Cytonn locked in legal tussle with CMA over trustee
Cytonn CEO Edwin Dande
Property dealer Cytonn Investments is embroiled in a legal tussle with the Capital Markets Regulator after its bid to get trustees for its fund mobilising arms; Cytonn Asset Managers Limited and Cytonn Unit Trust, failed.
The Capital Markets Authority (CMA) now wants the two financial lifelines for Cytonn to cease boarding new members in what may spell a financial doom for the real estate firm.
CMA had given Cytonn up to December 31 to get new trustees or cease operations in what Cytonn argues will essentially freeze its cash pipeline and spark ‘an economic crisis’ at the firm, with widespread effects on investors and its employees.
Cytonn Chief executive and managing partner Edwin Dande accused the regulator of economic sabotage and ill move to lock the firm out of the market through the order.
The realtor argues in court that they had not been given sufficient time to communicate the directive to the investors, who would be greatly affected by the directive that violates their rights to property Mr Dande argues through his lawyer Tom Ojienda in a petition filed in Nairobi’s High Court that CMA could have prescribed a less punitive alternative with lesser ramifications on the firm.
“The much severe and detrimental sanctions chosen by the authority sparks nothing but malice in a bid to hedge out the interested party (Cytonn) from the market in total disregard to their constitutional rights to fair administrative action and the common law principle of natural justice.
The directive would cripple the operations of Cytonn Group of Companies since the Unit Trust is the fund raising unit to run its activities,” Mr Dande argued in court.
The law requires that any Unit Trust which is classified as a Collective Investment Scheme must appoint a Fund’s Manager to administer the funds sourced from various investors. The Trust is also obliged by law to appoint a trustee, which must be a bank or a financial institution approved by CMA.
CMA has been involved in a lengthy push and pull with Cytonn over the running of the two investment vehicles, according to papers filed in court. Cytonn Asset Management Limited (CAM) had appointed Co-operative Bank as the trustee but the bank resigned in August 2019, barely a year into the deal, under unclear circumstances.
While it is not clear why Co-operative Bank opted out of the trustee deal, even more intriguing is why none of the other four banks expressed interest in the deal. Cytonn now blames Co-operative Bank for the trustee recruitment hitch, accusing the bank of sending out a bulky request for proposal and giving a short notice for bidders, which returned no interest.
Cytonn then embarked on a drive to replace Co-operative Bank, a move that proved futile as none of the five banks licensed by CMA showed interest.
The two months allowable period elapsed, prompting CMA to begin the pressure on the real estate firm.
In a letter dated December 20, CMA wrote to Cytonn Asset managers that should Cytonn Unite Trust fail to secure a new trustee on or before December 31, 2019, CAM Limited suspends onboarding new clients /unit holders to the Cytonn Unit Trust from January 1, 2020.
National Bank of Kenya, KCB Bank Limited, HFC Bank and Stanbic Bank are the only other approved trustees for Collective Investment Schemes.
The real estate firm will now continue clinging on to last minute conservatory orders issues on December 31 to suspend the CMA letter that ordered them to cease operations until a new trustee is recruited.
Stanbic Bank had already declined taking the offer and, after the fallout with Co-operative Bank, Cytonn’s options are now narrowed to three banks that previously failed to respond when the offer was floated.
Mr Dande said the firm will take the matter in a constitutional petition to declare the sections of the law that restrict unit trusts to get trustees from banks only, terming it unfair and discriminatory. “We are basically fighting to get out of the cartel run by banks and have it opened up, just like the pension funds are able to get nonbank trustees. It is not that we have failed to get a trustee, we are just not comfortable with the restriction and Co-operative Bank remains our trustee until a new one is appointed, that is the law,” Mr Dande said.
It now remains to be seen what steps the regulator will take, given the law that still prescribes that the unit trust must have a trustee and in light of Cytonn’s new legal reprieve and the hopes in a new constitutional petition.
The Capital Markets Authority (CMA) now wants the two financial lifelines for Cytonn to cease boarding new members in what may spell a financial doom for the real estate firm.
CMA had given Cytonn up to December 31 to get new trustees or cease operations in what Cytonn argues will essentially freeze its cash pipeline and spark ‘an economic crisis’ at the firm, with widespread effects on investors and its employees.
Cytonn Chief executive and managing partner Edwin Dande accused the regulator of economic sabotage and ill move to lock the firm out of the market through the order.
The realtor argues in court that they had not been given sufficient time to communicate the directive to the investors, who would be greatly affected by the directive that violates their rights to property Mr Dande argues through his lawyer Tom Ojienda in a petition filed in Nairobi’s High Court that CMA could have prescribed a less punitive alternative with lesser ramifications on the firm.
“The much severe and detrimental sanctions chosen by the authority sparks nothing but malice in a bid to hedge out the interested party (Cytonn) from the market in total disregard to their constitutional rights to fair administrative action and the common law principle of natural justice.
The directive would cripple the operations of Cytonn Group of Companies since the Unit Trust is the fund raising unit to run its activities,” Mr Dande argued in court.
The law requires that any Unit Trust which is classified as a Collective Investment Scheme must appoint a Fund’s Manager to administer the funds sourced from various investors. The Trust is also obliged by law to appoint a trustee, which must be a bank or a financial institution approved by CMA.
CMA has been involved in a lengthy push and pull with Cytonn over the running of the two investment vehicles, according to papers filed in court. Cytonn Asset Management Limited (CAM) had appointed Co-operative Bank as the trustee but the bank resigned in August 2019, barely a year into the deal, under unclear circumstances.
While it is not clear why Co-operative Bank opted out of the trustee deal, even more intriguing is why none of the other four banks expressed interest in the deal. Cytonn now blames Co-operative Bank for the trustee recruitment hitch, accusing the bank of sending out a bulky request for proposal and giving a short notice for bidders, which returned no interest.
Cytonn then embarked on a drive to replace Co-operative Bank, a move that proved futile as none of the five banks licensed by CMA showed interest.
The two months allowable period elapsed, prompting CMA to begin the pressure on the real estate firm.
In a letter dated December 20, CMA wrote to Cytonn Asset managers that should Cytonn Unite Trust fail to secure a new trustee on or before December 31, 2019, CAM Limited suspends onboarding new clients /unit holders to the Cytonn Unit Trust from January 1, 2020.
National Bank of Kenya, KCB Bank Limited, HFC Bank and Stanbic Bank are the only other approved trustees for Collective Investment Schemes.
The real estate firm will now continue clinging on to last minute conservatory orders issues on December 31 to suspend the CMA letter that ordered them to cease operations until a new trustee is recruited.
Stanbic Bank had already declined taking the offer and, after the fallout with Co-operative Bank, Cytonn’s options are now narrowed to three banks that previously failed to respond when the offer was floated.
Mr Dande said the firm will take the matter in a constitutional petition to declare the sections of the law that restrict unit trusts to get trustees from banks only, terming it unfair and discriminatory. “We are basically fighting to get out of the cartel run by banks and have it opened up, just like the pension funds are able to get nonbank trustees. It is not that we have failed to get a trustee, we are just not comfortable with the restriction and Co-operative Bank remains our trustee until a new one is appointed, that is the law,” Mr Dande said.
It now remains to be seen what steps the regulator will take, given the law that still prescribes that the unit trust must have a trustee and in light of Cytonn’s new legal reprieve and the hopes in a new constitutional petition.