When director liability extends beyond borders -2

When director liability extends beyond borders -2

Real People CEO Daniel Ohonde (left), board member Nthenya Muli and Nairobi Securities Exchange chief executive Geoffrey Odundo (right) at the bell ringing to mark the start of Real People bond trading at the Nairobi bourse on August 19, 2015. FILE PHOTO | NMG PART 2

Last week I started off the story of how Real People Kenya (RPK) came to the Kenyan capital markets in August 2015 to ostensibly raise capital for on lending to SME clients amounting to Sh5 billion in a medium term note (or bond). The bond, listed on the Nairobi Securities Exchange (NSE) was to be raised in three tranches and the first targeting Sh2 billion managed to raise Sh1.6 billion.

RPK is a subsidiary of Real People Investment Holdings Ltd (RPIH), a South African company listed on the Johannesburg Stock Exchange.

Kenyan investors, hungry for risk diversification from the usual government bonds and thin pickings on the corporate bond front, invested Sh1.6 billion in the bond. On March 31, 2021, Kenya’s Capital Markets Authority (CMA) issued a Press statement declaring it had taken enforcement action against former board members of RPK as well as current and former board members of RPIH in South Africa for their role in the misapplication of the Sh1.6 billion bond proceeds.

It turns out that as soon as the Sh1.6 billion was raised for use in the Kenyan SME lending market, the funds were instead put on the by-pass to glory and dispatched to the parent in South Africa to repay an intercompany loan.

It is important to note that investors of the bond made their decision on the basis of the Information Memorandum prepared by the company and signed off by the directors of the company, noting that CMA regulations require that they undertake personal responsibility for the statements and information contained therein.

The use of the funds is a key point of information to enable investors determine the capacity of the borrower to generate the funds both to repay the principal and the interest of the borrowed funds.

According to the CMA Press release, RPK immediately started experiencing financial distress once the subordinate capital was sucked out of its balance sheet and was unable to meet its bond obligations. The company was forced to ask investors to extend the dates for redemption of the notes beyond the initial maturity dates.

Upon investigation, the CMA found evidence that even before application, approval and […]

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