Ndiburungi sugar millers say dfcu trying to grab its assets over loan ‘settled’ with Crane Bank
In taking over Crane bank on January 27, 2017, dfcu Bank perhaps pulled off the second largest bank acquisition in Uganda since Standard bank of South Africa bought Uganda Commercial Bank (UCB), now Stanbic bank, in 2000. But as Derrick Kiyonga reports, the historic acquisition has brought lots of attention and baggage to the bank.
SPOTLIGHT | The woes of dfcu Bank appear to have their end in eternity with the latest seeing three people run to court accusing the bank of breaching mortgage and loan agreements worth billions of shillings they had obtained in 2014 from defunct Crane Bank.
In their plaint filed before the High Court in Kampala, Punjalala Rangani, Vinay Rangani, and Hireben Rangani who are directors and shareholders of Ndiburungi Sugar Works, say that four years ago they were approached by former Crane Bank managing director AR Kalani.
He had an offer for a development loan to partly finance the cost a project of setting up a sugar plant at Ndiburungi in Luweero District, central Uganda. The development loan was ideal because it had a longer period, lower installment amount, lower interest rates and longer grace period to allow for construction of the sugar factory, they say.
It was expected, the trio says, that the low interest loan would be from the European Investment Bank (EIB) wherein Crane Bank was to be granted a loan facility for lending to its customers for various eligible projects.
It’s their case that there was a delay in finalisation of the EIB global loan facility, but in order to persuade them to approve the deal, Kalani offered short term financing to Ndiburungi sugar works such that the sugar plant starts, as they wait for the expected low interest loan from EIB.
On the strength of this promise, they say that Ndiburungi Sugar Works obtained three credit facilities, including Shs4.5 billion payable on demand on before the expiry of 12 months and in installments of Shs100 million for 45 months commencing October 31, 2015 to June 30, 2019.
The second facility was Shs300 million payable on demand before expiry of 12 months and payable in installments of Shs42 million each commencing on December 31, 2016.
The third loan facility was $1 million dated February 10, 2016, and payable on demand for nine months.
“These facilities were meant to lessen the cash flow burden as the parties awaited for the low interest loan from the European Investment Bank (EIB),” the three petitioners said, adding that as security for the facilities, they executed guarantees and mortgages to facilitate Ndiburungi’s borrowing.
On the faith and representation made by Kalani, they say that they invested up to Shs27 billion to buy land and purchase machinery and obtain investments and other licence to bring the plant to production.
This, they say, was on the promise that the plant would be atomized using funds from EIB, which were to be got on low interest rates.
“By virtue of the fact that these were short term facilities and the plant hadn’t started operations, all the money obtained under the said loan was straight away used to pay the installments and interest since the second defendant realized that it required funds to pay immediate monthly repayments,” the petitioners say.
However, things didn’t go according to plan since the funds from EIB loan never came through and the source of repayment for said loans was therefore frustrated.
“Crane Bank never delivered the funds from EIB loan but instead kept on giving Ndiburungi Sugar Works more short-term loans with promises that these will soon be paid off by the EIB loan,” the pleadings read.
Through Kiwanuka and Mpiima Company Advocates and Mujuzi and Company Advocates, they say that failure by Crane Bank to deliver the promised EIB loan created a deficit in finances required to complete the project for works.
Additionally, all the monies advanced to Ndiburungi Sugar Works was paid back in form of monthly installments as the sugar miller wasn’t productive to the maximum, they further say.
Though the loan has been provisioned and consequently written off by Crane Bank, in a change of position, they claim that dfcu Bank has now commenced various recovery actions under mortgage and debentures, including the appointment of a receiver, and has advertised the mortgaged properties for sale.
“The amounts being demanded are exorbitant and inaccurate,” the court documents partly read. “The plaintiffs are not sure that the amounts being demanded by dfcu are an accurate reflection of the actual outstanding and would like a reconciliation of accounts.”
Dfcu lawyer on the spot
Though dfcu has appointed William Kasozi, the managing partner of AF Mpanga Advocates, as the receiver of Ndiburungi Sugar Works, the trio aver that this is illegal, ineffective and void.
They contend that all issues that transpired in the transaction between dfcu, AF Mpanga, Bank of Uganda and Crane Bank are subject to great controversy and have been investigated by the Auditor General who according to them confirmed that the issues now in question were illegal transactions .
They further claim that Kasozi can’t be a fair receiver because “he has been party to ongoing banking conspiracy to defraud the plaintiffs of their investments in Ndiburungi Sugar Works.
Kasozi is further accused of being part of the legal team that advised on the transaction to liquidate Crane Bank and transfer loans to dfcu.
“Kasozi law firm was further assigned instructions to recover all loans transferred from Crane Bank without any option of restructure and refinance as had been previously agreed with Crane Bank,” they say.
According to them, dfcu cannot enforce the loan agreements, guarantees, debentures, mortgages and recover huge sums of money because the loan agreement and mortgages and guarantees were breached and frustrated.
On January 27, 2017, Bank of Uganda confirmed that assets and liabilities of Crane Bank, which had been put into receivership, had been transferred to dfcu.