October 5, 2022

Shareholders claim fraud in Jamii Bora buyout by Co-op Bank management

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Minority shareholders of former Jamii Bank now Kingdom Bank have opposed the acquisition by Cooperative Bank Group, saying the whole process was done fraudulently. 

In court documents as reported by Star Newspaper , Poinsettial Limited which had 509,363 shares in Jamii Bora, translating to a two per cent stake avers that at the time notice for the shareholders meeting was given, the bank’s board was improperly constituted hence incapable of issuing valid notice thereof.

According to the aggrieved shareholders, the available evidence shows that the notice for the said meeting was made by only five directors instead of 11 as indicated in the Articles of Associations.

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”The said resolution, therefore, contravened the mandatory provisions of section 275 of the Companies Act, 2015,” the plaintiff says in the court documents. 

Poinsettial Limited claims that the said resolution for the allotment and issue of shares to the interested party bank is invalid for want of compliance with mandatory statutory provisions provided to safeguard the welfare of existing shareholders.

It adds that Section 348(7) of the Companies Act, 2015 required directors to provide a sufficient and justifiable commendation for the avoidance of the existing shareholder’s first right of refusal in the allotment and issue of the new shares.

”The recommendation given by the directors for the making of the said resolution, was not only deficient but also unfair as it effectively denied them a chance and opportunity to subscribe equally for the new shares in the defendant bank,” the plaintiff says in the court papers. 

Minority shareholders say that resolutions made by the company on July 1, 2020, were procured without material disclosure and the benefit of all information and material relevant to the matters in issue.

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Furthermore, the plaintiff avers that the resolutions are seriously prejudiced and devalued the shareholding and positional influence of the plaintiff in the company for reason that the new shareholder was allotted a total sum of 90 per cent of the company’s profits.

”This constitutes an unreasonable and unconscionable bargain on the part of the defendants that vitiated the entire agreement and the underlying resolutions,” the plaintiff says. 

It, therefore, wants the court to set aside all ordinary and special resolutions made by the defendant company on July 1, 2020. 

Even so, the first defendant, Kingdom Bank has challenged all claims by the plaintiff saying that the buyout was above board.

It, for instance, says that the special general meeting held on June 15, 2020, of which the plaintiff attended reviewed the board’s quorum of five members.

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It adds that the buyout was in the best interest of shareholders as the bank (Jamii Bora) was in negative liquidity. 

The tier three lender’s liquidity ratio stood at negative 11.1 per cent in March 2018, far short of the minimum statutory requirement of 20 per cent.

Kingdom Bank adds that the plaintiff appointed former Jamii Bora Bank CEO Samwel Njuguna to represent them in another special general meeting held virtually on July 1, which was attended by 95 per cent of shareholders.

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At the meeting, the board chair disclosed all merits of the offer to the second defendant (Cooperative Bank Group). 

Co-operative Bank Group successfully acquired 90 per cent of Jamii Bora Bank in August 2020 and renamed it Kingdom Bank after due approval from the Central Bank of Kenya, Capital Markets Authority and Competition Authority of Kenya. 

The matter which is before High Court’s Commercial and Tax Division will be ruled on May 16. 

The story was first published by Star Newspaper

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