December 17, 2017

Is there hope for Chase Bank?

By Telford Aduda

It’s true that Chase Bank has been placed into receivership for the next 12 months by Central Bank of Kenya due to ‘unsafe financial conditions. This has therefore led to the appointment of Kenya Deposit Insurance Corporation (KDIC) as the receiver.

And it is also true that thousands of Kenyans have been trying to withdraw their money from the bank, probably transferring them to other ‘safe accounts’.

Some of the questions that one should be asking are: what does it mean to be placed under receivership? Can there be any hope for a company that has been placed under receivership?

Receivership is the situation in which an institution or enterprise is being held by a receiver, (a person ‘placed in the custodial responsibility for the property of others), including tangible and intangible assets and rights, especially in cases where a company cannot meet its financial obligations.

This means that KDIC will take control where directors have or may have lost control. The receiver now has the power to act and save the bank quickly. They will ensure that its exposure is (at least) not increased and hopefully recover all of its money.

KDIC will quickly ascertain what the prospects for business are and decide whether to sell some or all of the assets, the business as a whole, or to continue to trade whilst a better deal can be achieved.

They may opt to remove directors and employees without impunity, but ultimately decides the way forward and will (often) not take advice from the directors.

They must pay the preferential debts (employee’s claims for arrears of pay and holiday pay) first from any floating charge collections.

With this in mind, it means that there is still hope; it means that at least something is already being done to save the bank and its customers.

 

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