Court Clears KCB To Auction Cytonn's Cysuites Hotel Over Sh425m Debt

The High Court has cleared KCB Group to auction Cysuites Apartment Hotel, a serviced apartment property linked to Cytonn Investments, over a defaulted Sh425.6 million loan. Justice Fridah Mugambi ruled that Cytonn had no legal standing to block the sale since the property's registered owner is Wasini Resorts Ltd, a separate legal entity.

Cytonn had challenged the auction as a shareholder in Wasini Resorts through Cytonn Investment Partners Twenty LLP, which purchased one million shares in the company under a 2018 agreement before establishing Cysuites on the land. The title was used to secure a $3.2 million loan taken by Wasini Resorts around the same time.

Court records showed the outstanding balance on that dollar facility stood at $3,299,781.18, equivalent to about Sh425.6 million, as of September 24, 2024. Cytonn Investment Partners Twenty LLP funded its 2018 share purchase using Sh1 billion drawn from a co-special purpose vehicle, Cytonn High Yields Solutions LLP, now in liquidation.

Justice Mugambi held that Kenyan company law treats a business as legally separate from its shareholders, meaning acquiring shares does not transfer ownership of the company's underlying property. She said shareholders are entitled only to a share of profits while a company operates and to surplus assets upon winding up, not to direct ownership claims over company assets.

The court also found that the share purchase agreement Cytonn relied on was never incorporated into KCB's charge documents, and that the bank had neither consented to nor participated in that agreement. Wasini Resorts remained solely responsible for the debt, with statutory default notices issued directly to it as borrower.

Cytonn had argued it was negotiating a debt restructuring with KCB and remained willing to keep servicing the facility, asking the court to halt the auction on those grounds. Justice Mugambi rejected that argument, ruling that a chargor cannot compel a lender to accept restructuring in place of repayment, since restructuring remains a matter of contractual negotiation rather than a statutory right.

The case also drew in the government-appointed official receiver, who has frozen several Cytonn-linked assets while working to recover more than Sh14 billion owed to roughly 4,000 investors through the CHYS liquidation. The court ruled that preservation orders issued during that separate insolvency process could not override a secured lender's rights under a valid charge.

Cysuites is one of several Cytonn-linked developments caught in overlapping legal disputes, alongside properties including The Alma, Riverrun, Ridge, Taraji, Applewood, Kilimani and Athi River, all subject to competing claims from banks, investors, home buyers and the official receiver as the fallout from CHYS's 2023 collapse continues to play out in court.