Mohamed Zafrullah Khan when he appeared in a Nairobi courtroom. FILE PHOTO | PAUL WAWERU | NMG

Former chairman of the collapsed lender Chase Financial institution Ltd, Zafrullah Khan was paid a Sh1.052 billion bonus from money the lender had raised from traders via a company bond.

Paperwork filed in courtroom reveal that the cash was paid 4 days after the lender raised Sh4.8 billion via the bond on June 10, 2015.

This was in breach of regulatory agreements that demanded proceeds from the bond be used to help the lender’s enlargement plans and strengthen its capital base.

The bonus fee was additionally by no means disclosed to the traders through the knowledge memorandum that guided the bond, exposing the previous administrators of the collapsed financial institution to felony prosecution.

The Sh1.052 billion bonus was staggered into 4 tranches between June 15, 2015, and June 25, 2015, in breach of the board decision that directed the payout to be paid in 5 years.

Chase Financial institution went into receivership in April 2016 after failing to fulfill its monetary obligations. Mr Khan was later charged with conspiring to defraud depositors of Sh1.7 billion.

Mauritius’s SBM Holdings, in 2018, agreed to purchase among the property and liabilities of Chase Financial institution in a deal that noticed the bondholders lose Sh4.8 billion.

“Instantly after receipt of MTN (bond) cash, a bonus of Sh1 billion was paid,” the Capital Markets Regulator says in a letter to the previous Chase Financial institution administrators hooked up to courtroom paperwork.

“This bonus fee should have been disclosed within the info memorandum. Additional, it was paid opposite to the Chase Financial institution board resolutions.”

The CMA revelations had been made following a petition filed by Laurent Demey, a former non-executive director of the lender, who’s difficult fines and punishments from the regulator for breach of board oversight necessities.

“You breached your disclosure obligations owed to MTN traders opposite to the provisions of Part 34 (b) of the Capital Markets Act as learn along with regulation 12(1) of the Capital Markets (securities) (public affords, itemizing and disclosures) Laws, 2002,” the Capital Markets Regulator says in a letter to the previous Chase Financial institution administrators hooked up to courtroom paperwork.

Mr Demey revealed that the advert hoc remuneration committee of Chase Financial institution accredited Mr Khan’s bonus for his 18-year time period as CEO of the financial institution and was to be paid over a interval of 5 years in equal instalments.

The instalment funds hinged on the lender’s liquidity and profitability.

The regulator says the financial institution paid Mr Khan 21.5 % of the Sh4.8 billion raised from the bond.

Learn: CMA: How Chase Financial institution chiefs siphoned billions

The Central Financial institution of Kenya (CBK) has been searching for a strategic investor for Chase, which has been underneath receivership since April 2016 after failing to fulfill its monetary obligations.

The courtroom paperwork present that 4 days after the receipt of the bond billions, a bonus of Sh1 billion was paid to 4 companies together with Ava Commerce Ltd- Sh252.7 million, on June 15, Rinascimento International Ltd (Sh238.8 million) which was paid on June 15, Rinascimento International Ltd – Sh236.3 million on June 16, Balst Funding Holdings Sh174 million on June 25 and Van Wageningen Adriana & Carlo Sh101.6 million.

The regulator mentioned as a member of the audit and threat committee, Mr Demey ought to have ensured the bonus was disclosed to the bond traders.

Mr Demey and Rafiq Shariff had been fined Sh2.5 million every for his or her position within the issuance and use of the bond and Ken Obimbo, the previous finance director was handed a Sh5 million fantastic.

Mr Demey rushed to the Excessive Courtroom to problem the regulator’s choice claiming that the transfer to pay the retirement bonus to Mr Khan was made by an advert hoc committee of the board, via a decision made on Could 14, 2015.

The previous director says the committee was fashioned particularly to contemplate and advocate the fee of a retirement bonus to Mr Khan after his exit as CEO on Could 14, 2014.

The board had awarded Mr Khan the Sh1 billion bonus following his 18 years on the helm when he stepped down from the position of Group CEO in 2014 and was later appointed chairman of the financial institution.

Mr Demey, who resided in France, additional mentioned opposite to the decision handed, and by which he was not current, the bonus was paid in full in June 2015 with out the data or approval of the board or the committee.

He mentioned the fee was made straight to numerous beneficiaries together with Balst Funding Holding Ltd, which is owned by Mr Sharif, a director and former board member.

“The applicant was not conscious of any of those funds or that any of the administrators had been among the many beneficiaries earlier than these info had been introduced to me by the CMA from the CBK forensic report,” he mentioned.

He says the funds had been cancelled after discovering that they had been made opposite to the settlement, and directed the bonus be transformed right into a mortgage for Mr Khan.

He additional mentioned the choice by audit agency Deloitte to restate monetary statements was made unilaterally with out the approval and concurrence of the board.

“Consequently, the accounts republished on April 4, 2016, weren’t signed or accredited by the board and neither had been they introduced to the ARC (Audit threat committee) for dialogue. The applicant didn’t approve and nonetheless doesn’t approve these statements,” he mentioned.

Mr Demey says the regulator failed to contemplate proof on file and arrived on the faulty conclusion that he failed in his oversight of the administration of Chase Financial institution, resulting in the preparation and publication of false and deceptive monetary statements.

He says he was a non-executive director and never a resident in Kenya and was not concerned within the day-to-day working of the affairs of Chase financial institution.

Additional, he relied on government administrators and administration of the lender and monetary statements audited by Deloitte and the oversight by CBK to watch the efficiency of the financial institution.

He’s the managing companion of Amethis Finance Luxembourg, a personal fairness fund and an investor at Chase Financial institution Kenya Ltd from January 2013 to April 2016, which held 10.55 % of the share capital at Chase Financial institution.

Learn: Deloitte fined for Sh2.1bn hidden gap in Chase Financial institution

The previous director says the audit stories by CBK for the 2015 monetary 12 months didn’t flag points associated to accusations together with publication of false and deceptive accounts and solely prompt enhancements be made on extra provisions on among the common credit score recordsdata and emphasised the necessity for the lender to lift extra capital.

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