alexa How fights for control have shrunk Njenga Karume estate - Daily Nation

How fights for control have shrunk Njenga Karume estate

Saturday July 20 2019

 Njenga Karume

Trustee chairman of Njenga Karume’s estate George Ngugi (left) and the politician’s daughter, Ms Jane Karume, at a press briefing. PHOTO | FILE | NATION MEDIA GROUP 

BRIAN WASUNA
By BRIAN WASUNA
More by this Author

Peace talks between members of the Njenga Karume family and trustees running the former Cabinet minister’s business enterprises have collapsed, setting the stage for a return to court where they have been fighting since 2015 over control of the vast empire.

Lucy, Albert and Samuel Karume have refused to sign a decision by mediators Stephen Karau, Geoffrey Njenga and Ms Njoki Kahiga even as the High Court is set to deliver judgment on one of three cases involving the former Cabinet minister’s estate.

MEDIATION

Lucy on Friday told the Saturday Nation that the three of them have not signed the mediation agreement leaving the peace talks in limbo.

The three Karume kin argue that they agreed to mediation because they believed that the issue of kicking out Mr George Warieri, Mr Kung’u Gatabaki and Ms Margaret Nduta Kamithi — the trustees Mr Njenga Karume placed in charge of his estate before he died in 2012 — had been agreed.

“They (mediators) failed to mediate that reason and it was our request. Our prayer was ‘remove the trustees, they’ve failed and they are in that office illegally’,” Ms Karume said.

The court is on July 31 set to make a determination on the case Lucy, Albert and Samuel filed in 2015 seeking to kick out the trustees.

On one hand, Mr Karume’s three children accuse the trustees of mismanaging their father’s businesses.

But on the other, the trustees argue that the Karume children are using a backdoor to disregard their father’s will and take direct control and ownership of Mr Karume’s businesses.

Fights between some of Mr Karume’s kin and the trustees have played out in court.

PIZZA GARDEN

In 2015 Lucy, Albert and Samuel accused the trustees of plotting to sell Pizza Garden, a restaurant within the Jacaranda Hotel Nairobi premises. But the trustees argued that they were only trying to renovate the restaurant, which High Court judge Alfred Mabeya eventually allowed.

During the hearing of the application, Justice Mabeya had issued orders barring any interference with the pizzeria.

In August, 2018, Mr Karume’s children and grandchildren announced that they had put on hold their court battle to try and have their issues resolved by a Rev Geoffrey Njenga and Ms Njoki Kahiga — mediators.

The mediators’ decision was to be final — at least according to Mr Lee Muthoga who Mr Karume appointed as an executor of the former minister’s will.

Rev Njenga at the time said that during and after mediation, emphasis would be put on saving the vast Karume business empire from the kiss of death.

Whether the Karume kin dissenting the mediation decision will have a change of heart is now a race against time, as the court’s decision could go either way for them.

In another suit, the Karume children have challenged administration authority that their father had obtained over their late mother’s assets. Their mother, Wariara Njenga Karume, died in 2003 after a long battle with cancer.

CHALLENGED WILL

Mr Karume’s children are seeking orders to revoke the letters of administration that had been granted to their father by the court.

In the third case involving the family, some of Mr Karume’s children have challenged their father’s will.

Mr Karume’s will was drawn with the help of Iseme Kamau and Maema (IKM) Advocates.

The legal battles have intensified at possibly the worst time, as Guaranty Trust Bank (GTB) looks to auction Jacaranda Hotel in Nairobi, which is one of the flagship Karume family assets, to recover a Sh257 million loan.

The hotel has also been struggling to pay off a Sh328 million debt to the Kenya Revenue Authority (KRA) which the taxman demanded in December, 2018.

KRA wants to recover Sh235 million in VAT and Sh93 million in PAYE.

When Mr Karume died, his businesses only owed the KRA Sh68 million but the debt has now ballooned owing to more unpaid levies, penalties and interest.

Last December the Karume estate agreed to pay a Sh7.9 million deposit and monthly instalments of Sh50 million when the taxman came calling in December, last year.

But slow movement of asset sales has affected the instalment plan with KRA.

LAND PARCELS

To offset debts, the Karume family and the trustees have resolved to sell off some of the prime land parcels the patriarch left behind but conclusion of the deals has been delayed.

The family and trustees agreed, shortly after the mediation started, to sell 162 acres of land in Kiambu. Village Inn, one of their assets, sits on a five acre portion of the land up for sale.

Lucy told the Saturday Nation that the Karume estate will sell off some farms to settle outstanding debts mostly owed by their Jacaranda Hotels which the family intends to put more emphasis in reviving.

She added that there is already a buyer for the Kiambu property and that they are only waiting on the purchase price to be paid.

After the Kiambu land was advertised for sale, Mr Karau, the mediation panel chairman, said that the decision had been made in agreement with everyone on the negotiation table even though some family members expressed reservations.

“We have found ourselves in this position because of poor management and now we have to sell some assets that we would not have liked to offload. Once we have sold some assets we can settle outstanding loans. The farms are doing well but prices of things like coffee fluctuate. Hospitality is our flagship,” Lucy said in the interview.

She added that assets earmarked for sale to save Mr Karume’s businesses will not be affected by collapse of the mediation talks.

Mr Karume’s empire has been on a steady decline that started even before he died.

POOR MANAGEMENT

What started out as a result of poor management of the businesses has now been compounded by fights between some of the Karume relatives and the trustees.

The empireonce estimated to be worth Sh100 billion, is now worth Sh17 billion. The planned asset sales are likely to drag down the value at least until the Karume businesses get back on track.

Nine months before Mr Karume died, he formed three holding companies under which all his businesses fell.

Jacaranda Holdings owns the Jacaranda Hotels in Nairobi and Mombasa, Lake Elementaita Lodge and the Village Inn in Kiambu.

Karume Investments owns Cianda House in Nairobi’s Central Business District and several apartment blocks in Nairobi, Kiambu and Limuru.

Cianda Holdings owns the Karumes’ Cianda and Kachoraba farms.

When Karume’s kin and trustees were still before court, an audit report covering the Karume empire between 2008 and 2012 was filed and it, for the first time, blew the lid on the struggling businesses that were at the centre of the inheritance battle.

The audit report revealed that between 2008 and 2015, Mr Karume’s extensive business empire only managed to rake in a combined Sh5 million profit, and were heavily in debt.

PROPERTY TRANSFERS

The businesses were heavily hit by several instances of poor record keeping, poor management, insider lending and irregular property transfers.

His companies were also owed millions, but they did not appear keen on collecting.

Perhaps Mr Karume’s hiring choices had something to do with this.

The PricewaterhouseCoopers (PwC) audit report filed in court indicated that James Kihara (Jacaranda Nairobi accountant), his assistant David Kisovi and Sammy Kioko (Jacaranda Nairobi head cashier) had no accounting education despite being in charge of crucial positions that handle the companies’ finances.

Mr Kihara was cited for altering documents in 2006, while Mr Kioko was cited several times in 2003, 2006, 2008 and 2009 for the same offence.

Coupled with poor record keeping, the Karume companies were evidently being consumed by internal parasites.

To survive, Mr Karume’s firms had been forced into robbing Peter to pay Paul, as it would borrow to repay debts.

Interestingly, an auditor previously engaged by Mr Karume, and only identified in the PwC report as Mr Muigai, had stated that all businesses under the empire were tax compliant.