Author: Sam Kiplagat
AfricaPress-Kenya: The High Court has given property dealer Cytonn Investments a month to recruit a new trustee for its fund mobilising arms, Cytonn Asset Managers Limited and Cytonn Unit Trust.
Justice Grace Nzioka also directed the regulator, Capital Markets Authority (CMA), to issue a fresh notice to Cytonn within 30 days as per the law.
At the expiry of the period, the judge said, CMA would be free to take relevant action against Cytonn in accordance with the law.
Cytonn Unit Trust Funds
“It is clear to the court that, a new trustee has not been appointed in accordance with the provisions of regulations 29. From the correspondence, there is no indication that further effort is being made to appoint one,” the judge noted, adding, Cytonn was instead lobbying for change of the law as to the persons who can act as trustees.
It was her opinion that, Cytonn Unit Trust Funds “cannot operate without a trustee. However, in regulating them, the respondent should cite clearly the relevant provisions of the law.”
Cytonn had challenged a directive by the regulator [barring it] from taking new clients until a new trustee was in place.
According to CMA, the move was meant to protect them from potential risks.
Cytonn, however challenged the move arguing that it was an act of economic sabotage and unreasonable.
It also challenged the constitutionality of the regulations 26(1) and 29(1) of the Capital Markets (Collective Investment schemes) regulations 2001, which provides that only banks can be trustees.
In an affidavit filed in court, Mr Abubakar Hassan, the acting CMA director, market operations, said Cytonn failed to appoint a trustee to replace Co-operative Bank, which had resigned.
Mr Hassan said the fund had Sh717,336,949, which was at risk in the absence of a performing trustee. He said any other deposit by new unit holders, under such condition will only work to amplify the “potential exposure to the detriment of not only the investors but also the general public”.
He said that the CMA directive, even though meant to shield the scheme from further risks, does in no way affect persons who are already unit holders.