While he claimed to have sold charcoal and potatoes in Elburgon before venturing into beer distribution, Karume also made a fortune from his land dealings under the aegis of Gikuyu Embu and Meru Association (Gema), and some of his properties ended up with some of the Gema kingpins.
It was the same script used by Dickson Kihika Kimani, who built an empire around Ngwataniro Mutukanio farms. His, though, is a story for another day.
Karume had also taken advantage of the Africanisation policy to win beer distributorship from Kenya Breweries Limited in the 1960s as the brewer set out to sell bottled beer to locals, initially the preserve of white settlers.
With money and power, Karume built his flagship Jacaranda Hotels in Nairobi, Mombasa and Elementaita, Village-Inn along Kiambu Road, and bought Cianda House in Nairobi’s Central Business District. And that was besides tea and coffee farms in Kiambu and numerous shareholdings in blue-chip companies.
Why, then, would his family suffer now?
That was the question on everyone’s lips after Karume’s children started to complain they were living hand-to-mouth and after they asked the High Court to intervene over the trustees’ handling of the empire. Meetings between the beneficiaries and the trustees had often degenerated into shouting matches that encouraged little, if any, sober discussion. By December 2014, the Karume estate could not pay the beneficiaries the Sh200,000 they had unilaterally set as the allowance.
Will on PowerPoint
It all started this way. Shortly after his death, some family members were invited to the boardroom at the offices of Iseme Kamau & Maema Advocates, where Karume’s will had been deposited. It was here that the Trust Declaration was presented in PowerPoint and explained to the members.
Not everyone was present and not everyone present agreed.
Actually, some, including Karume’s son Albert Kigera, doubted whether the signature of the Trust Deed was his father’s, although he agreed on the content. (Judge Roseline Aburili later said there was no evidence that Karume had not signed).
Unknown to many, Karume’s estate at the time of his death was asset-rich but deficient on liquidity, so much so that it came as a surprise that the beneficiaries started struggling with school fees and medical care after he passed on.
While the beneficiaries were entitled to a monthly maintenance allowance, it was not clear whether the income generated by these heavily-indebted companies would be enough. Had it been run properly, the estate would have generated income to sustain the needs and greed of everyone. But most of them, including some beneficiaries, thought liquidity could only be achieved by either borrowing or disposing of some of the assets. It was a mistake.
With no proper books of accounts by the trustees, it has now emerged in court that Karume’s estate was going to waste – and very fast.
Mr George Waireri, the trust chairman, attributed the cashflow problem to Karume’s children. He stated that after the demise of the former Cabinet minister, the beneficiaries’ children were taken to high-cost schools and universities the moment they discovered the trust was to pay for their education.
The first signs that all was not well happened after the trustees sold Kacharoba Farm for Sh555 million but could not explain, even to the court, how the money was spent. And who bought the farm? One of the trustees’ cousin.
Again, it was found that they had taken a Sh33 million loan from Jamii Bora Bank to pay themselves responsibility allowances and settle some legal fees at a time the estate was running out of cash. But in December 2014, two months after taking this loan, the trustees claimed they had no money to pay the beneficiaries their monthly maintenance allowance. They had to be forced by the court to pay for some needy cases.
While the family had agreed –in court – that proceeds from the sale of Kacharoba would be used to take care of the urgent needs of the beneficiaries, which involved medical care, school fees and maintenance as per the consent, the trustees “distributed the proceeds to corporate beneficiaries and payment of their own allowances, and made other payments that were never demanded as no bills were attached to compliance affidavits”.
That trustees could also not explain how Sh280 million left by Karume in an account at the Co-operative Bank – and which were proceeds from the sale of his land, LR 3544, to Kenyatta University Retirement Benefits Scheme – was used. While these proceeds were paid to Cianda Estate Limited, it was not known what happened to the money after his death and neither the trustees nor the children had an answer; yet another indicator that all was not well.
One of the trustees, Kung’u Gatabaki, told the court that Karume had left a debt of about Sh300 million and that the trustees had received a demand notice from Kenya Revenue Authority for Sh160 million in taxes for Jacaranda Holdings. But was this money used to repay the debts?
The Karume family was also divided on the running of the empire. While some would receive money from the trustees, others were left out after refusing to sign a trust handbook as a condition for getting an allowance. In the handbook, one had to explain why they needed the money and whoever did not sign the same could not get any allowances. One of Karume’s daughters, Lucy Wanjiru, protested and refused to sign the handbook. Her allowance was discontinued.
Also, those who sided with the trustees got more money. For instance, while Dr Francisca Kahiu received Sh3.2 million, Lucy Karume received nothing. Some of the trustees had paid themselves upwards of Sh2.4 million “because the Trust Deed allowed it”.
It later emerged that the trustees had more power and rights than the beneficiaries. On this Justice Aburili ruled: “If the beneficiaries have no rights enforceable against the trustees, there are no trusts. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient.”
For instance, while Karume had left his wife the palatial house in Cianda, the trustees further allocated her Sh69 million to purchase another house in Runda. The court was told that she had complained that the house was too large for her and her child and thus she needed a smaller house.
Karume’s son Kigera had an issue with his step-mother moving far away from the Cianda home as his deceased father wanted her to live there, not in Runda. The trustees said they thought that since she had a small child, it was not secure for her to live in a coffee plantation.
The judge said the trustees “are further not entitled to show favour to a beneficiary or group of beneficiaries, but are required to act impartially and in the best interests of all the beneficiaries”.
Facing cashflow problems, the trustees, without consulting the beneficiaries, asked PricewaterhouseCoopers (PwC) to audit the estate. PwC recommended that Jacaranda Holdings Limited should recruit a chief executive officer. That is how Mr Killian Lugwe was brought on board by the board. After giving him a monthly salary of Sh1.2 million, the trust also agreed to pay his children’s fees, which ran to about Sh2 million per term.
The problem with that was that Karume’s grandchildren had been kicked out of school for failure, by the trust, to pay their school fees.
One of the trustees told the court that when they suspended the education policy, not all children had finished schools or colleges.
Eventually, PwC told the trustees that the cash-flow was negative and that the hotels needed to be renovated if they were to survive. That is how Sh480 million was borrowed from GT Bank and also how Pizza Garden was closed “due to dust”.
PwC also reported that the companies were in the red, but advised that the three holding companies had great potential, but only if they developed a strategy to revive the companies and the trustees appointed experienced managers for the firms and their subsidiaries.
However, it was the disposal of Karume’s properties that perhaps started annoying some of his children. For instance, they were not consulted during the sale of Kiambu Sawmills for Sh59 million. This money was ostensibly used to pay school fees.
But even with such sales, it was found that the trustees had breached the objectives of the Trust after delaying medical funds for Michelle Wariara, a beneficiary who was suffering from cancer of the chest and the neck. Michelle later died.
The trustees also stopped Teresia Karume from receiving rent from a property gifted to her by Karume and deprived her of the only source of income. Also, they sold Karume’s South C property without notifying his grandchildren, who were living in the premises.
They also declined Lucy Karume’s request to be allowed to run Village Inn despite the fact that they had closed it since 2014 – and hence closing one source of revenue without any justification.
Ever since Karume’s death, it is clear from records that the trustees had not acquired any asset for the trust. While they had sold numerous assets, they did not have an inventory of the sales or a rendered account of the funds received from the sales.
Also, some of the trustees purchased some of Karume’s properties. For instance, Margaret Nduta Kamithi, a trustee, admitted having bought an apartment at Gracia Apartments block, which is part of the trust property. The trustees did not table any evidence in court to demonstrate any payment for the said apartment.
Lucky cousin
Further, another trustee, Kung’u Gatabaki, told the court that his cousin William Kung’u Kinyanjui was the person behind the entity that bought the Kacharoba property. He had not disclosed his relationship with Kinyanjui to the other trustees, it was found.
It is because of these mistakes that the Karume empire started falling and the reason the court wants a relook at the trust. Also, some of the trustees have been asked to leave.
Justice Aburili noted that “it is clear that the defendants did not keep books of accounts, let alone proper books of account, as commanded by the Trust Deed, and neither did they adduce any evidence to demonstrate that they kept the beneficiaries informed on the status of the trust”.
He went on to rule that “it would be unfair for this court to take as true accounts unaudited accounts as evidence”.
“It is clear to this court that self-dealing did take place by Kamithi, which places her in a conflict of interest with the trust. In my humble view, the trustees substantially miserably failed to execute their duties with the diligence expected of them while managing their own private affairs, and thus in breach of the trust,” said Justice Aburili.
And in this winding Karume saga lies a lesson to many.
jkamau@ke.nationmedia.com
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