KCB wins priority over Proctor & Allan assets in Sh4.9bn debt row

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The High Court has blocked construction company EPCO Builders from attaching and selling assets of a Limuru-based cereals manufacturer, Proctor & Allan (EA) Limited, to recover a Sh150 million debt.

Instead, the court gave Kenya Commercial Bank (KCB) priority over the same property as the lender claims Sh4.9 billion from the manufacturer.

The judge dismissed EPCO's bid and ruled that KCB’s floating charge had crystallised before EPCO completed execution of a court decree, placing the bank’s secured claim ahead of EPCO’s despite the auctioneer having already proclaimed the assets.

The dispute followed an arbitration arising from a 2014 construction agreement between EPCO and Proctor & Allan. The tribunal awarded EPCO Sh74.7 million, plus Sh1.8 million in arbitration costs and 14 percent annual interest, before the High Court allowed enforcement in February 2025.

EPCO obtained the enforcement order on February 3, 2025, after Proctor & Allan failed to overturn the award. A decree was extracted, and Betabase Auctioneers moved against machinery, equipment, furniture, and other movable property.

The auctioneer entered the company’s premises and issued a proclamation dated February 20, 2025.

However, the process was halted after KCB objected, saying the property was covered by its security.

KCB had advanced Proctor & Allan facilities secured by an all assets debenture dated November 1, 2013, and a supplemental debenture dated October 28, 2015. The securities covered the company’s land, machinery, equipment, receivables, book debts, future assets and other property.

The bank said facilities totalled Sh80.4 million and $28.9 million (Sh3.73 billion), and the company failed to honour a settlement requiring escrow funds by January 31, 2025.

KCB demanded payment of the outstanding debt, stating that the settlement had failed. The court heard that, as at February 2025, the outstanding balance was Sh37.6 million and $37.9 million (Sh4.9 billion), for a cumulative total of Sh4.94 billion.

The manufacturer had obtained KCB financing to construct the plant, but Covid-19 restrictions shut the factory for more than two years, affecting its ability to service the loans. After defaulting in October 2022, it failed to meet a Sh1 billion settlement with KCB.

KCB appointed joint receivers and managers in February 2025, saying the floating charge had crystallised following default, thereby converting into a fixed charge over the Company's assets.

EPCO disputed that position. It argued that the charge had not crystallised when execution began and that the debenture gave Proctor & Allan 14 days to discharge execution before crystallisation.

The court rejected that argument, finding default occurred before proclamation. It said the supplemental debenture governed because it prevailed over the earlier security.

“The floating charge had crystallised before the execution process progressed beyond proclamation,” the court ruled.

The court found EPCO’s execution incomplete because no sale had occurred. “A proclamation merely preserves property pending realisation through sale; it does not transfer title or ownership to the decree holder,” the court said.

It held that KCB had demonstrated superior proprietary interest and priority over EPCO.

“The respondent's (EPCO) execution against the attached assets cannot lawfully proceed in priority to the objector's (KCB) security interest,” the court ruled.

The decision clarifies that winning a court decree does not automatically give a creditor priority over a debtor’s assets where a lender’s security has crystallised before sale.

KCB told the court that the charged assets were worth about Sh1.62 billion, while its secured indebtedness exceeded Sh4.6 billion, "leaving a significant shortfall even if all secured assets were realised."

It argued that allowing EPCO to sell the property would reduce its security and undermine its rights as a secured creditor.

The court also declined EPCO’s request to lift the February 27, 2025 suspension order, saying separate legal proceedings had not invalidated the debentures or extinguished KCB’s rights.

In July 2025, High Court judge Njoki Mwangi struck out Proctor & Allan’s separate suit challenging KCB’s receivership, finding the appointment lawful under the debenture terms.

Early last year, Proctor & Allan had disclosed negotiations with potential investors, including an unnamed buyer offering about $10 million, to revive the business and settle KCB’s debt.

In the latest ruling, the court said the receivership dispute remained pending, and the assets should be preserved. It held that disposal could undermine determination of competing rights.

The ruling keeps the assets preserved pending determination of competing claims over the property.

Reporting originally appeared via Business Daily. Read the full source for additional context.