Introduction
1. This ruling determines two applications, one dated 17th March 2023 by Chemsols Limited (hereinafter referred to as “the Company” or “the Petitioner” as circumstances may permit), and the other dated 22nd September 2023 by Solvochem East Africa Limited (hereinafter also referred to as “the 2nd Creditor”).
2. I will first highlight the two applications and their respective responses. I will then procced to consider the submissions by all the parties herein, before making my final determination.
Petitioner’s Application dated 7.03.2023
3. The Notice of Motion Application by the Company (Chemsols Limited) is predicated on the Petition dated 7th March 2023 and is brought under Sections 522, 523(a), 531 & 533 of the Insolvency Act, and Order 51, Rule 1 of the Civil Procedure Rules, 2010. It seeks the following orders; -
i. Spent
ii. That the Proclamation Notices dated the 2nd day of March, 2023 issued by Valley Auctioneers be and are hereby quashed for want of meeting the objectives of Administration as per Section 522 of the Insolvency Act;
iii. That an Administration Order be and is hereby made in respect of the Applicant Company for a period of twenty-four (24) months;
iv. That Mr. Peter Kahi be and is hereby appointed as Administrator of the Applicant Company; and
v. Any such and further relief as this Honourable Court may deem fit to grant.
4. The grounds upon which the application is based are set out on the face of the application and in the supporting affidavit sworn by Charles Okadia Otieno, a Director and Shareholder of the Petitioner. It is deponed that the Company which was incorporated on 25th January 2009 and has been in the business of manufacturing paints and adhesives, has been undergoing some period of financial turbulence, which was further aggravated by the COVID-19 pandemic, thereby making it unable to timely meet its financial obligations to suppliers and/or creditors.
5. It was further deponed that the total indebtedness of the Company as at the date of the application then stood at Kshs. 72,366,631.92/-, which is way beyond the Company’s receivables which then stood at Kshs. 31,853,003.13.
6. It is further the Petitioner’s case that one of its Creditors, Slovochem East African Limited (the 2nd Creditor herein) obtained a decree against the Company, and in the process of execution, instructed an auctioneer, Valley Auctioneers who on 2nd March 2023 issued two Proclamation Notices against the Company in the sum of Kshs. 1,625,531.14.
7. The Petitioner stated that the said action by the 2nd Creditor (Solvochem East Africa Limited) is not in the best interest of the other creditors, is contrary to the express provisions of Section 522 of the Insolvency Act and should therefore be quashed, and that instead, an Administration Order be issued for a period of twenty-four (24) months to enable the Company to reorganize its operations under an Administrator appointed by this court with a view of not only meetings its obligations to all its creditors, but also to resuscitate the company to profitability.
8. In its affidavit in support of the Application, the Company states that it is upbeat that since 2021, there are positive indications that the Company has been making some recovery from its past financial turmoil and is now gearing towards full recovery. The Company has highlighted that there are several initiatives and efforts it has taken since the year 2022 with a view of improving its financial health, which includes reorganizing its operations, restructuring and consolidating facilities, including making arrangements with its financiers and creditors.
9. It is, however, the Petitioner’s case that despite the arrangements it has so far made, the Company lacks the necessary window and breathing space to ensure that all the efforts and attempts it has employed come to fruition. According to the company, pressure on the company is mainly due to the numerous unmet demand letters and execution proceedings from some of its Creditors (such as that of the 2nd Creditor herein), thus placing the Company on the verge of collapse, with the inevitable consequence that the majority of the Creditors and the Applicant Company may lose out gravely.
10. In the premises, it is, therefore, the Petitioner’s prayer that the execution proceedings commenced against it by the 2nd Creditor herein be quashed and that instead, an Administration Order be issued by this Court in respect of the Company for a period of twenty-four (24) months. The Petitioner proposes that Mr. Peter Kahi be appointed as an Administrator of the Company.
11. Apart from the 1st Creditor (Mulberry Solvents Limited) who supported the Application/Petition by the Company, the rest of the Creditors who participated in the instant proceedings opposed the same. The 3rd Creditor (Inks Expert Limited) did not file any response to the application.
12. The 1st Creditor in an affidavit sworn on 13th April 2023 by Mr. John Kisyoka who described himself as an Accounts Manager with the 1st Creditor deponed that the Petitioner and the 1st Creditor have had a business relationship for six months preceding the Petition and that the 1st Creditor is at the date of the Application owed a sum of Kshs. 6,780,877.18 by the Petitioner, while on their part, they owe the Petitioner a sum of Kshs. 1,890,196.50.
13. In supporting the application, the 1st Creditor depones that they have instructed their lawyers to enter into a scheme of arrangement with the administrator as soon as an administration order is issued by this court for the purposes of recovering the debt owed to them.
14. The 2nd Creditor (Solvochem East Africa Limited), opposed the application relied on the affidavit of Mr. Mitul Raninga sworn on the 14th day of April 2023. According to the 2nd Creditor, the Applicant owes them a sum of Kshs. 2,422,512.68 arising from a decree dated 13th March 2023, issued in the Milimani CMCC No. E221 of 2023: Solvochem East Africa vs Chemsols Ltd. The 2nd Creditor maintains that the instant Insolvency proceedings by the Petitioner have been commenced in bad faith and is a feigned attempt by the Applicant to avoid paying its debts.
15. The 4th Creditor (Synresins Limited) opposed the application and relied on the affidavit of Ms. Yvone Gakera, sworn on 9th September 2023, and stated that they are owed a sum of Kshs. 3,059,619/- by the Applicant/Petitioner. The 4th Creditor also asserts that the Application by the Petitioner has been made in bad faith to shield the Company from paying its debts.
16. The 5th Creditor (Redachem East Africa Limited) is owed a sum of Kshs. 2,899,108.66 by the Applicant. The 5th Creditor opposes the application vide the affidavit of Mr. Harrison Miima, sworn on 27th August 2024 and urges the court to find that the application for administration is not deserved since the Applicant has not met the tests as outlined under the Insolvency Act.
17. The 6th Creditor, Saichem Limited who is owed Kshs. 8,624,998.60 by the Applicant opposes the administration application vide a replying affidavit of its Director, Sandeep Gupta, sworn on 21st November 2023 on the basis that the same has not been made in good faith and is merely intended to cushion the Applicant from paying its debts and further that the applicant has not met the tests as outlined under the Insolvency Act.
18. The 7th Creditor, F.A. Badia & Company Advocates opposed the administration application vide the affidavit sworn on 18th November 2024 by Badia A. Fiona, a partner in the law firm. According to the Advocates, the Applicant owes them legal fees in the aggregate sum of Kshs. 1,594,370.66 which has been taxed and a decree in respect thereof issued by the court. It is the 7th Creditor’s position that the administration application does not meet the mandatory statutory requirements set under Sections 522 and 531 of the Insolvency Act, 2015.
2nd Creditor’s Application
19. The 2nd Creditor, Solvochem East Africa Limited, vide their Notice of Motion Application dated 22nd September 2023 is seeking the following Orders; -
i. Spent
ii. That leave be granted to the Applicant to execute the decree issued in favour of the Applicant against the debtor Chemso's Limited in Milimani CIVIL SUIT NO E221 OF 2023, Solvochem East Africa Limited v Chemsols Limited.
iii. That the Honorable Court be pleased to issue Police Assistance/Escort Orders to the applicant Mr. James Ng'ang'a Wanjiku T/A Little Vineyards Auctioneers.
iv. That the Officer-in-Charge Embakasi Police Station do accompany Mr. James Ng'ang'a Wanjiku T/A Lita Vineyards Auctioneers to Chemsols Limited, to gain free entry by breaking the locked doors to the suit premises and maintain Law & Order to enable the Auctioneer to physically seize all the proclaimed assets and any other assets found in the suit premises.
v. That costs be provided
20. The application is based on the grounds on the face of the application and is also supported by the affidavit sworn on 22nd September 2023 by Mr. Mitul Raninga, who described himself in the affidavit as a director of the 2nd Creditor.
21. Petitioner herein Chemsols Limited, opposed the application by the 2nd Creditor vide its Replying Affidavit sworn on 6th November 2023 by its director, Charles Okadia Otieno mainly on the basis that the application by the 2nd Creditor seeks to defeat the purpose and intent of administration, and is likely to prejudice all the other creditors as well as the Petitioner herein in its bid to turn around the affairs of the Petitioner Company.
22. On its part, the 1st Creditor, Mulberry's Solvents Limited opposed the 2nd Creditor’s vide the replying affidavit of John Kisyoka, sworn on 19th March 2024. According to the 1st Creditor, allowing the 2nd Creditor’s application is likely to leave all the other creditors who have not obtained judgment against the petitioner exposed as the assets of the Petitioner will be sold off.
23. The 4th Creditor, Synresins Limited, in opposing the 2nd Creditor’s application relied on the affidavit of Yvone Gekra, sworn on 15th March 2024, and also took the position that allowing the application would be prejudicial to the interest of Synresins Limited and the interest of the other Creditors of the Company.
24. On 17th October 2024, this Court gave directions that the two applications be canvassed by way of written submissions. The parties (except the 1st Creditor (Mulberry Solvents Limited), the 3rd Creditor (Inks Experts Limited), and the 6th Creditor (Saichem Limited), filed their respective submissions.
The Petitioner’s Submissions
25. The Petitioner in its submissions dated 16th October 2024 urged this court to issue the Administration Order sought in its application dated 7th March 2023. The Petitioner maintained that granting the orders would be in the best interest of its commercial obligations to Creditors, as well as the Petitioner's need to financially and commercially recover.
26. Citing the decision in the case of In re Nakumat Holdings Limited [2017] eKLR, the Petitioner submitted that the Administration Order sought is permitted under Section 522 (1) of the Insolvency Act, and has as its main objectives, a) to maintain the company as a going concern; (b) to achieve a better outcome for the company's creditors as a whole than would likely to be the case if the company were liquidated (without first being under administration); and (c) to realise the property of the company in order to make a distribution to one or more secured or preferential creditor.
27. According to the Petitioner, it is currently unable to meet its financial and commercial obligations, including payments to its creditors. Relying on the decision in the case of Midland Energy Limited v George Muiruri t/a Leakeys Auctioneers & another [2019] eKLR, the Petitioner maintained that there is a need for the Company to be insulated from aggressive Creditors who could cause a run of the Company assets. This, the Company submitted, will enable it to better its financial position and meet its obligations to Creditors without the apprehension that it may be forced to liquidate.
28. The Petitioner therefore asserts that granting of the Orders sought would be in furtherance to the Objectives of Administration as contemplated under the Insolvency Act and that this Court should allow the application as prayed.
2nd Creditors Submissions
29. The 2nd Creditor, Solvochem East Africa Limited filed two (2) sets of submissions. First was the submissions dated 30th May 2024 in support of its Notice of Motion application dated 22nd September 2023 seeking leave to levy execution against the Petitioner. The second is its submissions dated 9th December 2024 in opposition to the Petitioner’s Application for the issuance of an administration order.
30. In opposition to the Petitioner’s application, the 2nd Creditor submitted that the application by the Petitioner for an administration order is an abuse of process since the Petitioner did not provide any tangible evidence in support of its claim that it is insolvent. According to the 2nd Creditor, the entire petition is a feigned insolvency, aimed simply to evade payment of just debts owed to its various creditors.
31. Citing the decision in the case of Re Nakumatt Holdings Limited [2017] eKLR, the 2nd Creditor stated that the Petitioner has failed to discharge the burden imposed under Section 531 of the Insolvency Act, by failing to prove the twin issues that, (a) the company is or is likely to become unable to pay its debts; and, (b) that the administration order is reasonably likely to achieve an objective of administration.
32. In asserting that the Petitioner has not proved that it is unable to pay its debts, the 2nd Creditor invited the Court to consider and/or take into account the following; -
a) The Petitioner only filed the application for an administration order following execution proceedings by the 2nd Creditor, following a court decree arising from Milimani CMCC E221 of 2023, Solvochem East Africa Limited v Chemsols Limited. That if indeed the Petitioner was truly unable to pay its debts, it would not have waited until the proclamation happened.
b) That the Petitioner has made offers to settle the various debts including that to the 2nd Creditor as deponed at Paragraph 4-7 of the Replying Affidavit of Mitul Raninga sworn on 14th April 2023. That, if the Company was really insolvent, then it would not have made the offer to settle but would have applied for administration forthwith.
c) That the Petitioner is still in operation, and that Petitioner has not disclosed in the affidavit in support of the Petition that it is no longer in business.
d) The Petitioner has not produced its financial report for the years 2022-2023 in support of its allegations in the Petition/Application that its unable to pay its debts.
e) That the annual reports for the years 2020 and 2021 annexed to the Petitioner’s Application are of no evidential value as the same are not signed by the directors of the auditors.
f) That at Paragraph 12 of the Supporting Affidavit in support of the Petition, the Petitioner confirms that it was purchasing goods on a cash basis, an indication that the Petitioner is liquid and therefore paying its suppliers.
g) That the Petitioner, in its affidavit in support of the Petition deponed that it is a customer of KCB Bank Kenya Limited, Spire Bank Limited, and Bank of Africa Kenya which had provided it with loan facilities. That, it is irreconcilable that it would be advanced a loan by the said banks when it was unable to pay its debts.
h) The Petitioner has not produced any evidence, by way of bank statements, to confirm that it does not receive any income in its bank accounts from the business that it runs.
i) That despite being a taxpayer, the Petitioner has not proved that it is unable to pay any of its taxes or that it has failed to meet any of its statutory payments such as NHIF, NSSF, and PAYE.
33. Further, in asserting that the Petitioner has failed to prove how the administration order is likely to achieve the objectives of administration, the 2nd Creditor submitted that Petitioner failed to provide any reasonable proposals as to how the debts owed are to be paid.
34. Regarding the allegation made by the Petitioner in the application that it has approached Peter Kahi to be the administrator, the 2nd Creditor submitted that that allegation by the Petitioner is not supported by any evidence, and the Petitioner has not provided any of the steps to be undertaken by the proposed administrator for purposes of enabling the company be a going concern, if indeed it is insolvent.
2nd Creditor’s Submissions dated 30.05.2024
35. In support of its application for leave to levy execution against the Petitioner, the 2nd Creditor submitted that the application is premised upon Section 561(1) and 561(4) of the Insolvency Act and maintained that it has satisfied the conditions for the grant of leave based on the provisions of the Insolvency Act and the existing guiding jurisprudence.
36. According to the 2nd Creditor, since there is a pending Petition and since no administrator has been appointed, leave to execute against the Petitioner can only be obtained from the court in line with Section 561(4) of the Insolvency Act, which bars execution against a company which has commenced administration proceedings, as in the present case.
37. The 2nd Creditor maintained that the proposed execution is pursuant to a court decreed in the Milimani CMCC E221 of 2023, Solvochem East Africa Limited v Chemsols Limited, and that the decree has not been set aside or appealed from, and therefore, having not been fully satisfied, ought to be executed against the judgment debtor, the Petitioner herein.
38. It was further the Petitioner’s position that no prejudice will be occasioned to any of the current creditors in the petition if the Applicant is allowed to proceed with the sale of the assets since it is only the Applicant that has a decree capable of execution.
39. Regarding the 4th Creditor’s (Synresins Limited) argument opposing the 2nd Creditor’s application for leave to execute against the Petitioner, the 2nd Creditor Submitted the 4th Creditor had not provided any proof of debt against the Petitioner and therefore, its argument that it will suffer prejudice if leave were to be granted to the 2nd Petitioner to execute against the Petitioner, is baseless.
40. The 2nd Creditor concluded by urging this court to allow its application for leave to execute against the Petitioner since it has met all the conditions, and that it is likely to suffer great prejudice if the application were to be denied.
4th Creditor’s Submissions
41. The 4th Creditor, Synresins Limited in their undated submissions opposed the Petitioner’s application for Administrator Order, arguing that the application has been made in bad faith to shield the company from paying its debts.
42. The 4th Creditor maintained that the application by the Petitioner is not merited since it does not meet the twin conditions set under Section 531 of the Insolvency Act since the Petitioner has failed to demonstrate that it is, or is likely to become unable to pay its debts and that the order for administration if made, is reasonably likely to achieve the objectives of administration.
43. The case of Re Nakumatt Holdings Limited [2017] eKLR was cited by the 4th Creditor in support of its submissions.
The 5th Creditor’s Submissions
44. The 5th Creditor, Redachem East Africa Limited filed their submissions dated 6th November 2024 and also submitted that the Petitioner has not provided any evidence in support of the application that the company is, or is likely to become unable to pay its debts.
45. It was the Creditor’s position that to the contrary, the available evidence, as can be gleaned from the affidavit in support of the Petition/Application, indicates that the Petitioner is fairly liquid since it was in the process of obtaining funding from among others, the Bank of Africa Limited (Kshs. 4,000,000/-) and IMFACT Working Capital Solutions Limited (Kshs. 85,000,000/-), and that there was no evidence that the funding applications had failed.
46. Citing the case of Osman v First Community Bank & 2 others [2022] KEHC 13825 (KLR), the 5th Creditor asserted that inability to pay debts is a fact to be proved by evidence, and cannot be assumed. A burden which the Petitioner has failed to discharge.
47. Further, citing re Nakumat Holdings Limited [2017] eKLR, the 5th Respondent submitted that the Petitioner has failed to furnish any documentary evidence from the proposed administrator detailing the proposed plan to sustain the company as a going concern or how the administration order sought would achieve the objectives of administration.
48. The 5th Creditor therefore urged this court to find that the Petition lacks merit, and that should the court be inclined to grant the administration order sought, the same should only be limited to an interim administration order.
The 7th Creditor’s Submissions
49. The 7th Creditor, F.A. Badia & Company Advocates in its submissions dated 18th November 2024 opposed the Petition and submitted that in dealing with the instant Petition/Application, this court must take into account the fact that the interests of the creditors, must be a matter of paramount importance.
50. According to the Creditor, the Applicant herein has not adduced sufficient evidence in support of its allegation that it has been unable to pay its creditors, nor has it proved that the administration order sought, if granted, would serve the best interest of both the creditors and the company, as required under Section 531 of the Insolvency Act.
51. It is the 7th Creditor’s position that the Petitioner Company has failed to supply both the creditors and the Court with audited books of accounts showing the assets and liabilities of the company as of the date of filing the application for administration order and therefore has failed to sufficiently prove its financial, commercial and operational position.
52. Relying extensively on the decision in the Nakumatt Holdings Limited case, the 7th Creditor maintained that the application by the Petitioner is not merited and, therefore ought to be dismissed with costs.
Analysis and determination
53. I have carefully considered the Petitioner’s application dated 7th March 2023, the 2nd Creditor’s application dated 22nd September 2023 as well as the parties’ respective replying affidavits and submissions, in respect of both applications and note that the only issues for this court’s determination are as follows; -
a) Whether the Petitioner’s application dated 7th March 2023 for an Administration Order is merited.
b) Whether the 2nd Creditor’s application for leave to execute against the Petitioner can be granted in the circumstances of this case.
Whether the application of Administration Order is merited
54. The fact that the Petitioner is indebted to the creditors is not disputed. What is in dispute is whether the Petitioner is insolvent and is therefore deserving of the administration order sought. While the Petitioner alleges that it is insolvent and therefore needs to be protected by an administration order, all the creditors who participated in these proceedings maintain that the Petitioner is solvent and that the application for an administration order by the Petitioner is a feigned attempt by the Company to avoid paying its debts.
55. Part VIII of the Insolvency Act deals with the “nature and objective of administration” and provides under Section 521 (b) thereof that a company enters administration when the appointment of an administrator takes effect. The objectives of administration are set out in section 522 of the Insolvency Act (the Act) as follows: -
“(1) …...
(a) to maintain the company as a going concern;
(b) to achieve a better outcome for the company’s creditors as a whole than would likely to be the case if the company were liquidated (without first being under administration);
(c) to realize the property of the company in order to make a distribution to one or more secured or preferential creditors.
(2) Subject to subsection (4), the administrator of a company shall perform the administrator’s functions in the interests of the company’s creditors as a whole.
(3) The administrator shall perform the administrator’s functions with the objective specified in subsection (1)(a) unless the administrator believes either—
(a) that it is not reasonably practicable to achieve that objective; or
(b) that the objective specified in subsection (1)(b) would achieve a better result for the company’s creditors as a whole.…”
56. From the foregoing, it is clear that the purpose of administration is either to maintain the company as a going concern, achieve a better outcome for the company’s creditors, or realize the property of the company for distribution. It must however be remembered that the interests of the creditors as a whole, is what is central in the administration process.
57. Under Section 531 of the Insolvency Act, the Court may make an administration order in relation to a company only if satisfied that: -
i. The company is or is likely to become unable to pay its debts; and
ii. The administration order is reasonably likely to achieve an objective of administration.
58. The question then that this court needs to answer in the instant case is whether the twin conditions set under Section 531 of the Insolvency Act have been met by the Petitioner Company.
i. Inability to pay debts
59. I have carefully gone through the Petitioner’s depositions, both in support of its application administration order, as well as in its opposition to the 2nd Creditor’s application for leave to execute. I note that the Petitioner in both affidavits, contends that it is insolvent and has been unable to pay its debts.
60. It is settled that the inability to pay debts is a fact that must be proved in evidence and cannot be assumed and that the burden of proof lies with the person who alleges, in this case, Petitioner. In Osman v First Community Bank & 2 others [2022] KEHC 13825 (KLR), it was stated that:
“Inability to pay debts is a fact to be proved by evidence. It is not to be assumed that because the Petitioner says that he is unable to pay debts the court should believe his word of mouth.”
61. From the pleadings, I note that the Petitioner contends that since its incorporation in 2009, the company, which is in the business of manufacturing paints and adhesives, operated well until 2019 when its business was adversely affected by the Covid-19 pandemic. That since 2019, the Company has run into financial headwinds and has been unable to meet its obligations to its creditors.
62. In support of the averments, I note that the Petitioner attached to the application the company’s audited financial statements for the financial years 2019, 2020, and 2021. The Petitioner also attached a summary of supplier balances (“CO 7”) and a summary of debtor balances (“CO-8”), all dated 7th March 2023 indicating that the sum due to its Creditors then stood at Kshs. 72,366,631.92 whilst the Company’s debtors stood at Kshs. 31,853,003.13.
63. It is the Petitioner’s case that in a bid to restructure and consolidate such facilities, it was forced to secure a facility with KCB Bank in the sum of Kshs. 12,000,000/- (Annex “CO-10”) which sum was utilized towards retiring two outstanding loans with Bank of Africa (Kshs. 3 million) and Spire Bank Kenya (Kshs. 9 million). It is further the Petitioner’s position that the company entered into arrangements with a number of its Creditors with a view of settling their respective outstanding balances. In support of this assertion, the Petitioner annexed to the application a Creditor’s Repayment Schedule, and various emails from some of the creditors accepting the arrangement.
64. The Petitioner further contends that it is in the process of securing additional financing from an entity known as IMFACT Limited (in the sum of Kshs. 85 million) and the Bank of Africa (Kshs. 4 million) which, if successful, it anticipates will significantly improve its commercial and financial position.
65. It is however the Petitioner’s position that given the fact that the company is currently heavily indebted and a number of its Creditors have commenced recovery and execution measures against the company, it is necessary that an administration order be issued in respect of the Petitioner Company for the purposes of ensuring that the company gets the necessary window to enable it work towards the stabilization of the company to be able to pay its debts and even remain in business.
66. It is trite that a company is unable to pay its debts if it is commercially insolvent, that is, where it is established that demands for payment have been made and not heeded, or that persistent requests and consistent promises to pay have not been honoured. In re Nakumat Holdings Limited [2017] eKLR, the Court stated as follows on the issue;
“51. English decisions interpreting almost similar provisions under the Insolvency Act 1986 are in plenty and would certainly offer guidance. Of the first factor (inability to pay debts), the court in Re Colt Telecom Group PLC [2002] EWHC 2815 held that the words “is or is likely” to be unable to pay its debts meant that it is more probable than not that the company will be unable to pay its debts.
52. ………. A company is unable to pay its debts if it is commercially insolvent and commercial insolvency will be established once it is shown that demand has been made and not heeded or that persistent requests and consistent promises to pay have not been honoured. Once there is evidence of financial distress, then the first precondition for an administration order under s.531 of the Insolvency Act would be deemed to have been met. An applicant or the company, in my judgment, need not prove a balance sheet insolvency and neither will proven balance sheet solvency be enough to show that the company is in a position to pay its debts.”
53. I would consequently, for purposes of Part VIII of the Act, view it that a company “is or is likely to be unable to pay its debts” when it is shown that the company has failed to pay over any amount in terms of an obligation under a contract including to pay its employees. The failure must however subsist for a reasonable period of time.
67. Taking into account the averments by the Petitioner and considering the replying affidavits by the various Creditors herein, I note that apart from the seven Creditors who were joined to these proceedings at various stages, there are several other Creditors of the Petitioner, as disclosed in the affidavit in support of the application. From the evidence availed by the Petitioner as well as the evidence in the affidavits by the Creditors, it is evident that the Petitioner company has failed in its obligation to pay its creditors for some time now.
68. In the premises, I am therefore of the view that the Petitioner has adduced sufficient evidence that it has, or is likely to become unable to pay its debts, within the meaning of Section 531 of the Insolvency Act.
ii. Reasonably likely to achieve an objective of administration
69. The next issue for determination is whether an administration order, if issued in the instant case, is reasonably likely to achieve the objective of administration as envisaged under the Insolvency Act.
70. From a reading of Section 522 of the Insolvency Act, the objectives of administration are three-fold, that is: (i) Maintain company as a going concern; (ii) achieve a better outcome for the company’s creditors as a whole than would be likely if the company were to be liquidated; and (iii) realize the property of the company in order to make a distinction to one or more secured or preferential creditors.
71. In re Nakumat Holdings Limited [2017] eKLR, the Court in considering the issue stated as follows; -
“58. The general object of Part VIII also dictates that I avoid the higher threshold imposed by the English courts. Focus under s.531(b) is to achieve any one of the objectives of administration. It could be to maintain the business. It could also be to ensure the creditors as a whole get something out of the process which enjoins the administrator to continue the business. It would defeat the aim and object of the statute if we adopted a high threshold, yet the aim and object is to give the company a second chance. The general scheme of the Act is also to prevent a negative impact on the economic and social scene by rescuing companies through administration rather than liquidating them. Thought about the employees and their families, the creditors, the suppliers must vibrate through the courts mind. Thought about the fact that in Kenya, obtaining credit when one is under any semblance of insolvency is most difficult, must also hover around.”
72. In the instant case, it is clear that the company is in financial distress and has been unable to pay its debts for some time now within the contemplation of Section 531 (a) of the Act. This is evident from the number of creditors, some of which participated in these proceedings. It is also clear from the evidence on record that some of the creditors (such as the 2nd and 7th Creditors herein) have commenced execution proceedings against the Petitioner. In my view
73. The question that needs to be answered by this court is whether, on the facts of this case, an order of administration as sought by the Petitioner, will achieve any one of the objectives of administration. While the Petitioner supports the application, all the Creditors who participated in these proceedings opposed the grant of an administration order, stating mainly that the Petitioner is in fact solvent and that the application is merely a feigned attempt by the Petitioner to pay its debts.
74. Considering the averments in support of the Petition, I am convinced that the Petitioner has put an elaborate plan to stabilize the company to be able to pay its debts and hopefully back to profitability. This is evidenced by the steps the company has taken to obtain financing and the restructuring of its operations. It is also clear from the evidence in the supporting affidavit that the company has entered into arrangements with some Creditors who have accepted the same. In my view, these efforts, if overseen by an administrator, are likely to turn around the fortunes of the company, not only for the benefit of the creditors but also for the benefit of the company as well.
75. On the other hand, the Creditors who opposed the application appear to be simply pulling their respective direction, with each arguing to be allowed to execute against the company, without taking into account that one of the objectives of administration is to achieve a better outcome for the company’s creditors as a whole.
76. It is this Court’s considered view that on the facts of this case, an Order of administration would not only yield a better outcome for the Company’s creditors as a whole but is also likely to maintain the company as a going concern.
77. Consequently, I agree with the deposition of the 4th Creditor (Synresins Limited) in its affidavit of 15th March 2024 that allowing the 2nd Creditor (Solvochem Limited) to proceed with execution against the Petitioner would be prejudicial to the rest of the Creditors.
78. Having found that an administration order would, in the circumstances of this case, meet the objectives of the Act, and be in the interest of both the company and its creditors, I find it superfluous to consider the 2nd Creditor’s application dated 22nd September 2023 seeking leave to commence execution against the Petitioner herein. The same is accordingly dismissed.
Disposition
79. For the reasons I have set out above, I find that the Petitioner has made a case for the issuance of an administration order by this court in respect of the Company. Consequently, the Petitioner’s application dated 7th March 2023 is hereby allowed in the following terms: -
i. That the Proclamation Notices dated the 2nd day of March, 2023 issued by Valley Auctioneers be and are hereby quashed for want of meeting the objectives of Administration as per Section 522 of the Insolvency Act;
ii. That an Administration Order be and is hereby made in respect of the Applicant Company for a period of twelve (12) months.
iii. That Mr. Peter Kahi, be and is hereby appointed as Administrator of the Applicant Company.
iv. The Petitioner is hereby directed to immediately serve the said Mr. Peter Kahi, the administrator, with a copy of this Ruling together with all the pleadings filed herein.
v. That the Administrator, Mr. Peter Kahi, is hereby directed to personally appear in court on the 6th day of March 2025 at 9.00 am for further orders of the court.
80. On costs, I direct that each party bears their own costs.
81. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 27TH DAY OF FEBRUARY 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant