WHEN the statutory authority supposed to protect an entire country’s capital market including the stock exchange is found to have acted “in total violation of the principles of natural justice” it must mean, at the very least, that the judgment concerned is worth reading.
And indeed it was. This is a case brought against the capital markets authority (CMA) of Kenya by the former chief financial officer of a major supermarket chain, Uchumi. A long-established business, with a wide range of offerings, it is in deep financial trouble, at least in part because of the pressure from new stores out of South Africa and elsewhere.
The CMA has been investigating Uchumi for some time related to several problems including a controversial rights issue a few years ago amounting to Sh895 million (virtually R114m). While the funds were raised to finance the opening of new stores and refurbish existing stores, at least half was used to settle current debts.
Okumu, fired by Uchumi in 2015, began a new job with a Kenyan brewery, but following the release of an audit report that blamed him and other Uchumi officials for alleged wrongdoing at the supermarket chain, he was sacked again.
Then the CMA, following its own investigations, barred him from holding high office in any public listed company for two years and asked the institute of certified public accountants to start disciplinary proceedings against him.
Okumu challenged the CMA’s decision in the high court court and now judge John Mativo has found in Okumu’s favour, ruling that the CMA showed clear signs of bias in the way it handled the matter, for one, because it was the investigator, prosecutor, judge, jury and “executioner”.
The manager of CMA’s investigation and enforcement section argued that its founding legislation empowered it to act as it had done, and that it was obliged to take action to ensure the maintenance and regulation of a market in which “securities can be issued and traded in an orderly, fair and efficient manner”. When the supermarket chain made changes to its top management against a backdrop of media reports alleging financial wrongdoing, and the combination led to a fall in share prices, the CMA was obliged to investigate.
But the judge held firm: this was a case where the CMA acted contrary to the rules of natural justice. It was “ill advised … to investigate, prosecute, sit as the jury and convict”. Instead, some of these functions should have been delegated to an independent body. The “entire process was undertaken in total violation of the principles of natural justice” and it could therefore not pass constitutional muster. The investigations against Okumu, along with the hearing and its outcome, were all declared null and void.
For Okumu personally this means he may now accept a job, if offered one. But it is bad news for the CMA: this is the second Uchumi-related case is has lost in the last month. The previous decision, involving former Uchumi CEO Jonathan Ciano, also found the CMA acted unlawfully – once again by not properly observing the fair trial rights of Ciano, the “accused”. In that case, the CMA has since given notice of an intended appeal. Presumably it will do the same in response to the Okumu case.
Three other Uchumi directors have also recently won at least a reprieve when the CMA was found by the courts not to have acted correctly in “charging” them. The CMA has since re-filed against them, using correct procedure.
Clearly, the slew of cases in which the courts have found against the CMA indicates that its legal team needs a wake-up call: it is not easy ensuring that justice is seen to be done; but if the authority wants to exercise the powers of a court, the CMA has to get it right.
- First published in the Financial Mail, 31 May 2018