Centum Investment Company has been saved from having to compensate the buyer of its Coca-Cola bottling assets for Sh3.7 billion after the Supreme Court ruled that the Kenya Revenue Authority (KRA) could not seek the sum.
Coca-Cola Beverages Africa (CCBA) paid Sh19.3 billion for the company’s 27.6 percent investment in Nairobi Bottlers and 53.9 percent stake in Almasi Beverages, which owns Mt Kenya Bottlers, Kisii Bottlers, and Rift Valley Bottlers.
The transactions were completed despite the KRA seeking Sh3.7 billion excise taxes on returnable bottles and Centum gave CCBA a bank guarantee that it would settle the bill if the taxman won the legal battle to enforce its claim.
KRA’s tax demand was thwarted in a Supreme Court ruling delivered on February 10, which stopped the taxman from reopening the matter, freeing the Nairobi Securities Exchange-listed firm from the obligation.
“The matter has now been closed,” said Centum chief executive James Mworia, noting that the guarantee has ended in light of the court’s decision.
The KRA was seeking a total of Sh5.6 billion from the bottlers.
Centum’s exposure, however, was lower at Sh3.7 billion since it did not wholly control the firms when it sold them to CCBA, which is majority-owned by Atlanta-based soft drinks conglomerate The Coca-Cola Company.
After reaching an agreement with CCBA on the compensation package, Centum got a guarantee from Stanbic Bank Kenya Limited to cover the entire sum, and the facility was charged against Centum’s portfolio of marketable securities, which included Treasury bonds.
The Supreme Court said the KRA should let the matter rest after losing in lower courts.
“We note that the dispute commenced in the High Court in October 2012, 10 years ago, then moved to the Court of Appeal, over nine years ago in July 2013. To start the case all over again, for no fault of the respondents, is not only unconscionable but also insensitive and cruel.” the apex court said in the ruling.
The KRA sought to collect excise taxes on costs incurred during washing and sanitising returned bottles between 2006 and 2009.
Had the KRA been successful, the bottlers now owned by CCBA would have been required to pay the tax through Stanbic Bank. The lender was to then seek compensation from Centum and had secured the right to liquidate the investment firm’s portfolios that are held as security.
Such arrangements are common in mergers and acquisitions, with buyers hedging against liabilities such as taxes and contract disputes that may materialise after the deal is closed.
The taxman and the bottling companies fought a drawn-out legal battle over 10 years, with the case revolving on whether or not excise duty ought to be levied on returnable bottles.
More reporting HERE
