1. The threat of liquidation is a weapon of last resort, not a tool for routine debt collection. This core commercial principle anchors the Debtor's urgent Application dated 18th August, 2025, which seeks to set aside the Statutory Demand issued by the Creditor on 16th July, 2025.
Background Facts
2. The Statutory Demand Notice dated 16th July, 2025 sought the immediate payment of Kshs. 4,033,682.00.
3. The Notice of Motion dated 18th August, 2025 sought the following orders:
1. Spent.
2. THAT the Statutory Notice dated 16th July, 2025 and issued on 30th July, 2025 be set aside.
3. THAT the costs of this application be provided for.
4. The Debtor contends that the statutory demand is an abuse of the Court process because the debt has been fully settled. To support this, the Debtor produced a Customer Statement issued by the Creditor on 15th August, 2025. It shows a final balance of Kshs. 869,366.79. The Debtor paid this exact amount on 18th August, 2025 via a Diamond Trust Bank cheque.
5. The Creditor opposed the application through a Replying Affidavit sworn on 1st September, 2025. The Creditor acknowledged receiving the payment but averred that a balance of Kshs. 1,286,408.39 is still owed. This new figure comprises Kshs. 1,046,408.39 in contractual interest and Kshs. 240,000.00 in legal fees.
6. In a Further Affidavit, the Debtor countered that a Customer Statement inherently captures all direct and indirect costs up to its date of issuance. The Debtor further asserted that legal costs are strictly at the discretion of the Court and cannot be unilaterally quantified and added to a debt.
Issues For Determination
6. The Court has considered the application, the affidavits on record, and the written submissions by Counsel for the parties. The Court frames only one issue for determination:
(a) Whether the statutory demand should be set aside.
Analysis
7. Regulation 17(6)(b) of the Insolvency Regulations, 2016 gives this Court the power to set aside a statutory demand if the debt is disputed on substantial grounds.
8. The Creditor correctly relied on Flower City Limited v Polytanks & Containers Kenya Limited [2021] KEHC 34 (KLR) to argue that a dispute must not be mere bluster or a frivolous assertion. The threshold is indeed that a dispute must be bona fide.
9. However, the evidentiary record before the Court reveals a genuine and substantial dispute. The Creditor issued a formal ledger showing a specific closing balance. The Debtor paid that balance in full. Commercial pragmatism dictates that business entities rely on formal account statements to definitively ascertain their liabilities.
10. The Creditor's attempt to retroactively attach an unsigned, undated interest tabulation and an un-taxed advocate's fee note of Kshs. 240,000.00 to a settled principal balance is procedurally untenable. Advocate fees must be agreed upon or taxed. They cannot be unilaterally quantified and immediately weaponized through a statutory demand.
11. Insolvency proceedings are not an alternative debt collection mechanism for disputed or unliquidated auxiliary claims. As the Court of Appeal noted in Universal Hardware Limited v African Safari Club Limited [2013] eKLR, where a debt is disputed on substantial grounds, winding-up proceedings are not the proper remedy. The Creditor’s shifting figures—from Kshs. 4,033,682.00 to Kshs. 1,046,408.39—further confirm that the debt is not ascertained.
12. By paying the final ledger balance, the Debtor demonstrated commercial solvency. The machinery of insolvency cannot be used to strong-arm a solvent company into paying disputed interest and un-decreed legal fees.
13. The Court is satisfied that there are substantial grounds to set aside the statutory demand.
14. As to costs, they ordinarily follow the event. The Creditor forced the Debtor into this litigation after issuing a comprehensive statement of account that the Debtor promptly settled. In exercise of its discretion, the Court awards the costs of the application to the Debtor.
Determination
15. The Debtor’s Application dated 18th August, 2025 is allowed in the following terms:
1. THAT the Statutory Notice dated 16th July, 2025 and issued on 30th July, 2025 is HEREBY set aside.
2. THAT the costs of this application are awarded to the Debtor/Applicant.
16. It is so ordered.
DATED, SIGNED AND DELIVERED AT MILIMANI THIS 09TH DAY OF JULY, 2026
NJOROGE BENJAMIN K.
JUDGE
In the presence of:
Mr. Nzuli for the Applicant.
Mr. Muinde for the Respondent.
Mr. John Paul - Court Assistant
Background Facts
2. The Statutory Demand Notice dated 16th July, 2025 sought the immediate payment of Kshs. 4,033,682.00.
3. The Notice of Motion dated 18th August, 2025 sought the following orders:
1. Spent.
2. THAT the Statutory Notice dated 16th July, 2025 and issued on 30th July, 2025 be set aside.
3. THAT the costs of this application be provided for.
4. The Debtor contends that the statutory demand is an abuse of the Court process because the debt has been fully settled. To support this, the Debtor produced a Customer Statement issued by the Creditor on 15th August, 2025. It shows a final balance of Kshs. 869,366.79. The Debtor paid this exact amount on 18th August, 2025 via a Diamond Trust Bank cheque.
5. The Creditor opposed the application through a Replying Affidavit sworn on 1st September, 2025. The Creditor acknowledged receiving the payment but averred that a balance of Kshs. 1,286,408.39 is still owed. This new figure comprises Kshs. 1,046,408.39 in contractual interest and Kshs. 240,000.00 in legal fees.
6. In a Further Affidavit, the Debtor countered that a Customer Statement inherently captures all direct and indirect costs up to its date of issuance. The Debtor further asserted that legal costs are strictly at the discretion of the Court and cannot be unilaterally quantified and added to a debt.
Issues For Determination
6. The Court has considered the application, the affidavits on record, and the written submissions by Counsel for the parties. The Court frames only one issue for determination:
(a) Whether the statutory demand should be set aside.
Analysis
7. Regulation 17(6)(b) of the Insolvency Regulations, 2016 gives this Court the power to set aside a statutory demand if the debt is disputed on substantial grounds.
8. The Creditor correctly relied on Flower City Limited v Polytanks & Containers Kenya Limited [2021] KEHC 34 (KLR) to argue that a dispute must not be mere bluster or a frivolous assertion. The threshold is indeed that a dispute must be bona fide.
9. However, the evidentiary record before the Court reveals a genuine and substantial dispute. The Creditor issued a formal ledger showing a specific closing balance. The Debtor paid that balance in full. Commercial pragmatism dictates that business entities rely on formal account statements to definitively ascertain their liabilities.
10. The Creditor's attempt to retroactively attach an unsigned, undated interest tabulation and an un-taxed advocate's fee note of Kshs. 240,000.00 to a settled principal balance is procedurally untenable. Advocate fees must be agreed upon or taxed. They cannot be unilaterally quantified and immediately weaponized through a statutory demand.
11. Insolvency proceedings are not an alternative debt collection mechanism for disputed or unliquidated auxiliary claims. As the Court of Appeal noted in Universal Hardware Limited v African Safari Club Limited [2013] eKLR, where a debt is disputed on substantial grounds, winding-up proceedings are not the proper remedy. The Creditor’s shifting figures—from Kshs. 4,033,682.00 to Kshs. 1,046,408.39—further confirm that the debt is not ascertained.
12. By paying the final ledger balance, the Debtor demonstrated commercial solvency. The machinery of insolvency cannot be used to strong-arm a solvent company into paying disputed interest and un-decreed legal fees.
13. The Court is satisfied that there are substantial grounds to set aside the statutory demand.
14. As to costs, they ordinarily follow the event. The Creditor forced the Debtor into this litigation after issuing a comprehensive statement of account that the Debtor promptly settled. In exercise of its discretion, the Court awards the costs of the application to the Debtor.
Determination
15. The Debtor’s Application dated 18th August, 2025 is allowed in the following terms:
1. THAT the Statutory Notice dated 16th July, 2025 and issued on 30th July, 2025 is HEREBY set aside.
2. THAT the costs of this application are awarded to the Debtor/Applicant.
16. It is so ordered.
DATED, SIGNED AND DELIVERED AT MILIMANI THIS 09TH DAY OF JULY, 2026
NJOROGE BENJAMIN K.
JUDGE
In the presence of:
Mr. Nzuli for the Applicant.
Mr. Muinde for the Respondent.
Mr. John Paul - Court Assistant