Stanbic Bank has received court approval to auction the assets of a cooking oil manufacturer, including an oil refinery plant, in a bid to recover a loan amounting to Sh2 billion.

The High Court ruling comes as a blow to Convex Commodity Merchants Limited and its subsidiary Convex Commercial Logistics Limited, both of which have been battling financial challenges and auction threats.

In the ruling, Justice Alfred Mabeya said that the lender was within its rights to sell the secured property after the borrower failed to meet its loan obligations.

The court found that the balance of convenience favoured Stanbic Bank since the companies had defaulted on their loan repayment. The judge added that once a borrower offers property as security, they acknowledge the risk of its sale if the loan is not repaid.

“There is no doubt that once a property has been charged to secure financial accommodation, it becomes a commodity for sale once there is default and there is no commodity for sale whose loss cannot be compensated by an award in damages.

A chargor who offers his property as security clearly anticipates the sale of the property in the event that he fails to service the loan,” the judge said.

Convex borrowed Sh1.5 billion from Stanbic in December 2020 to finance the construction of an edible oils refinery plant.

It offered two parcels of land as security, including the one where the plant was being built. The company later sought additional funds from the bank to complete the project.

The companies argued that delays in loan disbursement by the bank forced them to redirect money from their trading and logistics operations into completing the factory, disrupting their cash flow.

They also blamed the Covid-19 pandemic for affecting the construction progress and their business operations.

Despite these claims, the judge noted that Convex had not provided evidence detailing the delays in disbursement, including the amounts involved or the specific timeframes, making it difficult for the court to determine the impact the delays had on the default.

With this decision, Stanbic Bank is now free to auction the charged properties in an effort to recover the outstanding amount, deepening the financial troubles facing the two companies.