh.77 million by the sugar company, of failing to meet the creditors as agreed. He was removed in April last year for amongst other things, gross incompetence and corruption

In the same year, another administrator, Kereto Marima was appointed, but was frustrated from assuming the duties that included meeting creditors, undertaking proof of debt and filing a report with the insolvency court.

Kimetto, in a sworn affidavit, claims that the process of getting the debts cleared by the company have been repeatedly frustrated.

Kimetto also claims that KCB Bank and the first administrator, Rao, have not only acted as the only creditors owed money by the sinking company, but have also engaged in tactics to abuse the legal processes by misleading the court into issuing all manner of overlapping rules by pleading inconsistent positions and tinkering with the administration of justice through corruption of court processes.

She also states that Mumias was improperly handed over to Sarrai Group, with the view of grabbing 15,000 hectares of land, known as the nucleus.

She further states that the company's assets have been left exposed to grabbing due to the absence of an administrator.

In her affidavit, Kimetto accused Sarrai group of systematically stripping assets from the company, the latest being a wheel loader that was carted away from Mumias Sugar and is currently being used at Sarrai's premises to load timber logs.

She also claims that law enforcement officers have failed to act on such reports, despite the incidents being brought to their attention.

Other reports have also been made to the police in Mumias of property that has been stolen, including computers, water system pipes from residential houses, and industrial gas cylinders.

She also accused Sarrai of moving machinery, motor and other equipment from Mumias and cannibalising the sugar company at the expense of those who are owed money

While the court tussles continue, the government, with its 20% stake in the company is once again promising to inject life into the troubled miller, by writing off debts and acquiring new machines.

This won't be the first time the government, under different administrations, has attempted to bail out Mumias which is now under the management of Ugandan based Sarrai Group.

The company's owner, tycoon Sarbjit Singh Rai is entangled in a legal tussle with his billionaire brother Jaswant Rai, who owns West Kenya Sugar, over the 20 year lease granted to Sarrai and the manner in which Mumias Sugar was handed to him.