Selling a company may transfer its business, assets and management. But it does not necessarily transfer a personal guarantee given to its bank.
Warsame Abdi Aden has learned that distinction the expensive way. The High Court has ordered him to pay Gulf African Bank KSh21.9 million.
The debt arose from financing advanced to View Power Communications Limited. Aden had guaranteed those facilities before selling the company.
His defence collapsed because the guarantee expressly survived ownership and management changes.
Justice Peter Mulwa, who delivered the judgement in Nairobi, found Aden jointly and severally liable alongside View Power.
The award also attracts contractual profit at 20 per cent annually. That rate runs from January 17, 2024, until full payment.
The Debt
The dispute began with Islamic financing facilities extended by Gulf African Bank. Between March 2020 and November 2021, View Power received KSh36 million.
The facilities comprised Murabaha and Tawarruq financing for business stock purchases. Aden later signed a guarantee securing repayment, profits, commissions and costs.
View Power subsequently defaulted on its repayment obligations to the bank. Gulf African Bank initially claimed KSh27.96 million from the defendants.
It also demanded contractual profit at 20 per cent annually. The bank later issued formal demand letters after unsuccessful recovery efforts.
By then, however, View Power had undergone an ownership change. Aden said he sold the company to Mohamed Noor in October 2021.
He maintained that Noor accepted responsibility for the company’s existing liabilities. That arrangement became central to Aden’s attempt to escape personal liability.
Guarantee Survived
The court found the decisive answer inside Aden’s own guarantee. Clause 2.01 described the guarantee as a continuing security for amounts owed.
More importantly, it preserved liability despite changes affecting the borrowing company. That included changes in ownership, management and corporate constitution.
Justice Mulwa said the contractual language left little room for another interpretation. Aden had agreed that his liability would survive his departure.
The judge stressed that courts cannot simply rewrite contracts after circumstances become inconvenient.
Aden relied heavily on the company’s October 29, 2021, sale agreement.
Under that arrangement, Noor was said to have assumed responsibility for existing liabilities.
But Gulf African Bank never signed that agreement with the parties. The court therefore found it incapable of releasing Aden from his guarantee.
In simple terms, Aden could sell his company to Noor. He could also agree that Noor would shoulder company debts.
But that private arrangement could not cancel Aden’s separate promise.
That promise had been made directly to Gulf African Bank. Only the bank could release him from that obligation.
Evidence Hurt
Aden’s own evidence also created difficulties for his defence. He said he sold View Power on October 29, 2021.
Yet he admitted to signing invoices as a company director afterward.
Those invoices facilitated a KSh10 million facility drawdown on November 23, 2021.
The court considered that conduct inconsistent with his claimed complete departure.
Aden had continued acting for the company after the alleged sale.
He had also helped facilitate borrowing covered by his guarantee. That made his attempt to completely sever responsibility difficult to sustain.
Aden also argued that the bank accepted new account signatories. He said that conduct demonstrated acceptance of the ownership transition.
Justice Mulwa rejected that argument as legally insufficient.
Changing account signatories, the judge said, was an administrative banking exercise.
It did not amount to releasing Aden from his contractual guarantee. There was no clear evidence that Gulf African Bank intended such a release.
The court similarly rejected Aden’s argument concerning loan restructuring discussions.
View Power had requested a moratorium and restructuring of its facilities.
The bank rejected both requests, meaning no restructuring agreement actually followed.
Bill Reduced
Although Gulf African Bank won the case, it did not receive its original claim.
During testimony, the bank’s witness disclosed that View Power had made further payments.
Those payments reduced the outstanding balance to KSh21,915,021.13.
The judge said the bank was bound by evidence from its own witness.
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He therefore refused to award the larger KSh27.96 million originally claimed.
Instead, judgement was entered for KSh21.915 million against Aden and View Power jointly.
The amount will attract 20 per cent contractual profit annually from January 17, 2024.
That charge continues until the debt is completely paid. Gulf African Bank was also awarded costs against both defendants jointly.
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