Sigh for SBM Bank as Court Suspends Sh1B Payout to Rival

SBM Bank (Kenya) and AfrAsia Bank, two Mauritius-based financial lenders, have a Sh1 billion investment disagreement over the liabilities of the defunct Chase Bank that has escalated to the Court of Appeal amid concerns about the whereabouts of the money.

SBM Bank (Kenya) asks that the Appellate Court overturn the High Court’s ruling ordering it to pay AfrAsia Bank US Dollars 7.5 million. (Sh996 million).

AfrAsia deposited the funds in the defunct Chase Bank in March 2016. SBM Bank subsequently purchased Chase Bank, which collapsed the month after.

SBM claims in papers submitted to the Court of Appeal Nairobi that the money AfriAsia is claiming was not included in the assets or liabilities that Chase Bank transferred to it in August 2018.

As a result, SBM claims that when it took over the collapsing lender, it did not take the amount.

The appellate judges have suspended the payout pending the outcome of the appeal because they believe SBM Bank has a strong argument against the High Court’s ruling.

A three-judge panel made up of Justices Daniel Musinga, Hellen Omondi, and Imana Laibuta questioned the AfraAsia Bank’s liquidity and capacity to refund the decreed sum, if it were paid and the SBM’s appeal was successful.

SBM informed the courts that because AfrAsia is a foreign bank, recovering such a massive sum would be extremely challenging.

The amount deposited to Chase Bank adversely impacted AfrAsia’s financial situation, which in turn had an impact on its operations, according to testimony given to the court.

To give SBM’s case time to be heard and decided, the court ruled that the High Court’s judgment and decree from July 21, 2022, should not be put into effect just yet.

The judges claim that SBM’s appeal reasons are neither pointless nor frivolous.

AfrAsia deposited the money in the collapsed Chase Bank in March 2016 at a 2.35 percent annual interest rate with a one-month maturity and payment date of April 18, 2016.

Chase Bank temporarily stopped trading from April 7, 2016, when the Central Bank of Kenya put it under receivership, until April 27, when it reopened for business under the management of Kenya Commercial Bank.

The assets and liabilities of Chase Bank were reportedly purchased by SBM Bank (Kenya), and the transaction was finalized in August 2018.

AfrAsia filed a lawsuit against SBM Bank to recover the $7.5 million plus interest because SBM failed to publicize the required Notice as required by Section 3 of the Transfer of Business Act.

According to Justice Wilfrida Okwany’s decision, SBM was responsible for all of Chase Bank’s obligations, including the money paid by Afrasia Bank.

The Transfer of Business Act applied to the transaction, the judge ruled in a judgment dated July 21, 2022, and because SBM failed to issue the required legal notice, it is responsible for paying all debts owed to Chase Bank.

She determined that under the relevant statutes, the depositors had a right to be informed of the transfer of assets and liabilities.

The judge further declared that the law was applicable in order to safeguard the general public by preventing company fraud.

She claimed that it was undisputed and simple to see that AfrAsia deposited the funds at Chase Bank.

It was also undisputed that after Chase Bank was put into receivership, the Central Bank of Kenya sold its assets and obligations to SBM through its designated receiver, the Kenya Deposit Insurance Corporation.

“Needless to repeat, the SBM Bank did not publish the mandatory Notice under the Transfer of Business Act. I, therefore, find that SBM is liable for all the liabilities of Chase Bank Kenya Limited including the AfrAsia’s claim,” said Justice Okwany.