REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
COMMERCIAL AND TAX DIVISION
INSOLVENCY NOTICE PETITION NO. E055 OF 2021
IN THE MATTER OF DODORE KENYA LIMITED
AND
IN THE MATTER OF THE INSOLVENCY ACT, 2015
LIQUIDATION PETITION
-BETWEEN-
DODORE KENYA LIMITED………………………....…………….PETITIONER
-VERSUS-
ISAAC ODHIAMBO OGONGO……………...……………….1ST RESPONDENT
LUCIANA NDANU WAMBUA…………….………………..2ND RESPONDENT
NANCY JEPKOSGEI………………………...………………..3RD RESPONDENT
PATRICK KIPRUTO KIRUI………………………………….4TH RESPONDENT
RULING
1. The instant Liquidation Petition dated 11th August, 2021 was filed by Dodore Kenya Limited (hereinafter referred to as “the company”) seeking the following orders -
i) A declaration that the Company is unable to pay its debts;
ii) That DODORE KENYA LIMITED be liquidated by the Court under the provisions of the Insolvency Act, 2015;
iii) That the Official Receiver be appointed as Liquidator of the Company; and
iv) Any other orders that this Honorable Court may deem fit and just to issue.
2. The petition is premised on the grounds on the face of the petition, and is supported by a verifying and supplementary affidavit sworn by Isaiah Otieno Okoth, a Director of the petitioner company herein, on 11th August 2021 & 21st November 2022, respectively. In opposition thereto, the respondents filed a replying affidavit sworn on 19th October, 2023 by Isaac Odhiambo Ogongo, the 1st respondent herein.
3. The petition proceeded by way of affidavit evidence, and was canvassed by way of written submissions which were highlighted on 15th February, 2024. The company’s submissions were filed on 1st December, 2023 by the law firm of Adede & Company Advocates, whereas the respondents’ submissions were filed on 11th December, 2023 by the law firm of Muthoni Nyuguto & Company Advocates.
4. Mr. Adede, learned Counsel for the petitioner relied on the case of Kenya Artisans Limited v Chemical & Allied Workers Union [2021] eKLR, the provisions of Sections 384(1) & (2) of the Insolvency Act which deals with circumstances in which a company can be declared as being unable to pay its debts. She submitted that with a deficit of Kshs.43,170,907.00, and with the petitioner having neither the means of paying its debts when they fell due or reducing/eliminating the abovementioned deficit, the petitioner was indeed indebted to the point of being unable to pay its debts. Counsel referred to the provisions of Sections 424 & 425 of the Insolvency Act and Regulation 77B of the Insolvency Act (Amendment) Regulations, 2018, and submitted that the petitioner has complied with all the requirements therein, thus the instant petition is legally sound.
5. He cited the Court of Appeal case of Nancy Kahoya Amadiva v Expert Credit Limited & Another [2015] eKLR and stated that the respondents have not demonstrated and/or tendered any evidence in support of the allegations that the instant petition was filed as a way of the petitioner fraudulently escaping its liability for paying the respondents employment dues. He stated that the petitioner acknowledges its legal responsibilities to its former employees and contends that it would have gladly discharged the same had it the means to do so. Mr. Adede argued that this can be seen from the fact that the petitioner attempted to settle part of the employees’ dues during the period leading up to the filing of the petition with whatever minimal resources it could muster. He asserted that the decision to file the instant petition was not arrived at lightly and came only as a painful last resort.
6. Counsel for the petitioner submitted that the petition herein acknowledges the liability to the petitioner’s former employees in the statement of the company’s financial position dated 11th August, 2023. He referred to the provisions of Part 8 of the Employment Act, 2007 and stated that the petitioner recognizes situations where an employer may become insolvent and stipulates how employees’ benefits are to be managed under the circumstances. He contended that the filing of the instant petition aligns with the said provisions since a determination of insolvency by the Court is a prerequisite for employees to pursue any benefits provided for thereunder. Mr. Adede asserted that the instant petition is not a way for the petitioner to escape liability to any of its creditors but rather, it serves as an acknowledgement of the said liability, as an acknowledgement of the petitioner’s inability to settle all subsisting individual debts. and as a prayer to the Court to intervene and provide a reasonable and justiciable roadmap for all parties concerned.
7. Ms. Nyaguto, learned Counsel for the respondents referred to the provisions of Section 394 of the Insolvency Act and submitted that the petition herein fails for non-compliance with the formal legal requirements provided for thereunder. She also submitted that the instant petition is fatally defective having been filed on the strength of a special resolution dated 11th August, 2021 which was not signed or sealed by the Company Secretary as required by the Company’s Act, 2015 or registered at the relevant Registry, thus it does not conform with the provisions under Section 393(4) of the Insolvency Act. Counsel cited the provisions of Regulation 77 of the Insolvency Act (Regulations 2016) as amended and contended that the instant petition fails for failure to provide the names and addresses of its preferred creditors and the amounts of their respective claims.
8. Ms. Nyaguto stated that the petitioner manages a virtual value chain management system that connects farmers and stakeholders to financiers and markets, from which it earns administration fees from running the said system. She stated that means that the petitioner is an agent of Rabobank Foundation and the farmers, and its role is defined in the agreement as a manager of the value chain, accessing and holding funds in trust accounts under the various agreements for its principal. She further stated that it is not clear under what circumstances the petitioner assumed ownership and claim of the sums held in trust for Rabobank Foundation as its own financial liability, yet it was only entitled to administration fees under the agency arrangement. Counsel contended that the alleged loan to Rabobank Foundation of Kshs.33,000,000/= constitutes a non-commercial transaction and should not form part of the petitioner’s liability since the said funds were to be held in trust.
9. It was submitted by Counsel that the petitioner held the aforesaid funds in trust and dispensed loans to farmers through the value chain management system, and repayment of the said loans was to be done by the farmers to Rabobank Foundation through the system. She contended that the petitioner’s financial interest in the aforesaid sums is limited to the management fees it earned. In the premise, Ms. Nyaguto averred that the petitioner has not demonstrated its inability to pay its debts since the instant petition is accompanied by a spurious statement of accounts that contain unrelated non-commercial transactions and falsified debts. Counsel referred to the provisions of Section 424 (1) & 427 of the Insolvency Act and the case of In the matter of Ali Jillo Fallan (Insolvency Cause 6 of 2018) [2021] KEHC 8 (KLR) and submitted that the inability to pay a debt should not be taken out of its context, for it may be consistent with a state of temporary financial embarrassment, in circumstances where a debtor’s liabilities do not exceed the value of his assets.
10. Ms. Nyaguto contended that the petitioner has willfully misled and falsified the true nature of the financial relationship between itself, SNV Kenya, SNV Rwanda, and SHA, which is benevolence funding through grants, and not loans as alleged proof of indebtedness as per the attached statements of affairs. She contended that the petitioner has also falsified and misrepresented the financial liability to Rabobank Foundation to a purported inflated amount of Kshs. 33,000,000/=, while the true amount indebted is Kshs.2,100,000/=. She further contended that the draft statement of financial position annexed to the petition herein does not bear any signatures, or authentication, and is not audited and certified by a qualified professional, hence cannot be relied on by this Court. She stated that the petitioner has neither demonstrated to this Court what efforts it has made to collect its debts from its debtors nor has it accounted for and/or explained the difference, being that out of the Kshs.405,667.00 available in its bank accounts, only Kshs.155,116.00 is the estimated realizable value.
11. It was submitted by Counsel that the reported liability of Kshs.58,976,584.00 is misleading as the same stands at Kshs.9,385,000/= against the petitioner’s assets which amount to Kshs.15,805,667.00. Counsel stated that for that reason, the petitioner is commercially and factually solvent. She further submitted that in the event the orders sought herein are granted, the respondents will suffer grave injustice and harm. She relied on the provisions of Section 424(1)(g) of the Insolvency Act and asserted that the petitioner is not deserving of the orders sought herein since it is a going concern with running funded projects, that continue with its operations to date. She argued that the sole purpose of this petition is to allow the petitioner to access the remaining monies held as security for costs in the employment cause, leaving the respondents without recourse in law, therefore it is unjustified and against equity.
ANALYSIS AND DETERMINATION.
12. I have considered the instant petition as well as the affidavits filed by the petitioner in support thereof. I have also considered the replying affidavit filed by the respondents, together with the written submissions filed by Counsel for the parties. The issues that arise for determination are –
i) Whether the petition is procedurally and substantively compliant; and
ii) Whether a liquidation order should issue against the company.
13. The petitioner’s case is that it was incorporated on 14th October, 2013 and its registered office is situate in LR No. 209/4298/4299, Uchumi House, Aga-Khan Walk Nairobi. That the company’s main objective is to act as a service provider, enabling programmes with social impact using innovative technology, provide services on project development, coordination, assist project financiers in monitoring and coordination, assist project promoters in coordinating parties involved in planning, design and supervision, ensuring adherence to financing protocols, participating in planning and implementation of development programmes and initiatives, advising on general development interventions, coordinating project planning and implementation, assisting in interpreting the same development as an area of study by liaising with institutions of higher learning on curriculum development, and offering relevant courses and training on the same.
14. The petitioner stated that the company had two directors and shareholders being Isaiah Otieno Okoth holding 500 shares and Dodore Holland B.V holding 2200 shares. The petitioner averred that it ceased operations in March 2020 due to the Covid-19 Pandemic since their clients had ceased operations and there was a cessation of movement within the country. As a result, it was no longer able to meet its obligations as and when they fell due since it was not generating any income. It contended that it is evident from the last statement of accounts dated 31st December, 2020 that it suffered a loss of Kshs.64,031,682.00. The petitioner stated that as at 31st May, 2021, its assets were worth Kshs.405,677.00 with liabilities of over Kshs.58,976,584.00
15. The petitioner’s case is that its directors and shareholders have explored all available options including seeking financing and injecting more capital by the shareholders but all these efforts have been to no avail. That due to the financial distress that the company has been facing, the Board of Directors in a meeting held on 5th August, 2021 resolved to institute liquidation proceedings against the company since the company is insolvent and is unable to pay its debts.
16. The respondents in their replying affidavit deposed that they are all former employees of the petitioner. They averred that the instant petition is incurably defective for failure to comply with the law as set out under the Insolvency Act. They further averred that the petition herein is a way by the petitioner to frustrate their claims for benefits and emoluments under the contracts for employment, some of which are under consideration in employment Courts.
17. The respondents stated that the petitioner continues to conduct business to date in several of its projects with some of its employees through single engagement contracts to circumvent the application of employment laws in its dealings with employees. They further stated that the petitioner was funded by way of grants, donations and monetary gifts for its operation and projects which were all made available to it at the beginning of all project cycles, including administrative expenses and employee salaries. The respondents deposed that the petitioner has no justification for not settling employees’ dues.
18. The respondents contended that the financial relationship between the petitioner, SNV Kenya, SNV Rwanda & SHA is benevolence funding through grants and not loans. They averred that the petitioner has falsified its financial liability to Rabobank to a purported inflated amount of Ksh.33,000,000/=, while the true amount indebted is Kshs.9,600,000/=. In addition, it has filed a list of assets and statements of accounts that are not audited, and/or authenticated by a qualified professional under the law, as proof of indebtedness.
19. It was stated by the respondents that the petitioner has transferred some of its assets including bank accounts and Mpesa wallet accounts to a shell company known as Agri Wallet Limited so as to defeat the former employees’ claims with whom they have been in protracted litigation over unlawful termination and non-payment of dues. They further stated that the petitioner declared the said employees redundant outside the provisions of the law on 6th November, 2020 without notice leading to the said litigation
20. As a result, the respondents asserted that the petition herein is an attempt to disregard their efforts to claim their rightful dues. They stated that they filed an application in the lower Court for security for costs which was granted in Milimani MCELRC/E725/2021, which was amended by consent of the parties. They stated that the petition herein is therefore meant to allow the petitioner to access the monies held as security for costs in the employment Court, thus if the orders sought are granted, the respondents will be left without any recourse in law.
21. The respondents deposed that they claim from the petitioner Kshs.5,400,000/= as compensation and redundancy dues, and it is in the interest of justice that this petition be dismissed since if it is allowed, the fictitious alleged secured creditors will leave nothing for the employee creditors based on unauthenticated financial reports.
22. The petitioner in its supplementary affidavit contended that there is no justification for the claims made by the respondents to the effect that the petition was filed as a ruse to frustrate its former employees. It averred that all its former employees were notified and updated through various meetings and by email correspondence of the prevailing financial circumstances of the petitioner leading up to the cessation of its operations in 2020 when the situation became untenable.
23. The petitioner averred that the deponent of the respondents’ affidavits in his position as the Operations Lead was not conversant with all the operations of the petitioner as he had no sight of all the corporate level undertakings. It further averred that Agri-Wallet Holding Limited is a separate and completely autonomous legal entity which is not a party to this petition and whose operations should not be the subject of these proceedings.
24. The petitioner stated that it is a limited liability company incorporated in Kenya with no practical means of relocating abroad and is indeed actively prosecuting this petition with a view to a fair and equitable resolution of the same for the benefit of all parties concerned. It confirmed that indeed the deponent of the respondents’ affidavit and one Luciana Wambua filed a suit for unlawful termination in the Employment and Labour Relations Court, which suit is still pending determination. The petitioner opined that the subsistence of the said claims is no legal bar to the lodging or prosecution of the instant petition.
25. The petitioner asserted that by filing this petition it is not attempting to escape from its legal obligations to its former employees but is merely seeking reprieve for financial distress wrought by circumstances beyond its control.
Whether the petition is procedurally and substantively compliant.
26. The respondents submitted that the instant petition fails for non-compliance with the formal legal requirements under Section 394 of the Insolvency Act which states that –
(1) Within fourteen days after a company has passed a resolution for its voluntary liquidation, it shall publish a notice setting out the resolution-
a) once in the Gazette;
b) once in at least two newspapers circulating in the area in which the company has its principal place of business in Kenya; and
c) on the company's website (if any).
(2) If a company fails to comply with subsection (1), the company, and each officer of the company who is in default, commit an offence and on conviction are each liable to a fine not exceeding five hundred thousand shillings.
(3) If, after a company or any of its officers is convicted of an offence, the company continues to fail to take any of the steps specified in subsection (1), the company, and each officer of the company who is in default, commit a further offence on each day on which the failure continues and on conviction are each liable to a fine not exceeding fifty thousand shillings for each such offence.
(4) For purposes of subsections (2) and (3), the liquidator is an officer of the company.”
27. The respondents averred that the petitioner did not comply with the provisions of Section 394(1) reproduced hereinabove. On perusal of the said provisions, it is evident that they are couched in mandatory terms. The said provisions require the publishing of a company’s resolution for voluntarily liquidation so as to notify the public and/or creditors at large of their intention to liquidate.
28. From the record, it is manifest that in an extraordinary meeting of the members of the company held virtually on 5th August, 2021, a special resolution was passed that the company is unable to pay its debts, thus it is just and equitable that the company be liquidated. The petitioner has not availed any evidence of compliance with the provisions of Section 394 of the Insolvency Act. There is no evidence of the petitioner having published the said special resolution in the Gazette, in any newspaper circulating in the area in which the company has its principal place of business in Kenya, and on its website.
29. In view of the preceding paragraph, this Court is not able to verify whether all the company’s creditors save for the ones that were served with the instant petition are aware that the company has voluntarily instituted liquidation proceedings against itself, and it is also not able to ascertain the true level of the company’s indebtedness (if any). It is my finding that publishing and/or advertisement of the company’s resolution to institute liquidation proceedings against itself is a very crucial step that cannot be ignored by this Court. Further, proceeding with these proceedings as is, is a risky undertaking as it stands to lock out other creditors (if any) who are at large and might not know that the company is pursuing liquidation proceedings, and may end up with a liquidation order against it. I am alive to the provisions of Section 696 of the Insolvency Act, 2015 which provides that-
“(1) A proceeding under this Act may not be invalidated or set aside for a defect in a step that is required to be taken as part of, or in connection with, the proceeding, unless a person is detrimentally affected by the defect.
(2) The Court may order the defect to be corrected, and may order the proceeding to continue, on such terms as it considers appropriate in the interests of everyone who has an interest in the proceeding.
(3) In this section, "defect" includes a misdescription, misnomer or omission.”
30. Section 696 of the Insolvency Act provides that a proceeding under the Insolvency Act may not be invalidated or set aside for a defect in a step that is required to be taken as part of, or in connection with the proceedings, unless a person is detrimentally affected by the defect. In this case, failure to comply with the provisions of Section 394(1) of the Insolvency Act may be detrimental to other creditors (if any), who are not disclosed in the petition and are not aware that the company seeks to be declared insolvent.
31. The respondents also submitted that the instant petition is incompetent on grounds that the petitioner despite indicating that it owes Kshs.6,200,00/= to its preferred creditors, its statement of financial position attached to the petition does not contain the names and addresses of its preferred and unsecured creditors and the amounts of their respective claims as provided for under Regulation 77 of the Insolvency Regulations which provides that -
“(1) For the purpose of section 403 (4) (a) (iv) of the Act, the statement of the company’s financial position shall be in Form 32 set out in the First Schedule and is required to contain the following information –
a) a list of the company’s assets, divided into such categories as are appropriate for easy identification, with estimated values assigned to each category;
b) in the case of any property on which a claim against the company is wholly or partly secured, particulars of the claim and its amount, and the manner in which and the period when the security was created;
c) the names and addresses of the company’s preferential creditors, with the amounts of their respective claims;
d) the names and addresses of the company’s unsecured creditors, with the amounts of their respective claims;
e) particulars of any debts owed by or to the company to or by persons connected with it; and
f) the names and addresses of the company’s members, with details of their respective shareholdings.
(2) For the purpose of section 402 (4)(a)(iv), the statement of the company’s financial position is required to include a certificate by the liquidator that, to the best of the liquidator’s knowledge and belief, the statement is correct.”
32. On perusal of the petitioner’s statement of financial position attached to the instant petition, I agree with Counsel for the respondents that it does not comply with the provisions of Regulation 77 of the Insolvency Act since it does not contain the names and addresses of its preferred and unsecured creditors and the amounts of their respective claims.
33. In the premise, the petition herein is defective for want of conformity with procedural and substantive law and Regulations and cannot proceed as it is. It is however noteworthy that this Court’s primary duty is to do justice without undue regard to procedural technicality in line with the provisions of Article 159 of the Constitution of Kenya, 2010. In addition, pursuant to the provisions of sections 1A, 1B & 3A of the Civil Procedure Act which provides that Courts have a duty to facilitate the just and expeditious resolution of disputes in line with the overriding objectives, this Court has inherent powers to give orders which are necessary to meet the ends of justice.
34. This Court finds that in as much as the instant petition is defective, it is not incurably defective. As a result, I suo moto set aside the proceedings that have so far been conducted in this petition. I direct the petitioner company herein to bring thE petition into compliance with the provisions of Section 394 of the Insolvency Act and Regulation 77 of the Insolvency Regulations, and thereafter start this matter de novo.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 3rd day of May 2024. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
No appearance for the petitioner
No appearance for the respondents
Ms B. Wokabi – Court Assistant.
IN THE HIGH COURT OF KENYA AT NAIROBI
COMMERCIAL AND TAX DIVISION
INSOLVENCY NOTICE PETITION NO. E055 OF 2021
IN THE MATTER OF DODORE KENYA LIMITED
AND
IN THE MATTER OF THE INSOLVENCY ACT, 2015
LIQUIDATION PETITION
-BETWEEN-
DODORE KENYA LIMITED………………………....…………….PETITIONER
-VERSUS-
ISAAC ODHIAMBO OGONGO……………...……………….1ST RESPONDENT
LUCIANA NDANU WAMBUA…………….………………..2ND RESPONDENT
NANCY JEPKOSGEI………………………...………………..3RD RESPONDENT
PATRICK KIPRUTO KIRUI………………………………….4TH RESPONDENT
RULING
1. The instant Liquidation Petition dated 11th August, 2021 was filed by Dodore Kenya Limited (hereinafter referred to as “the company”) seeking the following orders -
i) A declaration that the Company is unable to pay its debts;
ii) That DODORE KENYA LIMITED be liquidated by the Court under the provisions of the Insolvency Act, 2015;
iii) That the Official Receiver be appointed as Liquidator of the Company; and
iv) Any other orders that this Honorable Court may deem fit and just to issue.
2. The petition is premised on the grounds on the face of the petition, and is supported by a verifying and supplementary affidavit sworn by Isaiah Otieno Okoth, a Director of the petitioner company herein, on 11th August 2021 & 21st November 2022, respectively. In opposition thereto, the respondents filed a replying affidavit sworn on 19th October, 2023 by Isaac Odhiambo Ogongo, the 1st respondent herein.
3. The petition proceeded by way of affidavit evidence, and was canvassed by way of written submissions which were highlighted on 15th February, 2024. The company’s submissions were filed on 1st December, 2023 by the law firm of Adede & Company Advocates, whereas the respondents’ submissions were filed on 11th December, 2023 by the law firm of Muthoni Nyuguto & Company Advocates.
4. Mr. Adede, learned Counsel for the petitioner relied on the case of Kenya Artisans Limited v Chemical & Allied Workers Union [2021] eKLR, the provisions of Sections 384(1) & (2) of the Insolvency Act which deals with circumstances in which a company can be declared as being unable to pay its debts. She submitted that with a deficit of Kshs.43,170,907.00, and with the petitioner having neither the means of paying its debts when they fell due or reducing/eliminating the abovementioned deficit, the petitioner was indeed indebted to the point of being unable to pay its debts. Counsel referred to the provisions of Sections 424 & 425 of the Insolvency Act and Regulation 77B of the Insolvency Act (Amendment) Regulations, 2018, and submitted that the petitioner has complied with all the requirements therein, thus the instant petition is legally sound.
5. He cited the Court of Appeal case of Nancy Kahoya Amadiva v Expert Credit Limited & Another [2015] eKLR and stated that the respondents have not demonstrated and/or tendered any evidence in support of the allegations that the instant petition was filed as a way of the petitioner fraudulently escaping its liability for paying the respondents employment dues. He stated that the petitioner acknowledges its legal responsibilities to its former employees and contends that it would have gladly discharged the same had it the means to do so. Mr. Adede argued that this can be seen from the fact that the petitioner attempted to settle part of the employees’ dues during the period leading up to the filing of the petition with whatever minimal resources it could muster. He asserted that the decision to file the instant petition was not arrived at lightly and came only as a painful last resort.
6. Counsel for the petitioner submitted that the petition herein acknowledges the liability to the petitioner’s former employees in the statement of the company’s financial position dated 11th August, 2023. He referred to the provisions of Part 8 of the Employment Act, 2007 and stated that the petitioner recognizes situations where an employer may become insolvent and stipulates how employees’ benefits are to be managed under the circumstances. He contended that the filing of the instant petition aligns with the said provisions since a determination of insolvency by the Court is a prerequisite for employees to pursue any benefits provided for thereunder. Mr. Adede asserted that the instant petition is not a way for the petitioner to escape liability to any of its creditors but rather, it serves as an acknowledgement of the said liability, as an acknowledgement of the petitioner’s inability to settle all subsisting individual debts. and as a prayer to the Court to intervene and provide a reasonable and justiciable roadmap for all parties concerned.
7. Ms. Nyaguto, learned Counsel for the respondents referred to the provisions of Section 394 of the Insolvency Act and submitted that the petition herein fails for non-compliance with the formal legal requirements provided for thereunder. She also submitted that the instant petition is fatally defective having been filed on the strength of a special resolution dated 11th August, 2021 which was not signed or sealed by the Company Secretary as required by the Company’s Act, 2015 or registered at the relevant Registry, thus it does not conform with the provisions under Section 393(4) of the Insolvency Act. Counsel cited the provisions of Regulation 77 of the Insolvency Act (Regulations 2016) as amended and contended that the instant petition fails for failure to provide the names and addresses of its preferred creditors and the amounts of their respective claims.
8. Ms. Nyaguto stated that the petitioner manages a virtual value chain management system that connects farmers and stakeholders to financiers and markets, from which it earns administration fees from running the said system. She stated that means that the petitioner is an agent of Rabobank Foundation and the farmers, and its role is defined in the agreement as a manager of the value chain, accessing and holding funds in trust accounts under the various agreements for its principal. She further stated that it is not clear under what circumstances the petitioner assumed ownership and claim of the sums held in trust for Rabobank Foundation as its own financial liability, yet it was only entitled to administration fees under the agency arrangement. Counsel contended that the alleged loan to Rabobank Foundation of Kshs.33,000,000/= constitutes a non-commercial transaction and should not form part of the petitioner’s liability since the said funds were to be held in trust.
9. It was submitted by Counsel that the petitioner held the aforesaid funds in trust and dispensed loans to farmers through the value chain management system, and repayment of the said loans was to be done by the farmers to Rabobank Foundation through the system. She contended that the petitioner’s financial interest in the aforesaid sums is limited to the management fees it earned. In the premise, Ms. Nyaguto averred that the petitioner has not demonstrated its inability to pay its debts since the instant petition is accompanied by a spurious statement of accounts that contain unrelated non-commercial transactions and falsified debts. Counsel referred to the provisions of Section 424 (1) & 427 of the Insolvency Act and the case of In the matter of Ali Jillo Fallan (Insolvency Cause 6 of 2018) [2021] KEHC 8 (KLR) and submitted that the inability to pay a debt should not be taken out of its context, for it may be consistent with a state of temporary financial embarrassment, in circumstances where a debtor’s liabilities do not exceed the value of his assets.
10. Ms. Nyaguto contended that the petitioner has willfully misled and falsified the true nature of the financial relationship between itself, SNV Kenya, SNV Rwanda, and SHA, which is benevolence funding through grants, and not loans as alleged proof of indebtedness as per the attached statements of affairs. She contended that the petitioner has also falsified and misrepresented the financial liability to Rabobank Foundation to a purported inflated amount of Kshs. 33,000,000/=, while the true amount indebted is Kshs.2,100,000/=. She further contended that the draft statement of financial position annexed to the petition herein does not bear any signatures, or authentication, and is not audited and certified by a qualified professional, hence cannot be relied on by this Court. She stated that the petitioner has neither demonstrated to this Court what efforts it has made to collect its debts from its debtors nor has it accounted for and/or explained the difference, being that out of the Kshs.405,667.00 available in its bank accounts, only Kshs.155,116.00 is the estimated realizable value.
11. It was submitted by Counsel that the reported liability of Kshs.58,976,584.00 is misleading as the same stands at Kshs.9,385,000/= against the petitioner’s assets which amount to Kshs.15,805,667.00. Counsel stated that for that reason, the petitioner is commercially and factually solvent. She further submitted that in the event the orders sought herein are granted, the respondents will suffer grave injustice and harm. She relied on the provisions of Section 424(1)(g) of the Insolvency Act and asserted that the petitioner is not deserving of the orders sought herein since it is a going concern with running funded projects, that continue with its operations to date. She argued that the sole purpose of this petition is to allow the petitioner to access the remaining monies held as security for costs in the employment cause, leaving the respondents without recourse in law, therefore it is unjustified and against equity.
ANALYSIS AND DETERMINATION.
12. I have considered the instant petition as well as the affidavits filed by the petitioner in support thereof. I have also considered the replying affidavit filed by the respondents, together with the written submissions filed by Counsel for the parties. The issues that arise for determination are –
i) Whether the petition is procedurally and substantively compliant; and
ii) Whether a liquidation order should issue against the company.
13. The petitioner’s case is that it was incorporated on 14th October, 2013 and its registered office is situate in LR No. 209/4298/4299, Uchumi House, Aga-Khan Walk Nairobi. That the company’s main objective is to act as a service provider, enabling programmes with social impact using innovative technology, provide services on project development, coordination, assist project financiers in monitoring and coordination, assist project promoters in coordinating parties involved in planning, design and supervision, ensuring adherence to financing protocols, participating in planning and implementation of development programmes and initiatives, advising on general development interventions, coordinating project planning and implementation, assisting in interpreting the same development as an area of study by liaising with institutions of higher learning on curriculum development, and offering relevant courses and training on the same.
14. The petitioner stated that the company had two directors and shareholders being Isaiah Otieno Okoth holding 500 shares and Dodore Holland B.V holding 2200 shares. The petitioner averred that it ceased operations in March 2020 due to the Covid-19 Pandemic since their clients had ceased operations and there was a cessation of movement within the country. As a result, it was no longer able to meet its obligations as and when they fell due since it was not generating any income. It contended that it is evident from the last statement of accounts dated 31st December, 2020 that it suffered a loss of Kshs.64,031,682.00. The petitioner stated that as at 31st May, 2021, its assets were worth Kshs.405,677.00 with liabilities of over Kshs.58,976,584.00
15. The petitioner’s case is that its directors and shareholders have explored all available options including seeking financing and injecting more capital by the shareholders but all these efforts have been to no avail. That due to the financial distress that the company has been facing, the Board of Directors in a meeting held on 5th August, 2021 resolved to institute liquidation proceedings against the company since the company is insolvent and is unable to pay its debts.
16. The respondents in their replying affidavit deposed that they are all former employees of the petitioner. They averred that the instant petition is incurably defective for failure to comply with the law as set out under the Insolvency Act. They further averred that the petition herein is a way by the petitioner to frustrate their claims for benefits and emoluments under the contracts for employment, some of which are under consideration in employment Courts.
17. The respondents stated that the petitioner continues to conduct business to date in several of its projects with some of its employees through single engagement contracts to circumvent the application of employment laws in its dealings with employees. They further stated that the petitioner was funded by way of grants, donations and monetary gifts for its operation and projects which were all made available to it at the beginning of all project cycles, including administrative expenses and employee salaries. The respondents deposed that the petitioner has no justification for not settling employees’ dues.
18. The respondents contended that the financial relationship between the petitioner, SNV Kenya, SNV Rwanda & SHA is benevolence funding through grants and not loans. They averred that the petitioner has falsified its financial liability to Rabobank to a purported inflated amount of Ksh.33,000,000/=, while the true amount indebted is Kshs.9,600,000/=. In addition, it has filed a list of assets and statements of accounts that are not audited, and/or authenticated by a qualified professional under the law, as proof of indebtedness.
19. It was stated by the respondents that the petitioner has transferred some of its assets including bank accounts and Mpesa wallet accounts to a shell company known as Agri Wallet Limited so as to defeat the former employees’ claims with whom they have been in protracted litigation over unlawful termination and non-payment of dues. They further stated that the petitioner declared the said employees redundant outside the provisions of the law on 6th November, 2020 without notice leading to the said litigation
20. As a result, the respondents asserted that the petition herein is an attempt to disregard their efforts to claim their rightful dues. They stated that they filed an application in the lower Court for security for costs which was granted in Milimani MCELRC/E725/2021, which was amended by consent of the parties. They stated that the petition herein is therefore meant to allow the petitioner to access the monies held as security for costs in the employment Court, thus if the orders sought are granted, the respondents will be left without any recourse in law.
21. The respondents deposed that they claim from the petitioner Kshs.5,400,000/= as compensation and redundancy dues, and it is in the interest of justice that this petition be dismissed since if it is allowed, the fictitious alleged secured creditors will leave nothing for the employee creditors based on unauthenticated financial reports.
22. The petitioner in its supplementary affidavit contended that there is no justification for the claims made by the respondents to the effect that the petition was filed as a ruse to frustrate its former employees. It averred that all its former employees were notified and updated through various meetings and by email correspondence of the prevailing financial circumstances of the petitioner leading up to the cessation of its operations in 2020 when the situation became untenable.
23. The petitioner averred that the deponent of the respondents’ affidavits in his position as the Operations Lead was not conversant with all the operations of the petitioner as he had no sight of all the corporate level undertakings. It further averred that Agri-Wallet Holding Limited is a separate and completely autonomous legal entity which is not a party to this petition and whose operations should not be the subject of these proceedings.
24. The petitioner stated that it is a limited liability company incorporated in Kenya with no practical means of relocating abroad and is indeed actively prosecuting this petition with a view to a fair and equitable resolution of the same for the benefit of all parties concerned. It confirmed that indeed the deponent of the respondents’ affidavit and one Luciana Wambua filed a suit for unlawful termination in the Employment and Labour Relations Court, which suit is still pending determination. The petitioner opined that the subsistence of the said claims is no legal bar to the lodging or prosecution of the instant petition.
25. The petitioner asserted that by filing this petition it is not attempting to escape from its legal obligations to its former employees but is merely seeking reprieve for financial distress wrought by circumstances beyond its control.
Whether the petition is procedurally and substantively compliant.
26. The respondents submitted that the instant petition fails for non-compliance with the formal legal requirements under Section 394 of the Insolvency Act which states that –
(1) Within fourteen days after a company has passed a resolution for its voluntary liquidation, it shall publish a notice setting out the resolution-
a) once in the Gazette;
b) once in at least two newspapers circulating in the area in which the company has its principal place of business in Kenya; and
c) on the company's website (if any).
(2) If a company fails to comply with subsection (1), the company, and each officer of the company who is in default, commit an offence and on conviction are each liable to a fine not exceeding five hundred thousand shillings.
(3) If, after a company or any of its officers is convicted of an offence, the company continues to fail to take any of the steps specified in subsection (1), the company, and each officer of the company who is in default, commit a further offence on each day on which the failure continues and on conviction are each liable to a fine not exceeding fifty thousand shillings for each such offence.
(4) For purposes of subsections (2) and (3), the liquidator is an officer of the company.”
27. The respondents averred that the petitioner did not comply with the provisions of Section 394(1) reproduced hereinabove. On perusal of the said provisions, it is evident that they are couched in mandatory terms. The said provisions require the publishing of a company’s resolution for voluntarily liquidation so as to notify the public and/or creditors at large of their intention to liquidate.
28. From the record, it is manifest that in an extraordinary meeting of the members of the company held virtually on 5th August, 2021, a special resolution was passed that the company is unable to pay its debts, thus it is just and equitable that the company be liquidated. The petitioner has not availed any evidence of compliance with the provisions of Section 394 of the Insolvency Act. There is no evidence of the petitioner having published the said special resolution in the Gazette, in any newspaper circulating in the area in which the company has its principal place of business in Kenya, and on its website.
29. In view of the preceding paragraph, this Court is not able to verify whether all the company’s creditors save for the ones that were served with the instant petition are aware that the company has voluntarily instituted liquidation proceedings against itself, and it is also not able to ascertain the true level of the company’s indebtedness (if any). It is my finding that publishing and/or advertisement of the company’s resolution to institute liquidation proceedings against itself is a very crucial step that cannot be ignored by this Court. Further, proceeding with these proceedings as is, is a risky undertaking as it stands to lock out other creditors (if any) who are at large and might not know that the company is pursuing liquidation proceedings, and may end up with a liquidation order against it. I am alive to the provisions of Section 696 of the Insolvency Act, 2015 which provides that-
“(1) A proceeding under this Act may not be invalidated or set aside for a defect in a step that is required to be taken as part of, or in connection with, the proceeding, unless a person is detrimentally affected by the defect.
(2) The Court may order the defect to be corrected, and may order the proceeding to continue, on such terms as it considers appropriate in the interests of everyone who has an interest in the proceeding.
(3) In this section, "defect" includes a misdescription, misnomer or omission.”
30. Section 696 of the Insolvency Act provides that a proceeding under the Insolvency Act may not be invalidated or set aside for a defect in a step that is required to be taken as part of, or in connection with the proceedings, unless a person is detrimentally affected by the defect. In this case, failure to comply with the provisions of Section 394(1) of the Insolvency Act may be detrimental to other creditors (if any), who are not disclosed in the petition and are not aware that the company seeks to be declared insolvent.
31. The respondents also submitted that the instant petition is incompetent on grounds that the petitioner despite indicating that it owes Kshs.6,200,00/= to its preferred creditors, its statement of financial position attached to the petition does not contain the names and addresses of its preferred and unsecured creditors and the amounts of their respective claims as provided for under Regulation 77 of the Insolvency Regulations which provides that -
“(1) For the purpose of section 403 (4) (a) (iv) of the Act, the statement of the company’s financial position shall be in Form 32 set out in the First Schedule and is required to contain the following information –
a) a list of the company’s assets, divided into such categories as are appropriate for easy identification, with estimated values assigned to each category;
b) in the case of any property on which a claim against the company is wholly or partly secured, particulars of the claim and its amount, and the manner in which and the period when the security was created;
c) the names and addresses of the company’s preferential creditors, with the amounts of their respective claims;
d) the names and addresses of the company’s unsecured creditors, with the amounts of their respective claims;
e) particulars of any debts owed by or to the company to or by persons connected with it; and
f) the names and addresses of the company’s members, with details of their respective shareholdings.
(2) For the purpose of section 402 (4)(a)(iv), the statement of the company’s financial position is required to include a certificate by the liquidator that, to the best of the liquidator’s knowledge and belief, the statement is correct.”
32. On perusal of the petitioner’s statement of financial position attached to the instant petition, I agree with Counsel for the respondents that it does not comply with the provisions of Regulation 77 of the Insolvency Act since it does not contain the names and addresses of its preferred and unsecured creditors and the amounts of their respective claims.
33. In the premise, the petition herein is defective for want of conformity with procedural and substantive law and Regulations and cannot proceed as it is. It is however noteworthy that this Court’s primary duty is to do justice without undue regard to procedural technicality in line with the provisions of Article 159 of the Constitution of Kenya, 2010. In addition, pursuant to the provisions of sections 1A, 1B & 3A of the Civil Procedure Act which provides that Courts have a duty to facilitate the just and expeditious resolution of disputes in line with the overriding objectives, this Court has inherent powers to give orders which are necessary to meet the ends of justice.
34. This Court finds that in as much as the instant petition is defective, it is not incurably defective. As a result, I suo moto set aside the proceedings that have so far been conducted in this petition. I direct the petitioner company herein to bring thE petition into compliance with the provisions of Section 394 of the Insolvency Act and Regulation 77 of the Insolvency Regulations, and thereafter start this matter de novo.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 3rd day of May 2024. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
No appearance for the petitioner
No appearance for the respondents
Ms B. Wokabi – Court Assistant.