' Introduction
1. Before this Court for determination are two Notice of Motion applications dated 6th February 2024 and 2nd May 2024 filed by the Receiver & Manager of the 1st and 2nd Plaintiff Companies.
2. The first application (dated 6th February 2024) seeks, inter alia, orders compelling the 3rd and 4th Plaintiffs to prepare and submit a Statement of Affairs in accordance with Sections 351 and 352 of the repealed Companies Act (Cap 486), deposit various documents with the Applicants, and account for alleged interference with Plintiffs’ properties situated in Moi’s Bridge, namely L.R. Nos. 838, 6400, and 6401.
3. The second application (2nd May 2024) seeks, substantially similar orders, being among others, orders compelling the directors to hand over all assets of the companies, including bank accounts, title documents, and any other company property. The Application also sought the court to review its previous order of 13th October 2023 appointing the Receiver & Manager, to clarify that the appointed receiver manager (KVSK SASTRY) operates under the style and name PSJ Advisory Services.
4. Both applications are supported by affidavits of KVSK Sastry, the duly appointed Receiver & Manager. Interim orders were granted on 6th February 2024, restraining the directors from dealing with company assets.
5. The applications were opposed. In response to the application dated 6th February 2024, the 3rd and 4th Plaintiffs filed a joint Replying Affidavit sworn by Diamond Hasham Lalji (3rd Plaintiff) on 20th February 2024. In response to the 2nd Application, 3rd and 4th Plaintiffs filed Grounds of Opposition dated 8th November 2024, contending that the application was factually and legally similar to the 1st Application and that they intended to similarly rely on their Replying Affidavit of 20th February 2024 in opposing the 2nd application.
6. The 1st Defendant filed a Replying Affidavit dated 21st February 2024 in response to the 1st application. However, no responses were filed by the 1st Defendant in relation to the second application despite physical service.
7. By consent of the parties, prayer No. 2 of the application dated 2nd May 2024 (2nd Application) was on 24th April 2025, allowed. Accordingly, Order No. 2 of the Orders issued by this Court on 13th October 2022 was amended to read as follows: -
“THAT PSJ Advisory Services is hereby appointed as the Receiver Manager for the 1st and 2nd Plaintiffs.”
8. Prayer No. 2 of the Application dated 2nd May 2024 having been settled by consent, it was further agreed by the parties that a determination of the 1st Application (dated 6th February 2025) would essentially determine the issues in question in the two applications. This Ruling will therefore primarily focus on the application dated 6th February 2025, with verily limited reference to the Application dated 2nd May 2025.
9. The Applications were canvassed by way of written submissions. The law firm of Wamae & Allen LLP filed submissions dated 6th September 2024 on behalf of the Applicant (Receiver Manager). No submissions were filed by the Respondents.
Analysis and Determination
10. I have carefully considered the Application, the affidavits, the submissions filed by the Applicant authorities cited, and the applicable law. The following issues arise for determination.
i. Whether the Directors/Respondents can be compelled to provide the Applicant with the Statements of the companies’ Affairs, Assets, and related documents.
ii. Whether the Directors have interfered with the management and assets of the Companies under Receivership.
iii. Whether the Receiver Managers and Sedco have complied with their legal and fiduciary obligations.
Whether the Directors can be compelled to produce the Company’s Statement of Affairs
11. The Applicant/Receiver Manager relying on Sections 351 and 352 of the Companies Act (Cap 486) (Repealed but applicable to this Receivership), seek orders directing the Respondents to prepare and deposit accounts, bank statements, records, leases and inventories. The Receiver Manager argues that the applications are merited due to the blatant refusal and non-cooperation of the directors (specifically the 3rd and 4th Plaintiffs, Diamond Hasham Lalji and Ahmed Hasham Lalji).
12. The Directors (3rd and 4th Plaintiffs) on the other hand while not disputing the duty of directors to comply with the aforesaid statutory provisions, raise the defence of impossibility. According to the 3rd and 4th Plaintiffs/Directors, they are unable access bank statements due to the refusal by the company’s auditors (PKF) to prepare the report due to outstanding audit fees; refusal by the 1st Defendant (a co-director) to sign; and that in event, the records sought by the Applicant were seized by the Court appointed Estate Agents (SEDCO Consultants Limited) sometime in November 2020.
13. It was further the Directors’ (3rd & 4th Plaintiff’s) argument that the request for documents and records by the Receiver Manager was redundant and therefore not necessary since the Applicants already had such information via SEDCO''s reports which were routinely being shared with them.
14. Sections 351 and 352 of the repealed Companies Act imposed a mandatory duty on directors to furnish the Receiver Manager with a Statement of Company Affairs within 14 days of receiving notice of appointment. Section 351(1)(b) of the Act is explicit that:
“There shall, within fourteen days after receipt of the notice… be made out and submitted to the receiver… a statement in the prescribed form as to the affairs of the company.”
15. The evidence before this Court shows that the Receiver Manager notified the directors through letters dated 22nd November 2022, email reminders on 28th June 2023, 6th November 2023, and during the meeting of 9th August 2023 attended by all parties.
16. Despite repeated notifications and extensions, the directors failed, refused, and neglected to comply.
17. The statutory duty imposed by law upon the Directors is an absolute one, designed to facilitate the Receiver Manager’s function and protect the Company''s estate. In Official Receiver v Jessa & another [2025] KEHC 15057 (KLR), the Court (Mongare dealing with a similar dispute, but arising under an equivalent provision (Section 433) of the Insolvency Act 2015, stated that:J) while
“9. The obligation to file a Statement of Affairs under section 433 of
the Insolvency Act is a separate, positive statutory duty
to report on the Company''s historical financial position to the
Official Receiver. It does not constitute dealing with the assets
themselves. The order was not a blanket prohibition on all
interaction with the Company''s records, nor did it absolve the directors of their core fiduciary and statutory duties to cooperate
with the liquidation process.”
18. While the defence of impossibility raised by the Directors is legally cognizable, it must be proved. The refusal of a co-signatory or the retention of some records by an agent of the Receiver Manager (SEDCO) does not excuse the Directors from producing the records they do possess, nor does it prevent them from compiling the Statement of Affairs of the companies based on their knowledge and available documents. The Statement of Company Affairs is not merely an audit; it is a declaration of the Company''s position by its officers. The Directors must demonstrate their efforts and what they have compiled with. It is not permissible to fail to comply and then throw the blame elsewhere.
19. Further, the mere fact that the Receiver Manager has been receiving rental reports from SEDCO does not of itself satisfy the statutory requirement for the Directors to prepare and sign the full, official Statement of Affairs, which covers assets, debts, liabilities, creditors, and securities in a prescribed form. The two are not, in my view, mutually exclusive.
20. Accordingly, I find the application by the Receiver Manager merited in this regard. The Directors are in breach of their statutory obligation and are therefore compellable to produce and file a statement of the companies’ affairs and hand over the assets to the Receiver Manager.
Whether the Directors have interfered with the management and assets of the Companies
21. The Receiver Manager alleged that the Directors have been interfering with the Companies'' affairs, citing the appointment of advocates and interference with rent collection and properties. In particular, the Receiver Manager contended that the 3rd and 4th Plaintiffs interfered with three parcels of land (L.R. No. 838; L.R. No. 6401, and L.R. No. 6400) in Moi’s Bridge.
22. The Respondents, on their part, in their joint affidavit, explained that L.R. No. 838 was subdivided many years ago and only a portion was owned by the 1st Plaintiff; L.R. No. 6401 was subdivided, and the relevant property is L.R. 6401/1; and that L.R. No. 6400 is unknown and no documentary proof of its existence was tendered. According to the Respondents, no concrete evidence supporting the Applicant’s allegation of interference of the subject properties by the Respondents.
23. In relation to the appointment of advocates, the Directors, while admitting the same, claim residuary powers over the company. They, however, deny interfering with the functions of the Receiver Manager.
24. Under the Insolvency Act, receivership is the functional equivalent of administration. Section 581(1) expressly prohibits company officers from performing any management function without the consent of the administrator.
25. The effect of appointment of a Receiver Manager (making an administration order), whether under the repealed Act or by analogy under the Insolvency Act, is to protect the assets of the company and entrench the authority of the administrator while suspending the powers of directors.
26. For instance, Section 581 of the successor statute (Insolvency Act, 2015) is clear that a company under administration director or any officer of such a company is not to “perform or exercise a management function without the consent of the administrator.”
27. Further, the Fourth Schedule to the Insolvency Act, 2015 (successor of the relevant provisions of the Company Law) identifies the specific powers to be exercised by the administrators. Any other power not therein specified is presumably retained by the directors.
28. The concept of "residuary powers" asserted by the Directors, though exists under Insolvency law, are to be strictly limited to actions that do not interfere with the functions of the receiver manager/administrator. The directors of companies undergoing administration/receivership for instance retains the power to oppose, on behalf of the company, the making of the (provisional) liquidation order final. However, such powers are not to run counter to the powers of receiver managers/administrators as provided under the law.
29. In the present case, the act of unilaterally appointing advocates to represent the Companies is a managerial function that directly conflicts with the Receiver Manager’s authority and control of the estate. This is a clear case of usurpation of the Applicant’s powers, as contemplated under Paragraph 4 of the Fourth Schedule to the Insolvency Act, 2015, which specifically grants the administrator’s (receiver manager’s) powers “to appoint an advocate solicitor or accountant or other professionally qualified person to assist the administrator in the performance of the administrator''s functions,” and the corollary power under Paragraph 5 thereof “to bring or defend any action or other legal proceedings in the name and on behalf of the company.”
30. The 3rd and 4th Plaintiff’s argument that the appointment of the Advocates was out of necessity is equally not meritorious. As indicated above, once a receiving order was made on 13th October 2023, all management functions of the companies (including the power to appoint advocates to act on behalf of the companies) vested on the Receiver Manager and could not be lawfully exercised by the directors without the consent of the appointed Receiver Manager or Court. It is immaterial that the Receiver Manager actually took over the management of the companies much later, on 28th June 2023, as alleged in this case.
31. be exercised by Section 581(1) expressly prohibits company officers from performing any management function without the consent of the administrator.
32. On the allegation concerning interference with the Moi''s Bridge properties, I find no material evidence to support the Applicant’s assertions. The burden of proof lies on he who alleges, as provided under Sections 107–109 of the Evidence Act. In Anne Wambui Ndiritu –vs- Joseph Kiprono Ropkoi & Another [2005] 1 EA 334, the Court held that:
“As a general proposition under Section 107 (1) of the Evidence Act, Cap 80, the legal burden of proof lies upon the party who invokes the aid of the law and substantially asserts the affirmative of the issue. There is however the evidential burden that is case upon any party the burden of proving any particular fact which he desires the court to believe in its existence which is captured in Sections 109 and 112 of the Act.”
33. As correctly argued by the Respondents, the Receiver Manager’s claim is based on lawyers'' letters referencing rumors that the 3rd Plaintiff had handed over the properties to Uashin Gishu County Government. The Applicant produced no title documents, survey records, reports, complaints, or any official correspondence to substantiate the alleged interference. A perusal of the two letters (letter dated 2nd February 2023 from Njuguna Kimani Nduhiu & Co. Advocates; and the letter dated 11th December 2023) produced by the Applicants as evidence of interference do not reveal much, at best they are speculative and pure conjectures.
34. In the absence of any cogent evidence, I find that the Applicants have failed to prove any interference with the alleged properties. This claim therefore fails.
35. Before I conclude, it is critical that I address Directors’ allegations of contempt and mismanagement on the part of the Receiver Manager and the Estate Agent. In particular, the core issues raised by the Directors in this regard are that: -
i. That the Applicant and the Estate Agent are in contempt of the Court Order of 21st June 2022 and continue to collect rent through the Estate Agent (SEDCO) despite the order requiring all rent to be deposited in the Companies’ bank account at Prime Bank Limited, Mombasa branch.
ii. The Directors further allege management failure on the part of the Receiver Manager and the Estate Agent to conduct rent reviews or compliance checks despite collections exceeding Kshs. 105 million.
iii. Further, that lack of oversight by the Receiver Manager on SEDCO’s expenditure: That SEDCO declared significant expenditures and arrears—Kshs. 16.7 million and Kshs. 128 million respectively, without evidence of verification or oversight by the Applicants.
Whether the Receiver Managers and Sedco have complied with their legal and fiduciary obligations
36. Although not the primary subject of the present Application, the Court cannot ignore the fiduciary duty owed by the Receiver Manager to the Companies. The Receiver Manager is an officer of this Court and therefore owes a duty of diligence, prudence, and transparency. The alleged violation of the rent deposit order is a serious matter. The Receiver Manager and SEDCO must demonstrate compliance or seek a review of that Order if, for any reason, collecting via SEDCO is deemed inevitable.
37. Further, the allegations regarding the Receiver Manager’s failure to vet Kshs. 16.7 million expenditure and Kshs. 128 million in arrears (as reported by SEDCO), and failure to undertake mandatory reviews, requires detailed substantiation and accounting by the Receiver Manager.
38. The Court reiterates that the counter-allegations by the Directors are not determinative and therefore do not in any way derail the Applications by the Receiver Manager, but only necessitate a strict supervisory order from this Court, compelling the Receiver Manager to file a comprehensive report addressing these material concerns.
Disposition
39. In light of the foregoing analysis, the Court finds the consolidated Applications by the Receiver Manager to be substantially merited. The continued failure of the Directors to comply with their statutory duties is indefensible and detrimental to the Companies'' estate.
40. Accordingly, I hereby order and direct as follows:
i. The Notice of Motion Applications dated 6th February 2024 and 2nd May 2024 are hereby allowed in part.
ii. The 3rd and 4th Plaintiffs (Diamond Hasham Lalji and Ahmed Hasham Lalji), as Directors of the 1st and 2nd Plaintiff Companies, are hereby compelled to jointly prepare and furnish the Receiver Manager, KVSK Sastry, with the Statements of Company Affairs as required by Sections 351 and 352 of the repealed Companies Act (Cap 486).
iii. The 3rd and 4th Plaintiffs, and any agents acting on their behalf, are hereby compelled to surrender and hand over to the Receiver Manager, within Fourteen (14) days of the date of this Ruling, all Company assets and documents currently in their or their agents'' custody, including, but not limited to:
a) All original titles of all properties held by or in the name of the 1st and 2nd Plaintiff Companies.
b) All keys, security information, and access details for the Company properties.
c) Access, authorization, and/or co-signing rights for all bank accounts, whether current accounts, savings accounts, or term deposits, held by the Companies.
d) All financial records, leases, contracts, and books of account not demonstrably in the possession of Sedco Consultants Limited prior to this Ruling.
iv. The 3rd and 4th Plaintiffs are hereby restrained from performing or exercising any managerial function whatsoever in relation to the 1st and 2nd Plaintiff Companies, including but not limited to appointing legal counsel, interfering with rent collection, or dealing with Company properties without the express written consent of the Receiver Manager or a further Order of this Court.
v. The Receiver & Manager is hereby directed to file and serve a comprehensive Report on Compliance and Management within Forty-Five (45) days of the date of this Ruling. The Report must specifically address and account for: -
a) Compliance with the Court Order dated 21st June 2022 regarding the deposit of rent into the Company''s Prime Bank account.
b) A detailed audit, verification, and justification of the Kshs. 16.7 million expenditure and the Kshs. 128 million in rent arrears reported by SEDCO.
c) The steps taken to undertake lease audits and rent reviews since the appointment of the Receiver & Manager.
vi. The Court having found that the 3rd and 4th Plaintiffs (Directors) failed in their statutory duty to submit the companies’ statement of affairs, I hereby direct that the costs of the consolidated Applications shall be borne by the 3rd and 4th Plaintiffs/directors, and shall be paid personally.
41. It is so ordered.
SIGNED, DATED, AND DELIVERED AT NAIROBI THIS
27TH NAIROBI 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
Nadio.……….………..for the Applicant/Receiver Manager
Limo………………. for the Directors/3rd & 4th Plaintiffs
Ms. Khauser h/b for Ms. Dave…….…for the 1st Defendant/Director
Otwal…………………for the Estate Agent
'
1. Before this Court for determination are two Notice of Motion applications dated 6th February 2024 and 2nd May 2024 filed by the Receiver & Manager of the 1st and 2nd Plaintiff Companies.
2. The first application (dated 6th February 2024) seeks, inter alia, orders compelling the 3rd and 4th Plaintiffs to prepare and submit a Statement of Affairs in accordance with Sections 351 and 352 of the repealed Companies Act (Cap 486), deposit various documents with the Applicants, and account for alleged interference with Plintiffs’ properties situated in Moi’s Bridge, namely L.R. Nos. 838, 6400, and 6401.
3. The second application (2nd May 2024) seeks, substantially similar orders, being among others, orders compelling the directors to hand over all assets of the companies, including bank accounts, title documents, and any other company property. The Application also sought the court to review its previous order of 13th October 2023 appointing the Receiver & Manager, to clarify that the appointed receiver manager (KVSK SASTRY) operates under the style and name PSJ Advisory Services.
4. Both applications are supported by affidavits of KVSK Sastry, the duly appointed Receiver & Manager. Interim orders were granted on 6th February 2024, restraining the directors from dealing with company assets.
5. The applications were opposed. In response to the application dated 6th February 2024, the 3rd and 4th Plaintiffs filed a joint Replying Affidavit sworn by Diamond Hasham Lalji (3rd Plaintiff) on 20th February 2024. In response to the 2nd Application, 3rd and 4th Plaintiffs filed Grounds of Opposition dated 8th November 2024, contending that the application was factually and legally similar to the 1st Application and that they intended to similarly rely on their Replying Affidavit of 20th February 2024 in opposing the 2nd application.
6. The 1st Defendant filed a Replying Affidavit dated 21st February 2024 in response to the 1st application. However, no responses were filed by the 1st Defendant in relation to the second application despite physical service.
7. By consent of the parties, prayer No. 2 of the application dated 2nd May 2024 (2nd Application) was on 24th April 2025, allowed. Accordingly, Order No. 2 of the Orders issued by this Court on 13th October 2022 was amended to read as follows: -
“THAT PSJ Advisory Services is hereby appointed as the Receiver Manager for the 1st and 2nd Plaintiffs.”
8. Prayer No. 2 of the Application dated 2nd May 2024 having been settled by consent, it was further agreed by the parties that a determination of the 1st Application (dated 6th February 2025) would essentially determine the issues in question in the two applications. This Ruling will therefore primarily focus on the application dated 6th February 2025, with verily limited reference to the Application dated 2nd May 2025.
9. The Applications were canvassed by way of written submissions. The law firm of Wamae & Allen LLP filed submissions dated 6th September 2024 on behalf of the Applicant (Receiver Manager). No submissions were filed by the Respondents.
Analysis and Determination
10. I have carefully considered the Application, the affidavits, the submissions filed by the Applicant authorities cited, and the applicable law. The following issues arise for determination.
i. Whether the Directors/Respondents can be compelled to provide the Applicant with the Statements of the companies’ Affairs, Assets, and related documents.
ii. Whether the Directors have interfered with the management and assets of the Companies under Receivership.
iii. Whether the Receiver Managers and Sedco have complied with their legal and fiduciary obligations.
Whether the Directors can be compelled to produce the Company’s Statement of Affairs
11. The Applicant/Receiver Manager relying on Sections 351 and 352 of the Companies Act (Cap 486) (Repealed but applicable to this Receivership), seek orders directing the Respondents to prepare and deposit accounts, bank statements, records, leases and inventories. The Receiver Manager argues that the applications are merited due to the blatant refusal and non-cooperation of the directors (specifically the 3rd and 4th Plaintiffs, Diamond Hasham Lalji and Ahmed Hasham Lalji).
12. The Directors (3rd and 4th Plaintiffs) on the other hand while not disputing the duty of directors to comply with the aforesaid statutory provisions, raise the defence of impossibility. According to the 3rd and 4th Plaintiffs/Directors, they are unable access bank statements due to the refusal by the company’s auditors (PKF) to prepare the report due to outstanding audit fees; refusal by the 1st Defendant (a co-director) to sign; and that in event, the records sought by the Applicant were seized by the Court appointed Estate Agents (SEDCO Consultants Limited) sometime in November 2020.
13. It was further the Directors’ (3rd & 4th Plaintiff’s) argument that the request for documents and records by the Receiver Manager was redundant and therefore not necessary since the Applicants already had such information via SEDCO''s reports which were routinely being shared with them.
14. Sections 351 and 352 of the repealed Companies Act imposed a mandatory duty on directors to furnish the Receiver Manager with a Statement of Company Affairs within 14 days of receiving notice of appointment. Section 351(1)(b) of the Act is explicit that:
“There shall, within fourteen days after receipt of the notice… be made out and submitted to the receiver… a statement in the prescribed form as to the affairs of the company.”
15. The evidence before this Court shows that the Receiver Manager notified the directors through letters dated 22nd November 2022, email reminders on 28th June 2023, 6th November 2023, and during the meeting of 9th August 2023 attended by all parties.
16. Despite repeated notifications and extensions, the directors failed, refused, and neglected to comply.
17. The statutory duty imposed by law upon the Directors is an absolute one, designed to facilitate the Receiver Manager’s function and protect the Company''s estate. In Official Receiver v Jessa & another [2025] KEHC 15057 (KLR), the Court (Mongare dealing with a similar dispute, but arising under an equivalent provision (Section 433) of the Insolvency Act 2015, stated that:J) while
“9. The obligation to file a Statement of Affairs under section 433 of
the Insolvency Act is a separate, positive statutory duty
to report on the Company''s historical financial position to the
Official Receiver. It does not constitute dealing with the assets
themselves. The order was not a blanket prohibition on all
interaction with the Company''s records, nor did it absolve the directors of their core fiduciary and statutory duties to cooperate
with the liquidation process.”
18. While the defence of impossibility raised by the Directors is legally cognizable, it must be proved. The refusal of a co-signatory or the retention of some records by an agent of the Receiver Manager (SEDCO) does not excuse the Directors from producing the records they do possess, nor does it prevent them from compiling the Statement of Affairs of the companies based on their knowledge and available documents. The Statement of Company Affairs is not merely an audit; it is a declaration of the Company''s position by its officers. The Directors must demonstrate their efforts and what they have compiled with. It is not permissible to fail to comply and then throw the blame elsewhere.
19. Further, the mere fact that the Receiver Manager has been receiving rental reports from SEDCO does not of itself satisfy the statutory requirement for the Directors to prepare and sign the full, official Statement of Affairs, which covers assets, debts, liabilities, creditors, and securities in a prescribed form. The two are not, in my view, mutually exclusive.
20. Accordingly, I find the application by the Receiver Manager merited in this regard. The Directors are in breach of their statutory obligation and are therefore compellable to produce and file a statement of the companies’ affairs and hand over the assets to the Receiver Manager.
Whether the Directors have interfered with the management and assets of the Companies
21. The Receiver Manager alleged that the Directors have been interfering with the Companies'' affairs, citing the appointment of advocates and interference with rent collection and properties. In particular, the Receiver Manager contended that the 3rd and 4th Plaintiffs interfered with three parcels of land (L.R. No. 838; L.R. No. 6401, and L.R. No. 6400) in Moi’s Bridge.
22. The Respondents, on their part, in their joint affidavit, explained that L.R. No. 838 was subdivided many years ago and only a portion was owned by the 1st Plaintiff; L.R. No. 6401 was subdivided, and the relevant property is L.R. 6401/1; and that L.R. No. 6400 is unknown and no documentary proof of its existence was tendered. According to the Respondents, no concrete evidence supporting the Applicant’s allegation of interference of the subject properties by the Respondents.
23. In relation to the appointment of advocates, the Directors, while admitting the same, claim residuary powers over the company. They, however, deny interfering with the functions of the Receiver Manager.
24. Under the Insolvency Act, receivership is the functional equivalent of administration. Section 581(1) expressly prohibits company officers from performing any management function without the consent of the administrator.
25. The effect of appointment of a Receiver Manager (making an administration order), whether under the repealed Act or by analogy under the Insolvency Act, is to protect the assets of the company and entrench the authority of the administrator while suspending the powers of directors.
26. For instance, Section 581 of the successor statute (Insolvency Act, 2015) is clear that a company under administration director or any officer of such a company is not to “perform or exercise a management function without the consent of the administrator.”
27. Further, the Fourth Schedule to the Insolvency Act, 2015 (successor of the relevant provisions of the Company Law) identifies the specific powers to be exercised by the administrators. Any other power not therein specified is presumably retained by the directors.
28. The concept of "residuary powers" asserted by the Directors, though exists under Insolvency law, are to be strictly limited to actions that do not interfere with the functions of the receiver manager/administrator. The directors of companies undergoing administration/receivership for instance retains the power to oppose, on behalf of the company, the making of the (provisional) liquidation order final. However, such powers are not to run counter to the powers of receiver managers/administrators as provided under the law.
29. In the present case, the act of unilaterally appointing advocates to represent the Companies is a managerial function that directly conflicts with the Receiver Manager’s authority and control of the estate. This is a clear case of usurpation of the Applicant’s powers, as contemplated under Paragraph 4 of the Fourth Schedule to the Insolvency Act, 2015, which specifically grants the administrator’s (receiver manager’s) powers “to appoint an advocate solicitor or accountant or other professionally qualified person to assist the administrator in the performance of the administrator''s functions,” and the corollary power under Paragraph 5 thereof “to bring or defend any action or other legal proceedings in the name and on behalf of the company.”
30. The 3rd and 4th Plaintiff’s argument that the appointment of the Advocates was out of necessity is equally not meritorious. As indicated above, once a receiving order was made on 13th October 2023, all management functions of the companies (including the power to appoint advocates to act on behalf of the companies) vested on the Receiver Manager and could not be lawfully exercised by the directors without the consent of the appointed Receiver Manager or Court. It is immaterial that the Receiver Manager actually took over the management of the companies much later, on 28th June 2023, as alleged in this case.
31. be exercised by Section 581(1) expressly prohibits company officers from performing any management function without the consent of the administrator.
32. On the allegation concerning interference with the Moi''s Bridge properties, I find no material evidence to support the Applicant’s assertions. The burden of proof lies on he who alleges, as provided under Sections 107–109 of the Evidence Act. In Anne Wambui Ndiritu –vs- Joseph Kiprono Ropkoi & Another [2005] 1 EA 334, the Court held that:
“As a general proposition under Section 107 (1) of the Evidence Act, Cap 80, the legal burden of proof lies upon the party who invokes the aid of the law and substantially asserts the affirmative of the issue. There is however the evidential burden that is case upon any party the burden of proving any particular fact which he desires the court to believe in its existence which is captured in Sections 109 and 112 of the Act.”
33. As correctly argued by the Respondents, the Receiver Manager’s claim is based on lawyers'' letters referencing rumors that the 3rd Plaintiff had handed over the properties to Uashin Gishu County Government. The Applicant produced no title documents, survey records, reports, complaints, or any official correspondence to substantiate the alleged interference. A perusal of the two letters (letter dated 2nd February 2023 from Njuguna Kimani Nduhiu & Co. Advocates; and the letter dated 11th December 2023) produced by the Applicants as evidence of interference do not reveal much, at best they are speculative and pure conjectures.
34. In the absence of any cogent evidence, I find that the Applicants have failed to prove any interference with the alleged properties. This claim therefore fails.
35. Before I conclude, it is critical that I address Directors’ allegations of contempt and mismanagement on the part of the Receiver Manager and the Estate Agent. In particular, the core issues raised by the Directors in this regard are that: -
i. That the Applicant and the Estate Agent are in contempt of the Court Order of 21st June 2022 and continue to collect rent through the Estate Agent (SEDCO) despite the order requiring all rent to be deposited in the Companies’ bank account at Prime Bank Limited, Mombasa branch.
ii. The Directors further allege management failure on the part of the Receiver Manager and the Estate Agent to conduct rent reviews or compliance checks despite collections exceeding Kshs. 105 million.
iii. Further, that lack of oversight by the Receiver Manager on SEDCO’s expenditure: That SEDCO declared significant expenditures and arrears—Kshs. 16.7 million and Kshs. 128 million respectively, without evidence of verification or oversight by the Applicants.
Whether the Receiver Managers and Sedco have complied with their legal and fiduciary obligations
36. Although not the primary subject of the present Application, the Court cannot ignore the fiduciary duty owed by the Receiver Manager to the Companies. The Receiver Manager is an officer of this Court and therefore owes a duty of diligence, prudence, and transparency. The alleged violation of the rent deposit order is a serious matter. The Receiver Manager and SEDCO must demonstrate compliance or seek a review of that Order if, for any reason, collecting via SEDCO is deemed inevitable.
37. Further, the allegations regarding the Receiver Manager’s failure to vet Kshs. 16.7 million expenditure and Kshs. 128 million in arrears (as reported by SEDCO), and failure to undertake mandatory reviews, requires detailed substantiation and accounting by the Receiver Manager.
38. The Court reiterates that the counter-allegations by the Directors are not determinative and therefore do not in any way derail the Applications by the Receiver Manager, but only necessitate a strict supervisory order from this Court, compelling the Receiver Manager to file a comprehensive report addressing these material concerns.
Disposition
39. In light of the foregoing analysis, the Court finds the consolidated Applications by the Receiver Manager to be substantially merited. The continued failure of the Directors to comply with their statutory duties is indefensible and detrimental to the Companies'' estate.
40. Accordingly, I hereby order and direct as follows:
i. The Notice of Motion Applications dated 6th February 2024 and 2nd May 2024 are hereby allowed in part.
ii. The 3rd and 4th Plaintiffs (Diamond Hasham Lalji and Ahmed Hasham Lalji), as Directors of the 1st and 2nd Plaintiff Companies, are hereby compelled to jointly prepare and furnish the Receiver Manager, KVSK Sastry, with the Statements of Company Affairs as required by Sections 351 and 352 of the repealed Companies Act (Cap 486).
iii. The 3rd and 4th Plaintiffs, and any agents acting on their behalf, are hereby compelled to surrender and hand over to the Receiver Manager, within Fourteen (14) days of the date of this Ruling, all Company assets and documents currently in their or their agents'' custody, including, but not limited to:
a) All original titles of all properties held by or in the name of the 1st and 2nd Plaintiff Companies.
b) All keys, security information, and access details for the Company properties.
c) Access, authorization, and/or co-signing rights for all bank accounts, whether current accounts, savings accounts, or term deposits, held by the Companies.
d) All financial records, leases, contracts, and books of account not demonstrably in the possession of Sedco Consultants Limited prior to this Ruling.
iv. The 3rd and 4th Plaintiffs are hereby restrained from performing or exercising any managerial function whatsoever in relation to the 1st and 2nd Plaintiff Companies, including but not limited to appointing legal counsel, interfering with rent collection, or dealing with Company properties without the express written consent of the Receiver Manager or a further Order of this Court.
v. The Receiver & Manager is hereby directed to file and serve a comprehensive Report on Compliance and Management within Forty-Five (45) days of the date of this Ruling. The Report must specifically address and account for: -
a) Compliance with the Court Order dated 21st June 2022 regarding the deposit of rent into the Company''s Prime Bank account.
b) A detailed audit, verification, and justification of the Kshs. 16.7 million expenditure and the Kshs. 128 million in rent arrears reported by SEDCO.
c) The steps taken to undertake lease audits and rent reviews since the appointment of the Receiver & Manager.
vi. The Court having found that the 3rd and 4th Plaintiffs (Directors) failed in their statutory duty to submit the companies’ statement of affairs, I hereby direct that the costs of the consolidated Applications shall be borne by the 3rd and 4th Plaintiffs/directors, and shall be paid personally.
41. It is so ordered.
SIGNED, DATED, AND DELIVERED AT NAIROBI THIS
27TH NAIROBI 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
Nadio.……….………..for the Applicant/Receiver Manager
Limo………………. for the Directors/3rd & 4th Plaintiffs
Ms. Khauser h/b for Ms. Dave…….…for the 1st Defendant/Director
Otwal…………………for the Estate Agent
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