At least seven Stanbic Bank employees illegally transferred mortgaged securities to a company that they had formed three months after the distressed properties had been advertised for auction, according to a ruling delivered by Justice Richard Wejuli Wabwire.
The ruling, which was delivered last Friday, found that there was sufficient evidence to support an application in which Macdowel Food & Beverages had accused the seven employees of forming a sham company - Myriad Investment Club - to acquire properties that had been mortgaged to Stanbic Bank for a Shs1.06b loan facility.
The loan, which had been advanced on October 14, 2017, had been a subject of default thus Stanbic Bank had in early 2019 sought to dispose of mortgaged properties on five plots comprised on plot 7, 3, 4, 5 and 6 Works Close in Luzira, Kampala to recover the outstanding loan.
However, the decision had been challenged in court leading to a consent judgment in which Macdowel Food & Beverages had committed to repay the loan but again defaulted, forcing Stanbic to start a process of recovery and disposal of the properties.
The properties were later disposed to Myriad Investment Club. However, according to documents before court, Macdowel Food & Beverages, which was incorporated on September 19, 2013, subsequently sought court intervention, claiming that the bank had connived with Myriad Investment Club to illegally dispose mortgaged properties to a company whose directors were employees of Stanbic.
Macdowel Food & Beverages, acting through lawyers Nelson Nerima and James Katono, had also argued that the mortgaged properties had been disposed of in a process that it was never made aware of purportedly conducted through a public auction, which court found to have never taken place.
In a 22-page ruling, Justice Wabwire agreed with the applicant that the seven, including Mr Lawrence Kaweesa, Mr Allan Muhinda, Ms Daisy Nitwe, Mr Emmanuel Rukeeba, Mr Kenneth Kitungulu, Ms Maureen Kembabazi Katwebaze and Mr Thaib Lubega, had on February 3, 2020 “opportunistically incorporated a sham or conduit company ... with a hidden motive of purchasing securities”, which Macdowel Food & Beverages had deposited with Stanbic Bank as collateral for the loan.
Therefore, Justice Wabwire ruled: “It is my finding that the sale of the applicant’s securities [Macdowel Food & Beverages] by the lst respondent [Stanbic Bank] to the 2rd respondent [Myriad Investment Club], a company incorporated on February 3, 2020, three months after the advert for sale of the securities in November 2019 and barely a month before sale of the securities on February 26, 2020, was merely a side show and a shabby disguise intended to circumvent the provisions of the Mortgage Act,” noting that the actions by Stanbic and Myriad Investment Club aided by the fact that those involved were in a position of influence “were done in complete contravention of the law and thus are found to have been illegal”.
Under the Mortgage Act, a mortgagee or its employee or an immediate member of his or her family, an agent of the mortgagee or an immediate member of his or her family, a person in a position to influence the matter directly or indirectly or a person in position of any other privileged information with regard to the transaction, are not permitted to purchase mortgaged property or land without leave (permission) of court.
The lawyers had also argued that it was irregular and total disregard of court processes for Stanbic to dispose of properties that had been a subject of litigation in which Macdowel Food & Beverages had on March 20, 2019 filed a suit that sought an order of specific performance of the terms and conditions of the loan facility, among other prayers.
The suit, which was later settled through a consent judgement on August 22, 2019, followed notices in which Stanbic had warned Macdowel Food & Beverages of the need to dully attend to the conditions of loan obligation, failure of which the bank would take any action within its disposal, including sale of mortgaged properties to recover money due to the loan.
Subsequently, after numerous attempts to recover the amounts due, according to court documents Stanbic, on February 26, 2020, sold the mortgaged securities at Shs1.05b, a value that court found was lower than the Shs1.06b reserve price, in a process in which Myriad Investment Club had emerged the highest bidder.
However, court found that the purported auction had been a cover to aid the illegal sale of the mortgaged properties since “the auctioneer’s role had stopped at placing an advert for a sham auction [with] the subsequent bids received by the auctioneers forwarded to Stanbic for advice and acceptance long after the deadline had passed.
Court also found that Stanbic did not value the securities as required by law to guide on the reserve price yet they were sold at a lower price, which was a serious breach of duty of care.
Subsequently, court awarded Macdowel Food & Beverages with Shs100m in general damages, Shs300m in exemplary and punitive damages and 30 per cent of the cost of the suit.
At the weekend, Ms Cathy Adengo, the Stanbic head of corporate communications, told Daily Monitor they had noted the ruling and had already filed a notice of appeal.
Although the mortgaged properties had been sold to Myriad Investment Club, there was an attempt on October 22, 2020 to rescind the sale through a consent decision on condition that Macdowel Food & Beverages’ account in Stanbic is debited with Shs940m, which he was required to settle before the company would get vacant possession of the mortgaged titles.