Recap

It all started on a cold dark night in March 2011. Whether it was cold, or dark, no one can confirm. All we know is that the company’s long-serving CEO, Martin Forster, was sacked. This sacking was the rock that started the avalanche of a simmering battle in the company’s boardroom.

In one corner of the boardroom battle was Peter Muthoka, who had, seemingly, risen from obscurity, to be on the verge of winning major control of CMC. Mr. Muthoka was, by June last year, the single largest shareholder of CMC with a 24.72 percent stake through his logistics company Andy Forwarders.

In March of the same year, Mr. Muthoka successfully fought his way to become Chairman of the CMC Board of Directors. Dubiously, he was also the main shareholder and CEO of Andy Forwarders which was the biggest beneficiary amongst all of CMC’s suppliers, and handled the motor dealer’s freight and logistics. This obviously raised a couple of eyebrows, and would later cost Mr. Muthoka his position as CMC Chairman and fuel the controversy surrounding the motor dealer.

[Read: Main Actors in the CMC Soap Opera]

In the other corner of the battle was a faction led by major CMC shareholder Joel Kibe who in September spearheaded the removal of Mr. Muthoka as Board Chairman. Mr. Kibe’s accomplice was one Paul Ndung’u who together with the former owned just over 18 percent of CMC.

Following Mr. Forster’s sacking in March, struggle for control of the company saw two of the company’s Board Chairmen successively ousted in subsequent months; and allegations of misconduct was hurled at just about everyone, and their dog, at CMC.

By September, the heart of the scandal revolved around former Board Chairman Peter Muthoka’s fight for two things:

• First, he sought to re-instate himself and his allies into the board and management of CMC after he was forced out in September last year. To do this, he called for an extra-ordinary general meeting scheduled for November 21^st 2011 with CMC shareholders in an effort to coerce them to oust his rivals namely CEO Bill Lay, current Board Chairman Joel Kibe and major shareholder Paul Ndung’u.
• To clear his name against accusations that he had defrauded CMC through Andy Forwarders. Shortly after taking office on June 1^st, Lay had uncovered that Muthoka’s Andy Forwarders had been over-charging CMC for logistics services in recent years. The total surcharge was reportedly close to 2 billion shillings (it would later turn out to be roughly 1.1 billion shillings upon investigation - huge difference) which Lay hoped Andy would pay back with no need to go to court. That didn’t happen.

Time to Lawyer up…

The lid got blown off the scandal when Mr. Muthoka took it to court for the first time in September last year after new CEO Bill Lay went public with allegations of fraud by the former. Not only did Mr. Muthoka publish a counter-statement in the press dismissing Lay’s claims as “utterly inaccurate and not based on fact”, he also sued the latter for defamation. CMC’s management would later in the year sue Andy Forwarders for this alleged over-billing for logistics services and claim the monies back.

Before this, CMC stakeholders including industry regulators hoped that the scandal would blow over quickly and business would resume as usual. Freshly appointed CEO Bill Lay was quoted saying that he hoped for an “amicable” settlement with Mr. Muthoka out of court. Muthoka’s boardroom rival Joel Kibe vowed to quit if Mr. Muthoka was found innocent of defrauding CMC. The Capital Markets Authority (CMA) was closely observing events as they unfolded.

No Share Trading

With word of Muthoka’s court action and the saga’s increasing public attention through statements and counter-statements in the media, the CMA had seen enough. On September 16^th 2011, they suspended all trading of CMC shares at the stock market to protect minority shareholders who were caught in the power struggle.

By all accounts, this looked to be a wise move by the regulator as the price of CMC shares had been volatile amidst the unfolding drama. In March, the shares had fallen to a 2-year low of 9.50 shillings before rallying just above 13 shillings in early June and then falling sharply soon thereafter, as news of the scandal trickled down to investors through the media. By the time the CMA froze trading, the shares were in an going up having risen to 13.50 shillings at the suspension to date from below 11 shillings in early June.

But the CMA wasn't finished. Shortly after suspending trading they also ordered that an independent forensic audit be done on CMC to confirm whether there was truth to all the mudslinging. As it would later emerge, the results of this forensic investigation would almost turn Corporate Kenya upside down. In fact, the CMA had only suspended the trading of CMC shares first until December 2011, then January this year but the scandal turned out to be bigger than what anyone expected. It's now November and the shares are yet to resume trading.

Was Anyone Innocent at CMC?

As the fiasco gathered steam, rivalling parties each accused the other of wrong-doing at the company. When Peter Muthoka was ousted as Board Chairman in September, his adversaries Bill Lay, Joel Kibe and Paul Ndung’u had, through the press, accused him fraud through his company Andy Forwarders.

But in November, Mr. Muthoka said that his opposition to questionable deals at CMC is what had driven his opponents to oust him. First of Muthoka’ allegations was a reported 11.7 million shillings that CEO Bill Lay had signed-off as payment of sales commission to a company known as Pewin Motors on his first day on the job. The commission was for the sale of 50 Land Rovers to the Government in around March 2011.

According to news reports, Pewin Motors was paid the backdated commission, even though Bill Lay had awarded Pewin a sales contract on June 1^st; 3 months after the Land Rover deal was made. It appeared that Mr. Lay had awarded Pewin money for a sale they didn’t do. To add on to this, CMC under Bill Lay reportedly paid Pewin double the industry average in another deal for the sale of Ford Rangers to the Government.

Peter Muthoka, who was Board Chairman at the time, opposed these agency deals with Pewin Motors. Mr. Muthoka added that his opposition to Mr. Lay’s plans to relocate CMC’s Land Rover and Volks Wagen brands to the Sameer Business Park and slash the salaries of 68 senior managers was the reason behind animosity towards him at CMC.

First Blood…in Court

Nonetheless, Peter Muthoka persisted in his bid to sway minority shareholders through the extra-ordinary meeting which he arranged to happen on November the 21^st at the Bomas of Kenya. When the CMA objected to Muthoka’s planned meeting, he swiftly got a court order in late October that barred the regulator from blocking the meeting. However, a day later, this order was withdrawn on the grounds that the Judge who had awarded it had close ties to Muthoka’s lawyers at leading law firm Kaplan & Stratton.

Join Us on 30th November  for part 2, as we look at Muthoka suing everyone, and the PwC