See Part 1 here

Muthoka vs. CMA

Three days later, October 31^st, Muthoka and the CMA faced-off in court again and by mid-November the CMA had got the last word; Peter Muthoka would not get his opportunity to plead with shareholders. The courts blocked the planned extra-ordinary meeting and went a step further by authorizing the CMA to carry out investigations into the goings on at CMC.  The CMA appointed an independent forensic investigator the same week.

In January this year, Mr. Muthoka appealed the court ruling blocking his planned extra-ordinary meeting. He argued that by blocking his proposed shareholder meeting, the CMA was violating his rights and power to requisition and hold and extra-ordinary shareholders’ meeting by virtue of Section 132(1) of the Companies Act.

Meanwhile, the much awaited results of a forensic investigation into CMC by PricewaterhouseCoopers came out in January this year. The report confirmed that Andy Forwarders had in fact been over-charging CMC for logistics services. Total losses to CMC through the over-billing by Andy were found to be 1.1 billion shillings. Not good news for Mr. Muthoka.

On this new information, the CMA in February tried to re-structure the CMC board to protect the company from the feuds and hopefully get the shares trading again. The plan was to appoint 3 independent directors and ask the current ones to nominate 5 who would then make up the so-called “caretaker” board. This was not to be as Muthoka’s pending court battle with the CMA over the extra-ordinary meeting prevented the current CMC board of directors from being altered until the case was closed.

Briefly, it looked like Mr. Muthoka had quelled the CMA’s effort for control of the board but in mid-March, the CMA suddenly ousted Peter Muthoka and his counterpart John Kivai from the CMC board through a majority vote against them. Mr. Muthoka would later be disqualified from appointment as a director of any listed company in Kenya. In a move that appeared to blatantly go against their earlier stand to honour the pending court case with Mr. Muthoka, the CMA then appointed three of its nominees as non-executive directors in the CMC board.

In his characteristic fashion, Mr. Muthoka countered by filing a court application for contempt of court against the CMA who had orchestrated his forceful removal from the Board. He argued that the regulator had gone against the earlier court order not to change the CMC board of directors until the case former’s case with Mr. Muthoka was closed.

Muthoka Sues Everyone in Sight

When he was ousted from Chairman of the CMC Board of Directors, not only did Peter Muthoka sue the CMA who appeared to have masterminded the coup, he also went after every remaining board member at CMC plus those newly appointed after  his ouster.

He sued against the ouster of himself and Mr. Kivai from the board. According to news reports, he sued Mr. Charles Njonjo, Joel Kibe, Paul Ndung’u, A.K Shah, Andrew Hamilton, Bill Lay, Ms. Janmohammed, Ms. Githuku and Dr. Okumbe. By this time, everyone knew that the CMC scandal wouldn’t be going away soon.

CMC’s 1.5 Billion

The Capital Markets Authority wasn’t Mr. Muthoka’s only adversary in court. On February 29^th this year, CMC Holdings and CMC Motors Group jointly re-sued Mr. Muthoka and Mr. John Kivai (also a director at CMC and Andy Forwarders) for conflict of interest. The motor dealer convinced Justice Daniel Musinga to amend the previous suit filed three months ago in November 2011 where they were suing Mr. Muthoka for 2 billion shillings.

The fresh suit claimed that Mr. Muthoka and Kivai had breached their fiduciary duty to CMC by the way they handled the motor dealer’s affairs with their company Andy Forwarders. The motor dealer is seeking 1.5 billion shillings from the defendants as the sum Andy Forwarders over-billed CMC since 2006.

PwC Dragged in...

In March this year, news reports showed that there was a third court case spun-off from the CMC scandal; that between Mr. Muthoka and professional services firm PricewaterhouseCoopers. The latter had been sued by Mr. Muthoka because of the audit report they had done last year concluding that Andy Forwarders through Muthoka had fleeced CMC by 1.1 billion shillings.

In this suit, Mr. Muthoka said the PwC report, commissioned by the management of CMC, went against the company’s Memorandum and Articles of Association. PwC was further accused of publishing and distributing a report containing false opinions based on third party information. Muthoka wanted the negative allegations in the report against him and his company Andy Forwarders removed from the report and that any further publishing or distribution of the document cease. It didn’t stop there. Also dragged into the messy suit was PwC director and head of regional forensics Martin Whitehead, who was in charge of PwC’s forensics department.

Parliament and Bill’s Permit

While Peter Muthoka and the CMA were battling in court in October into November, the CMC saga had proven so big that it landed in Parliamentary debate. It all started when MP Boni Khalwale told Parliament that CMC CEO Bill Lay was in the country illegally despite the fact that Finance Minister Uhuru Kenyatta produced a letter showing that Bill Lay was in the country legally. MP Khalwale claimed that Mr. Lay’s entry permit had been rejected by the immigration department the first time, and that the CEO had subsequently obtained one outside normal procedure.

Evidence to this is the fact that the immigration department had on May 26^th written to CMC informing them that Mr. Lay had been denied an entry permit into the country. On learning this, Mr. Muthoka wrote to Mr. Lay four days later cancelling the employment contract they had signed on April 15^th a month earlier. Astonishingly, Bill Lay would one day after Muthoka’s cancellation letter walk into CMC with a valid entry permit in hand and assume office the following day.

In December, Immigration Minister Otieno Kajwang’ ordered that Bill Lay’s entry permit be revoked but three days later withdrew his orders.