A fresh row has erupted over the control of the troubled Savannah Cement’s administration process, with the government now challenging the validity of the current caretaker amid an Sh18 billion exposure for creditors.
Mark Gakuru, the official receiver in the Office of the Attorney-General, says Peter Kahi, who took over as Savannah Cement’s administrator in 2023, is in office illegally.
Mr Kahi, a PKF Kenya partner, has challenged the assertion, introducing a twist to the cement manufacturer’s recovery efforts.
Mr Gakuru on April 16 wrote a letter to Mr Kahi, directing him to stop serving in the role, just a day before the administrator met with creditors of Savannah Cement.
The meeting, however, still happened, with the majority of creditors backing Mr Kahi’s proposal to lease out the plant and then scout for a buyer.
Mr Gakuru alleges that Mr Kahi’s appointment was terminated upon the expiry of his licence on November 16 last year and that his reappointment on January 24, 2024, constituted a fresh appointment that required Mr Kahi to among other things, notify the holder of floating charge (Absa) in Savannah Cement and also send a notice of his appointment to the firm.
“According to the records held by the official receiver, we note that these statutory requirements were not met and therefore, the appointment as administrator of the company is invalid as it is in contravention of sections 535,563 and 605 of the Insolvency Act of 2015,” says Mr Gakuru in the letter.
The row over Mr Kahi’s appointment presents another potential setback to creditors since it could render invalid the meeting he had last week with creditors and the resolutions that were passed.
The latest administration report prepared by Mr Kahi showed KCB Group and Absa Bank Kenya are owed Sh8.89 billion and Sh5.23 billion respectively, putting their combined exposure at 78.4 percent of the Sh18 billion outstanding amounts.
Mr Kahi has challenged the official receiver’s position. A letter in our possession shows that he had written to Mr Gakuru on April 12 this year, in what was a response to a letter the official receiver had sent about 10 days earlier.
In the letter, Mr Kahi says the court on March 19, 2024, allowed him to hold a creditors’ meeting and that Savannah Cement, all creditors and Mr Gakuru’s office were also updated.
“I believe that the appointment of the administrator is in accordance with the law, that it was sanctioned by the court and KCB did not object to it,” said Mr Kahi in the letter.
Mr Kahi was appointed the Savannah Cement administrator on November 6, 2023, following the resignation of Harveen Gadhoke.
Mr Gadhoke had been appointed as the administrator on November 24, 2022, when the company was put under administration, but he resigned on November 6, 2023.
This was after months of legal tussles over the appointment and being blocked from accessing the premises of Savannah Cement.
In response to this publication’s queries over the validity of last week’s meeting with creditors, Mr Kahi said: “Administration is a court-sanctioned process and the official receiver is not a judge.”
“I received the letter today 18th April at 10:12 am, way after we had concluded the creditors meeting. There is no court order in place revoking my appointment. By the way, where has he been since 24th January 2024?”
Savannah Cement creditors were invited to a virtual meeting by Mr Kahi last week Wednesday to consider his proposals over the next course of direction for the cement maker that had been making losses for five straight years, including 2022 when it fell into administration.
During the vote, 87 percent of the creditors approved Mr Kahi’s proposal of leasing the Savannah Cement plant and then scouting for a buyer instead of trying to revive it. The administrator had told the creditors that turning around the company would be “very costly,” requiring over 10 years and without guarantee of not leaving creditors worse off.
“A turnaround of Savannah would take an inordinately long period, likely over a decade, to materialise to the irreparable detriment of all creditors. The time risk is further enhanced by the limited term an administration can lapse,” said Mr Kahi in the report.
Savannah Cement posted a Sh412.39 million net profit in the year ended December 2017 before sinking into a Sh78.89 million net loss the following year. The loss has been widening, hitting Sh1.07 billion in 2020 and bulging further to Sh2.5 billion in 2022, when it sank into administration with accumulated losses at Sh7.86 billion.
The financials presented to creditors show that Savannah Cement was tapping short-term loans at an alarming rate, more than quadrupling the figure from Sh1.83 billion in 2018 to Sh7.87 billion the following year before crossing the Sh10 billion mark in 2021. As at May 2023, the figure stood at Sh13.48 billion.
Mr Kahi projects that even with a turnaround window, the firm would be loss-making for the better part of the period. This implies that such a turnaround would need to be heavily financed by additional debt to sustain operations. Raising debt would be difficult given it has no assets to collateralise.
“The administrator cannot guarantee that by attempting to turn around the business, the outcome to the entire body of creditors will not be worse off than would have been the case had the company simply gone into liquidation,” he said.