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Purchase and Acquisitions of Financial Institutions in Africa- The case of Crane Bank Uganda.

Mergers and acquisitions (M&A) activities have become an important channel for investment in Africa for both global & local market players.  Over the past decade, Africa’s real GDP grew by 4.7% a year, on average—twice the pace of its growth in the 1980s and 1990s. Therefore, the continued desire to purchase and acquire financial institutions in Africa is not by accident. As the continent readies itself for post-pandemic recovery, the opportunities presented by the AFCFTA across Africa and the post-pandemic focus will remain key factors in attracting valuable mergers and acquisition activity. This article examines the case of Crane Bank Uganda Limited (CBL) in Uganda and offers insights on the role of central banks as statutory liquidators and the risks businesses must avoid while doing business in Africa.

CBL was closed and placed under receivership by the Bank of Uganda (BOU) in September 2016 following an audit report that revealed insufficient capital levels, shrinking liquidity ratios, surging loan default levels, and gross mismanagement, among others. The non-performing loan ratio recorded in the bank’s credit portfolio was estimated at 30 percent, a figure higher than the overall industry loan default rate that stood at less than 10 percent during the same period. Bank of Uganda subsequently transferred assets of CBL to DFCU Bank (a rival bank in Uganda) in an acquisition transaction the subject of this article.

Dr. Sudhir Rupareila (largest shareholder) was subsequently sued by BOU as a liquidator for siphoning $111.8 million from the failed bank over three years. The Liquidator equally sought recovery of 48 properties forming CBL’s branch network across Uganda held in the names of Dr. Sudhir Rupareila and Meera Investments as shareholders of CBL.

Uganda’s auditor General’s report revealed that BOU did not carry out a valuation of the assets and liabilities of CBL but relied on the inventory report and due diligence undertaken by DFCU in accepting their bid. BOU invited DFCU to bid for the purchase of assets and assumption of liabilities of CBL on 9th December 2016 while DFCU submitted the bid on the 20th December 2016 a day before the production of the inventory report.  It is not surprising that DFCU 2021 results showed it had lost UGX313 billion or 12% of its customer deposits. Deposits with their lending dropping by 15% from UGX1,775.3 billion to UGX1,508.4 billion affecting the value of their total assets by nearly 10%

Parliament probe into the sale of CBL revealed that there were no guidelines or policies in place to guide the identification of the purchasers of banks to determine the procedures for the sale and transfer of assets and liabilities of the defunct banks to the eventual purchasers and that BoU did not document the evaluation of alternatives and the assumptions arrived contrary to section 95 (3) (b) of the FIA, 2004.

The reliance by BOU on the due diligence undertaken by an interested party and eventual purchaser was imprudent, and an abdication of its role under section 95 (3) of the FIA, 2004. BoU in conducting this sale owed a fiduciary duty and duty of care to ensure that all its activities are conducted in the best interests of the financial institution. Interestingly, the Supreme Court of Uganda on the 25th day of June 2022 placed a check on the supposed blanked authority of BOU as a statutory liquidator holding that liquidation of the defunct Crane Bank did not affect its corporate existence as a company. Once liquidation ended, the Shareholders were entitled to reclaim whatever assets were held by the company after the statutory liquidation. The Directors of Crane Bank successfully blocked the takeover of properties claimed by BOU as statutory liquidator as forming and parcel of the liabilities taken over by DFCU upon acquisition of the defunct bank.