Confusion as Auditor General’s report says Crane Bank is still under receivership

A Special Audit Report of Bank of Uganda (BoU) on Defunct Banks
compiled by the Auditor General (AG) Mr. John Muwanga now says defunct
Crane Bank Limited (CBL) is still under receivership and has not
progressed into the liquidation process, despite of its assets being
transferred to dfcu Bank at Shs200 billion, with a big percentage of
the money still yet to be paid.

The revelation came as Mr. Muwanga asked to look at the financial
reports of Crane Bank for the period it was under Bank of Uganda as
the manager between October 20, 2016 and January 25, 2017.
As BoU as the liquidator was expected to prepare a statement of
affairs for CBL in receivership but this was not done.

“BoU management explained that CBL is still under receivership and has
not yet progressed into liquidation, at the appropriate time,
following completion of the current court cases, a statement of
affairs will be prepared in accordance with the law,” Muwanga said in
the report he signed on August 27, 2018.

Section 99(3) of the FIA 2004 states that notwithstanding anything in
the Companies Act, where any proceeding for the liquidation of a
financial institution is commenced under this Section, the Central
Bank or any other person appointed by the Central Bank shall be the
liquidator of the financial institution.

On the other hand, Section 106(1) of the FIA 2004 requires the
liquidator to keep proper financial ledgers and financial records in a
manner prescribed by the Central Bank in which shall be recorded all
financial transactions relating to the liquidation.

BoU in the report says it injected into CBL a sum of Shs478.8 blillion for
liquidity support and other intervention costs, including questionable
Shs914,272,722 for legal services provided by lawyers of MMAKS
Advocates as transaction adviser.
The firm is said to have offered legal advice during intervention, resolution of CBL and advice on the sale of CBL assets and assumption of liabilities. The firm was also
paid Shs3, 073, 678, 67 4 as commission received from CBL shareholders.

There is also Shs 720,406,401 paid as “facilitation for special exercise (CBL).”

In the event that Central Bank intervenes in the failed bank, Secton
93 of the FIA 2004 guides that all costs of management by the Central
Bank shall be payable by the financial institution and shall be a debt
due from the financial institution to the Central Bank, in this case
CBL.

Sources say some of the costs BoU claims to have incurred are
unrealistic especially the legal fees paid to MMAKS Advocates that are
exorbitant especially that it comes from taxpayers’ money.

The AG says that: “In assessing the above, I was unable to examine CBL
operations during Statutory Management to determine that the funds
injected reflected the liquidity shortfall at the time.”

The AG report is a result of a letter ref A8:70/288101 dated November
28, 2017, the Parliamentary Committee on Commissions, Statutory
Authorities and State Enterprises (COSASE); requested the AG to
undertake a special audit on the closure of commercial banks by BoU.

The committee specifically requested the AG to provide assurance on;
the status of the banks at closure, cost of liquidation, status of
assets and liabilities of the aforementioned banks from closure to
date, non-performing assets, non-recoverable assets and liquidators.
Meanwhile all is not well at dfcu Bank. Eagle Online understands some
staff there are leaving following disagreements over a sharp cut in
their salaries. A source says staff unwilling to have their salaries
cut have been advised to resign.

In what looks like loss of confidence and interest, Britain’s
Commonwealth Development Corporation (CDC), months ago expressed
interest to sell their commercial interests in DFCU Bank, leading to
the suspicion that there could be disagreements amongst major
shareholders in as far as the bank’s business deals is concerned even
though top officials at the bank came out to say all was fine.

Eagle Online previously reported leaked agreement between Bank of Uganda and Dfcu that indicated the external owned bank got Crane Bank with assets valued at Shs1.3 trillion for just Shs200 billion (payment for liabilities).
The Agreement did not state the amounts of money paid by Dfcu as a net purchase price; or the payment terms for monies, or the assets (outside branches) that Dfcu was taking over.

DFCU Shareholding percentages

Arise BV 58.71 per cent
CDC Group of the United Kingdom 9.97 per cent
National Social Security Fund (Uganda) 7.69 per cent
Kimberlite Frontier Africa Naster Fund 6.15 per cent
2 undisclosed Institutional Investors 3.22 per cent
SSB-Conrad N. Hilton Foundation 0.98 per cent
Vanderbilt University 0.87 per cent
Blakeney Management 0.63 per cent
Retail investors 11.19 per cent
BoU staff retirement benefit scheme is 0.59 per cent