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Bitature paid $10m loan to Crane Bank
Businessman Patrick Bitature
What you need to know:
- A protracted court battle in which Vantage Mezzanine—a South African investment fund—is battling Patrick Bitature over an initial loan worth $10m (Shs36.8b) allotted to the property mogul, has been bubbling under the surface for years. After the standoff played out in the full glare of the public this past week, Saturday Monitor’s Derrick Kiyonga establishes how an investment project morphed into a civil case, with accusations meeting counter-accusations.
Most of the $10m (Shs36.8b) loan Patrick Bitature borrowed from Vantage Mezzanine was used to pay off an older $8m debt the businessman took out from the now-defunct Crane Bank, documents seen by this reporter show.
Mr Bitature injected the money borrowed from Crane Bank into Simba Properties, the real estate development and property management arm of his business empire.
Recent media reports had initially indicated that Mr Bitature used the vast bulk of the loan to erect his Skyz hotel in Naguru and Moyo Close Apartments. This is the first time the earlier indebtedness to Crane Bank has been revealed.
According to the agreement he entered into with Vantage, a copy of which Saturday Monitor has seen, Mr Bitature was to use the $10m loan in three ways. Some $8m was to be used “to repay a large portion of a local currency debt facility from Crane Bank Limited which had been injected into Simba to grow the property businesses.” Then $1,100,000 would be “retained by Simba to be used for capital expenditure and working capital purposes.”
The last chunk of the loan, amounting to $900,000, was to be “used to fund the debt service reserve account.”
This was supposed to be maintained to cover one year of Vantage’s debt service facility and would be released “once the legal mortgages had been registered.”
A protracted legal battle has broken out between Mr Bitature and Vantage, a South African financing and investment partnership, after the Ugandan businessman failed to pay back the loan when it was due.
The loan has now soared to about $32 million (Shs117 billion) including penalties and compounded interest.
The legal dispute between the two parties exploded into the court of public opinion recently when lawyers representing the South African lenders advertised their intention to auction some of Mr Bitature’s prime properties in order to recover their money.
FIA sucked in
Details emerging show that the borrower has taken several steps in the past to challenge the loan and their liability to pay it back. This newspaper has learnt that Mr Bitature’s lawyers wrote to the Financial Intelligence Authority (FIA) in 2020 and asked them to investigate Vantage and the source of the funds it had lent to him. FIA is a government agency charged with identifying proceeds of crime as well as combating money laundering and terrorism financing.
Lawyers representing Mr Bitature asked the FIA to investigate how Vantage Mezzanine got $10m from South Africa and brought it into Uganda without being registered locally. Another complaint Mr Bitature’s lawyers registered was that—under section 12 of the loan agreement— Vantage Mezzanine was shielded from paying any tax on income derived from their business.
According to the lending agreement, Mr Bitature was to repay the loan without any tax deduction, unless a tax deduction is required by law. In the latter case, the borrower would repay any tax deduction made to the lender within three business days of the demand being made.
In addition, the agreement provided that the only taxes that Vantage would pay are those in the jurisdiction where it’s incorporated (i.e., South Africa) or in a jurisdiction in which the company is a resident for tax purposes. Section 12.4 of the agreement says that Mr Bitature was to indemnify Vantage Mezzanine against stamp tax within three business days after Vantage had made the demand.
In their complaint to the FIA in 2020, Mr Bitature’s lawyers alleged that this amounted to tax evasion.
Speaking to Saturday Monitor on the condition of anonymity, so as to be able to speak freely, a member of Vantage Mezzanine’s Ugandan legal team confirmed that they appeared before the FIA in 2020 to defend their client.
“We attended the meeting and explained that there’s no laundering here. The FIA said we understand we shall respond but they have never responded,” he said. “We gave FIA a copy of the agreement and we told them…the basis of this accusation is this so-called tax gross-up but that’s rubbish.”
The lawyer described tax gross-up as a standard term in tax law. He added that it means that the investor is alive to the fact that “the tax law can change anytime and every year tax law in Uganda changes, people go to Parliament and pass new laws.”
He added: “The investor is saying, ‘I’m not Ugandan and I don’t want to suffer the consequences of the tax regime that isn’t mine’.”
Mr Sydney Asubo, the FIA’s executive director, in an interview with Saturday Monitor admitted receiving a petition which raised tax evasion and money laundering allegations. He admitted that the authority had not yet disclosed their findings to either party.
“We can’t give people inconclusive findings,” he said. “There is food you can serve when it’s 80 percent ready, but there is food which you can only serve when it’s 100 percent ready and we are now in that situation.”
However, a highly placed source at the FIA familiar with the matter told Saturday Monitor that the petition “lacks merit.”
Court battles rage
The court battles between the borrower and the lender have been going on since 2019 in the High Court’s Commercial Division. A number of applications from either party had been heard in the court. Two different judges had handled the wrangle, offering two separate rulings. The applications had been of civil nature.
But then Vantage Mezzanine’s legal team moved to institute criminal charges via private prosecution. The team accused the Bitatures—Patrick the patriarch and his wife, Carol—of a plethora of charges, including fraud and making false statements.
Protea Hotel in Naguru, Kampala, is one of Mr Bitature’s properties the creditor is putting up for sale, according to a public auction advert put in the media last week. PHOTOS/ISAAC KASAMANI
When he heard of the planned private prosecution of his client, Mr Fred Muwema, Mr Bitature’s lead lawyer in the matter, applied to the court to stay the prosecution. He argued that Vantage Mezzanine’s accusations were only meant to coerce, embarrass and harass the Bitatures.
“In conclusion, the applicants (including the Bitatures) seek the interlocutory injunction so as to protect themselves against injury by violation of their rights for which I have already found they could be adequately compensated for in damages if the uncertainty were resolved in their favour at the trial,” Justice Mubiru ruled.
“The applicants’ need for such protection must be weighed against the corresponding need of the respondents (Vantage Mezzanine) to be protected against injury resulting from being prevented from exercising their own legal rights for which it may not be adequately compensated in damages if the uncertainty were resolved in its favour at the trial. Having done so, I find that the balance of convenience is in favour of the respondents.”
The judge also took the unusual step of condemning Mr Muwema to pay costs of the failed application personally because there was no main application made to court on which the application for a temporary injunction was based.
A week earlier the legal pendulum appeared to have swung in favour of the borrowers after Justice Musa Ssekaana ruled that the Vantage Mezzanine partnership could not sue in Uganda because it was not registered in the country.
“The law in Uganda is prohibitive of such a partnership to operate without registration and penalises the offending party continuously for offending the provision for registration in order to have the capacity to sue or not sue in Uganda. The applicant’s status as a recognised entity in South Africa has not been proved to the satisfaction of this court since there is a single registered document that has been produced before this court apart from a few pages of the unregistered partnership agreement,” Justice Ssekaana ruled.
“In the same vein, this court rejects the submission of counsel of the applicant (Vantage Mezzanine) that foreign partnerships are free to operate in Uganda outside the regulatory registration requirements contained in partnerships Act, 2010 and the Business Names Registration Act (Cap 109),” he added.
Justice Ssekaana reasoned that since “Order 30 of the civil procedure Rules provides for suing and being sued once the partnership has satisfied the mandatory requirements of the law” then “the international partnerships or foreign partnerships just like the Ugandan partnership cannot be recognised once they are not registered since their identities are unknown and it may open the door wide for fraud in their transactions and dealings.”
That ruling came after the partnership attempted to transfer shares from some of Mr Bitature’s companies as provided for in their loan agreement. The partnership had gone to court after the Uganda Registration Services Bureau (URSB) refused to do the share transfer, even after Vantage paid more than Shs800 million in stamp duty.
Although the judge faulted the legal status of the partnership, he said URSB had been wrong in refusing to carry out the share transfer.
Justice Ssekaana accused the Bureau of dereliction of its statutory duty. The judge stated, among others, that URSB’s refusal to consider the registration of Vantage’s documents because the matter had been referred to arbitration was illegal.
Share fight
Vantage started entertaining the prospect of taking shares in Mr Bitature’s business entities after it became apparent that he reportedly wasn’t in a position to repay the loan. Saturday Monitor has seen the rules of engagement that Mr Bitature consented to before entering the agreement with Vantage with the blessing of MMAKS Advocates.
Section four of the agreement expressly states that “no lender (Vantage Mezzanine) is bound to monitor or verify the application of any amount borrowed pursuant to this agreement.” When Mr Bitature filed his first case at the Commercial Court in 2019, he explained that the purpose of the loan was to enable him to complete Simba’s real estate developments. These included a hotel and residential business developments, which businesses—he said—were to generate the funds to pay back. Vantage Mezzanine, he added, had representation on Simba Properties Investment board and accordingly was aware that the said business had not picked up as expected.
On October 16, 2019, Vantage Mezzanine issued a notification of maturity of the loan indicating that it was due for repayment on December 11, 2019. The aggregate sum of $26.5m reflected the principal, interest and costs claimed. Mr Bitature didn’t agree to Vantage Mezzanine’s demands. That same month the businessman made a presentation to Vantage’s top brass, proposing that—among others—Simba Properties Investment Corporation (SPIC) source for refinancing from Kenya Commercial Bank (KCB) in a bid to help the business generate the needed income. This, though, was rebuffed by Vantage through an email Saturday Monitor has seen.
“Given the High & distressed exposure we already have to Simba Group, we will not be able to provide any further funding as requested,” wrote Mr Warren van der Merwe, Vantage’s managing partner on November 12, 2019.
With Justice Mubiru giving Vantage’s legal team the green light to prosecute the Bitatures, it remains now to be seen how things will pan out. Whether Mr Robert Kirunda, Vantage’s lawyer, will proceed with the case at Buganda Road in which he accuses the duo—he calls “the ultimate shareholders of the Simba Companies”—of defrauding his client and other 20 creditors remains to be seen.
The Bitatures stand accused of altering the shareholding of the Simba Companies in contravention of—among others—sections 323 of The Penal Code Act, Chapter 120. The duo also is accused of making false statements contrary to section 324 of The Penal Code Act.
Though there has been a cold war in Kampala with each side vociferously pushing their narratives on different media spaces, the International Chamber of Commerce (ICC) in London, United Kingdom is now primed to arbitrate the dicey matter.
“We have filed our version and raised several issues including a preliminary objection,” Mr Muwema said. Mr Kirunda also confirmed that he is ready to make his client’s case: “We are before arbitration in London. We filed our case and we responded to their preliminary objection.”
Anatomy of the standoff
2014: $10m loan agreement is signed by Simba Investment Properties Limited—owned by Mr Patrick Bitature—and Johannesburg-based Vantage Mezzanine fund.
2019: Simba Investment Properties drags Vantage to the Commercial Court saying, among other things, the South African fund was not registered to do business in Uganda and as such it can’t enforce the agreement.
2020: Mr Bitature’s lawyer writes to the Financial Intelligence Authority (FIA), requesting that Vantage be investigated for possible money laundering and tax evasion.
May 2021: The Commercial Court orders the matter to go for arbitration.
Elizabeth Royal Apartments in Kololo, Kampala, is another of Mr Bitature’s properties that Vantage Mezzanine Fund II partnership is seeking to auction.
December 2021: The case is taken to the International Chamber of Commerce (ICC) in London for arbitration.
May 2022: The High Court’s Civil Division rules that Vantage wasn’t registered in Uganda and therefore had no legal presence and locus (capacity) to sue.
May 2022: The Commercial Court rejects an application intended to block private prosecution of the Bitatures. Their lawyer, Mr Fred Muwema is also left grappling with a rare legal costs condemnation.
The Issue
A protracted legal battle has broken out between Mr Bitature and Vantage, a South African financing and investment partnership, after the Ugandan businessman failed to pay back a $10m loan. The loan has now soared to about $32m, including penalties and compounded interest.
The legal dispute between the two parties exploded into the court of public opinion recently when lawyers representing the South African lenders advertised their intention to auction some of Mr Bitature’s prime properties in order to recover their money.
Accused
The Bitatures stand accused of altering the shareholding of the Simba Companies in contravention of—among others—Sections 323 of The Penal Code Act, Chapter 120. The duo also is accused of making false statements contrary to Section 324 of The Penal Code Act.
