High Court Halts Equity Bank’s Takeover Bid on Swafi Foods in Landmark Ruling

The Kenyan game of lenders and distressed companies has acquired a new and interesting twist. The High Court has struck a major temporary blow to Equity Bank Kenya in one of the moves that are sending ripples in the corporate world, as it has suspended its intended takeover of Swafi Foods Limited.

It is not merely a legal nicety but a forceful intervention that reminds us of the complications of insolvency proceedings and the role of the judiciary in protecting corporate interests.

In a high-stakes corporate battle, Swafi Foods’ products and Equity Bank are at the center of a legal dispute over the company’s future.

The Bank’s Bold Maneuver

Equity Bank made a bold step under the Insolvency Act of 2015 just last month, on August 25.

Based on the necessity to respond to the claims of creditors and to reorganize the company, Kamal Anantroy Bhatt and Jai Kamal Bhatt of Anant Bhatt LLP are the joint administrators of Swafi Foods.

This was to be a transitional appointment that would take away all the powers of the directors of Swafi Foods and place them directly into the hands of these administrators so that they had complete control over the assets as well as the operations.

To an even greater extent, creditors were advised to present their claims before September 18, implying a fast track towards a new dawn for the food processing company.

This had one purpose: the introduction of professional control, the optimization of work, and the presence of a systematized attitude to the fulfillment of the tasks of the company.

Equity Bank appointed joint administrators to restructure Swafi Foods, aiming to manage assets and address creditor claims under the Insolvency Act. Source: Shutterstock

Swafi Foods Fights Back: A Judicial Reprieve

Swafi Foods Limited was not willing to give up without a struggle. The High Court handed down a stay of execution in a decision made on September 4, a vital tool of law that halts the application of punishment temporarily. This order defers the takeover specifically and expressly prohibits the takeover administrators of Swafi Foods from running or interfering with the affairs of Swafi Foods.

The court was clear: the Judge imposed a temporary restraining order on the Administrators of Swafi Foods Limited to relinquish its control of Swafi Foods/Swafi Foods Limited. This is to the effect that all company affairs are managed by the CEO.

This implies the current management of Swafi Foods has a strong grip over the company as long as things continue to be this way. Any administrative movements are put on hold, which gives a much-needed breathing space to the company and an opportunity to mount a defense. I would now like to direct all the questions and clarifications concerning the operations of the company to the management of Swafi Foods through their Mombasa offices.

Equity Bank CEO James Mwangi is a central figure in the legal showdown with Swafi Foods Limited

What This Means: Navigating Kenya’s Insolvency Landscape

This case shows that the judiciary in Kenya has strong judicial supervision of corporate insolvency. Although the Insolvency Act of 2015 gives the banks and creditors a clear roadmap on how to seize control of the financially crippled companies, it is up to the courts to question such moves and step in where they consider it appropriate.

In the case of Swafi Foods, this temporary injunction is a huge win that will allow its directors to maintain ongoing control and have a chance to resolve the underlying problems on their own terms, at least in the short term. In the case of Equity Bank, it will require a reassessment of strategy and increased involvement of the law.

Other Kenyan businesses, lenders, and legal practitioners will certainly be keenly following this case. It is used as a reminder that, despite a bank beginning a takeover under the Insolvency Act, the judiciary still can intervene, which underlines the status quo of the balance of power in corporate restructuring.