Insists it cannot be held liable for debts accrued during receivership Things not so rosy for flower farm as it fights Sh1.8bn debt
Stanbic Bank insists that it must be paid all monies advanced to the firm, even when it was under receivership
As a flower farm and a bank await a landmark court decision that will determine whether the former’s directors are liable for debts accrued during receivership, the aftermath of the legal tussle has left behind ruins at what was once Kenya’s largest flower exporter.
Karuturi, which is fighting for its very life, was once worth $90.951 million (Sh9.2 billion). However, most of the crucial assets it relied on to make it one of the world’s go-to sources of fresh roses, now look like a scene from a post-apocalyptic movie.
From the 29 greenhouses to the planted flowers, irrigation and temperature control systems and the Karuturi hospital, a good number of the cogs in the machine that created an ecosystem supporting more than 10,000 Naivasha residents are now in poor shape, with damage estimated at over Sh3.2 billion.
Documents in court — which Karuturi’s owners are now basing a Sh12.9 billion claim from Stanbic Bank on — indicate that the flower farm’s assets have been among the hardest hit in the receivership wars.
The greenhouses, for instance, which were valued at Sh2.35 billion, are believed to have suffered severe damage, with many not having their polythene covers replaced or repaired.
The firm placed structural damage at Sh230 million and damage to polythene used to cover the greenhouses at Sh212 million.
“The structure as [of] now can’t protect the crop and the crop has maximum damage and mortality. Over 50 per cent of total recapitalisation on greenhouse is required to make the structures useful to roses growing,” a valuation by Hectares & Associates reads in part.
This, the valuation adds, has denied rose plants much needed humidity and exposed them to direct sunlight.
The rose plants too have been neglected as the valuation reports states that the farms have not been pruned to get rid of dead vegetation, and pests have been allowed to have their way around the vast land. To fix this, replanting seedlings afresh is required, at least according to Hectares & Associates, which says damage of Sh2.5 billion has been done.
Several blockages, severe direct sunlight and wild growth of unwanted plants around the farm has damaged irrigation systems and cost the flower farm Sh230 million.
Hectares & Associates adds that propagation systems, which were used to provide a conducive growth atmosphere for roses have been completely damaged and have seen Sh84 million go up in smoke.
This, the valuation firm holds, happened with damage to the worm composting unit and other equipment, mostly caused by dirt. The worm composting unit aids in using worms to help break down food scraps into valuable soil nutrients.
Medical equipment at Karuturi hospital has also suffered damage of Sh10 million as equipment that has not been disclosed in the document, was not maintained by receiver managers.
The hospital is set up on two blocks and has a pharmacy, casualty area, examination room, laboratory, paediatric ward, general wards, dental clinic and an ultrasound unit.
When consultancy Deloitte was conducting a court-ordered investigation, it spoke to Mr Jan Renting of Optimal Connection, a firm that helps flower sellers search for buyers. Mr Renting told Deloitte that Karuturi’s flower quality has deteriorated since 2014.
But the audit firm noted that Mr Renting was not involved in the day-to-day running of Karuturi and that his comments were not “informed by facts on actual operations at the farm”.
The Deloitte report, in many instances, gave Karuturi’s receiver managers a clean bill of health, dismissing claims like inflation of fertiliser prices, destruction of the managing director’s lake house and poor bookkeeping.
The auditors also noted that data kept by the workers union was inconsistent, hence could not be used to back up claims by Karuturi’s owners that receiver managers understated sales.
For instance, the union claimed that on week 32 of 2015, there were 4,010,776.76 rose stems produced, yet stems can only be counted in whole numbers.
Deloitte also dismissed an audit report by PKF, which had been commissioned by Karuturi’s owners, and went ahead to interview the document’s authors. PKF’S Phanuel Gad Wekesa held that he would not have called Stanbic’s receivership wrong if he had been shown all the loan documents.
The auditors noted that flower sales may have been under-declared by Sh114,363, which could lead to VAT dues of Sh15,774.
On the health of the company, Deloitte noted that the company was loss-making before and during receivership, hence it was difficult to expressly blame statutory managers for its current predicament.
Karuturi Limited, Rhea Holdings and Surya Holdings amended the suit they filed in 2014 to stop receivership, and now insist that Stanbic cost them billions by illegally taking over management of their business.
Karuturi owners are seeking compensation of Sh12.9 billion and a declaration that Stabic is not entitled to the claimed Sh400 million pre-receivership debts. They argue that receiver-managers have since 2014 misappropriated over Sh1 billion “in the pretence of recouping Stanbic’s dues”.
Karuturi Limited, Rhea Holdings and Surya Holdings have accused Ian Small and Kieran Day — receiver-managers appointed by Stanbic in February, 2014 — of deliberately running down the flower farm to ensure that there is no option but to liquidate it.
The Appellate court was to deliver a ruling last December on whether or not Karuturi should pay the disputed Sh1.8 billion loans extended to it by Stanbic, but the judges said their decision is not yet ready, and that the ruling will be by notice to the parties.
Stanbic insists that it must be paid all monies advanced to Karuturi, and that the Sh1.4 billion debt during receivership was not a loan but payment of expenses on behalf of the flower firm.
A neglected Karuturi flower farm in Naivasha on March 6, 2018.