(NAIROBI, KENYA) – Businesswoman Mary Wambui Mungai has failed in her attempt to remove the administrator appointed by Equity Bank to run her Glee Hotel Limited. The hotel owes the bank more than KES 7.75 billion, equal to about 47.8 million US dollars or 37.6 million British pounds.
The High Court dismissed an application by the hotel management that challenged the appointment of Kamal Anantroy Bhatt as administrator. The management wanted control returned to the directors. The court upheld Mr Bhatt’s appointment and ruled that Equity Bank acted lawfully as a secured lender holding a qualifying first ranking floating charge. The appointment followed the requirements of the Insolvency Act.
The court issued orders stopping the company directors and agents from interfering with the administrator’s work. They are also barred from disrupting hotel operations or dealing with its assets. The officer commanding Runda police station was directed to provide security to ensure the orders are followed.
The court rejected the argument that administration should be a last resort when a lender has other forms of security. It said a secured creditor has the right to choose the recovery method it sees as most suitable as long as it follows the law. A properly appointed administrator may only be removed for cause. The party seeking removal must prove sufficient cause.
Equity Bank appointed Mr Bhatt of Anant Bhatt LLP as administrator from 6 July. The dispute began after the hotel failed to meet its obligations to the bank. The company challenged the appointment. It argued the bank did not disclose relevant court cases and other information in the statutory documents used to place it under administration.
The company also argued the bank should have pursued other securities before using administration. It said the process was out of proportion given the value of the assets securing the debt. The company claimed the bank’s statement of facts did not properly explain why it believed Glee Hotel could not pay its debts.
The High Court found that Equity Bank had shown it held enforceable qualifying floating charges. The bank had followed the requirements of Part VIII of the Insolvency Act. The judge said the bank provided the required statutory declarations and other documents. The appointment could not be invalidated simply because the documents did not give a detailed account of every default, judgment debt or related court case.
The court noted the company signed the security documents with full knowledge of their contents and legal effect. The company benefited from the credit facilities. It must have known when signing the debentures that it was creating a qualifying floating charge over its assets in favour of the bank.
The High Court also rejected the argument that Equity Bank should have pursued other securities before appointing an administrator. The existence of other forms of security did not mean enforcing them would bring a better recovery for the bank.
The judge found evidence that the administrator was making progress towards rescuing Glee Hotel as a going concern. This is the main goal of administration under the Insolvency Act. Mr Bhatt told the court he had hired a marketing consortium and contracted World Travel Group UK Limited to increase bookings. He had also reviewed the hotel wage bill. Wages accounted for more than 47 percent of gross income.
The administrator reported that room occupancy rose from 7.51 percent on 1 July to 24.41 percent by 12 July. The judge said this showed genuine progress towards the statutory rescue goal. The administrator blamed lost business on interference by the company directors. The judge said that result could not fairly be blamed on the administrator.
The court noted that Glee Hotel had other creditors who filed claims in the administration. This showed the financial problems were not limited to the dispute with Equity Bank. The administrator sought protection after directors allegedly tried to interfere with his work. They reportedly tried to evict him from the hotel and carried out transactions for the company.
The court said the administration could end if the company secures funds to settle debts through related entities. If that happens, there is no reason why the administration could not end at that point.