1. Olerai Nurseries Limited (“the Company”) was incorporated on 24th September 1997, with a nominal capital of Kshs. 100,000/- divided into shares of Kshs. 100/-each. The amount of the capital paid up or credited as paid up is Kshs. 100,000/-. It was established for various objects among them to carry on the business of farming in all its branches, the business of horticulturalists and seed merchants and to acquire or erect green houses and any other premises for the promotion of the speedy growth of flowers, crops, vegetables, fruits and to sell all such produce.
2. Anthony George Combos and Penelope Combos, the Directors of the Company moved the court by way of Liquidation Petition dated 24th June 2019, (“the Petition”) under section 425 of the Insolvency Act (“the Act”). The Petition seeks an order for its liquidation on the basis that it has ceased operations, it is unable to meet its financial obligations to creditors and suppliers particularly the firm of Kagwimi Kang'ethe & Co. Advocates which it owes Kshs. 1,364,623.00 together with interest at court rates from 12th October 2017.
3. The Petition is accompanied by the verifying affidavit of Anthony George Combos to which he attaches a Resolution for the Special General Meeting of the Company held on 18th June 2019 (“the Resolution”). The Resolution is to the effect that the Company be wound up and struck off the register of companies as it is unable to pay its debts and that the firm of LJA Associates Advocates LLP be appointed to represent it during the liquidation process.
4. After presentation, the Company advertised the Petition in The Standard Newspaper on Friday 18th March 2022 as well as through Gazette Notice No. 3353 of Kenya Gazette Vol. CXXIV-No 53 on Friday 25th March 2022. The firm of Kagwimi Kang'ethe & Company Advocates (“the Creditor”) filed a Notice of Intention to Appear and Oppose the Petition and a replying affidavit sworn by George Kang'ethe, Advocate on 5th October 2021.
5. Both parties have filed written submissions in support of their respective positions. Prior to the hearing of this petition, the Creditor filed a preliminary objection to the effect that the Petition was incompetent and that the court lacked jurisdiction to entertain it. I dismissed the preliminary objection by the ruling delivered on 28th July 2022 and held as follows:
Looking at the substance of the proceedings, I hold that the Company complied with the requisite procedures for liquidation by the court under section 425(1)(a) of the Insolvency Act. I find that while the Resolution did not specifically indicate whether the liquidation was voluntary or by court, the provisions of the law cited, the procedure followed clearly show that the liquidation was intended to be by the court. Finally, I do not find any prejudice to any of the Company’s creditors. As this is Petition for liquidation by court, I hold that this court has jurisdiction by dint of section 423(1) of the Insolvency Act.
6. The Creditor opposes the application based on the provisions of section 431(b) of Insolvency Act which states:
431(1) If, before the making of an application for the liquidation
of a company by the court, a resolution has been passed by the company for liquidating the company voluntarily:-
a.) the liquidation commences at the time of the passing of the resolution; and
b.) unless the court, on proof of fraud or mistake, directs otherwise, all proceedings taken in the voluntary liquidation are to be regarded as having been validly taken.
7. The Creditor argues that the court has the discretion, duty and power to interrogate whether the voluntary liquidation process commenced by the Company is bona fide and to decline to issue a liquidation order if there is evidence of mala fides. I agree that the court may disregard action taken on a voluntary liquidation if fraud or mistake is proved and not merely malafides. In relation to this case however, I would point out that in the ruling dated 28th July 2022, I held that this liquidation is a liquidation by the court under Division 6 of the Insolvency Act. I further determined the procedural propriety of the petition and held it was properly before the court.
8. A company may be liquidated by the court on any of the grounds set out in section 424(1) of the Insolvency Act and more particularly subsection (a) which provides that a company may be liquidated by the court if, “the company by special resolution resolved that the company be liquidated.” This is an independent and stand-alone ground apart from the ground of inability to pay debts. A company’s shareholders may resolve to liquidate the company notwithstanding it is still able to pay its debts. In this case though, the directors contend that they are unable meet their financial obligations including payment of the Creditor.
9. I am satisfied that a resolution to liquidate the Company has been passed and there is no reason why it should not be liquidated. The Creditor shall be at liberty to file its claim for resolution before the liquidator.
10. I therefore allow the petition and order as follows:
(a) An Interim Liquidation Order be and is hereby issued in respect of the Company, Olerai Nurseries Limited;
(b) The Official Receiver be and is hereby appointed as the Provisional Liquidator;
(c) The costs of the petition shall be in the liquidation
DATED and DELIVERED at NAIROBI this 6th day of APRIL 2023
D. S. MAJANJA
JUDGE