Imenti Central Member of Parliament Gideon Mwiti is on the brink of being declared bankrupt for his alleged inability to repay a Sh6.1 million bank loan obtained through a collapsed pyramid scheme.
If he is finally adjudged insolvent, Mwiti will become the second sitting Member of Parliament after Cabinet Minister Paul Ngei to be declared bankrupt.
And in effect, the MP will automatically lose his parliamentary seat and cease to hold offices such a directorship of a company or any other public office.
After Lady Justice Grace Nzioka dismissed his application to set aside the bankruptcy notice issued by a magistrate’s court on April 22, 2015, it became clear that until he appeals the decision, the High Court order technically declares him insolvent.
Justice Nzioka said Mwiti had not convinced the court that he had a counter-claim or cross-demand against Diamond Trust Bank which equalled or exceeded the amount of the decree to stop him from being declared bankrupt.
“I find no basis to set aside the said bankruptcy notice issued to the applicant. Consequently, I hereby dismiss the MP’s application in its entirety and direct him to meet the bank’s cost of the suit,” she said in her ruling on March 7.
Kenya’s Bankruptcy Act states that a person is declared bankrupt after a court has examined his or her financial affairs upon the application of a creditor or by a person himself and found that the person’s assets are far outstripped by his debts at any given time.
Diamond Trust Bank moved to court in 2008 seeking to declare Mwiti bankrupt after he and the fallen Akiba Micro-Finance failed to repay loan.
The bank said the embattled legislator who is facing criminal charges over alleged rape had neither settled the debt nor challenged the court’s order and urged the High Court to declared him bankrupt.
Mwiti was sued by the bank jointly with Gabriel Mugambi and John Ncebere in 2005 as owners of Akiba Micro-Finance over the outstanding loan the company failed to settle as agreed. The court ruled in favour of the bank and Mwiti was ordered to pay the debt.
The investment firm was closed on November 2, 2005 by officers from the Banking Fraud Investigation Unit (BFIU) and the Central Bank of Kenya (CBK) officials on suspicion of running a pyramid scheme. It collapsed with hundreds of millions in members’ contributions.
The CBK accused the company of carrying out illegal banking business, froze its accounts in three banks and subsequently put it under lock and key. The micro-finance had over 6,000 customers and 300 employees.
Mwiti and three other directors were thereafter arrested and charged before a Nairobi court, accused of carrying out banking business without approval.
The prosecution called 17 witnesses to testify in the criminal case that ran for six years.
However, on September 23, 2011, the magistrate acquitted Mwiti and co-accused holding that the three never broke any law when they carried out the business.
Mwiti then sued the CBK for damages, saying the court had cleared the directors of any wrong doing.
On May 5, 2012, Justice Alfred Mabeya ordered the CBK to pay the micro-finance over Sh1 billion and interest after the court found the regulator acted arbitrarily in closing down the business.
Justice Mabeya said the raid on its offices by BFIU in 2005 was “unlawful, unconstitutional and unacceptable”.
For a man who has become a fixture in court attending to criminal and a litany of civil suits, the current bankruptcy suit is the third in a series for the first time legislator.
In 2008, a judge recommended Mwiti’s prosecution for perjury – lying under oath – after the court discovered he allegedly obtained a receiving order through falsehood and non-disclosure of material facts.
The second ground cited by Lady Justice Jessie Lesiit was that the MP failed to disclose to the court that he had previously obtained a similar order which was still subsisting when he lodged a voluntary bankruptcy suit in 2003.
Oriental Commercial Bank had in 2007 secured a judgement against Mwiti over a debt of Sh20 million.
In a desperate bid to avoid paying the debt, he lodged a voluntary bankruptcy suit No.25 of 2008 arguing that he was unable to meet his financial obligations and therefore he should be declared bankrupt.
However, during the proceedings, it was brought to the attention of the court that Mwiti had filed another bankruptcy suit number 132 of 2003 seeking receiving orders after a number of his creditors closed on him.
The official government receiver told the court that Mwiti had wilfully failed to disclose information on his estate as required by the law and referred the judge to a statement of affairs where the debtor had declared that he had not obtained any other receiving order.
On October 9, 2008, Justice Lesiit ruled the debtor had obtained two receiving orders, one in succession of the other, without disclosing the existence of the first order and hiding relevant information in the statement of affairs of his estate.
She ordered that Mwiti be charged with the offences under the Bankruptcy Act saying the debtor had multiple bankruptcy petitions to defraud the creditor and to avoid meeting his liabilities.
“I am satisfied the debtor is undeserving of the protection provided under the Bankruptcy Act. The instant petition (No. 25 of 2008) is improper and an abuse of the court process,” said the judge and accordingly, annulled the receiving order issued on April 25, 2008.