1. The petitioners filed a liquidation petition dated 5/2/2024 under section 425 of the Insolvency Act seeking the liquidation of Surgisel Limited (hereinafter the Company).
2. The company was incorporated in 2016 in Kenya and specialized in supplying medical equipment and had four directors, the parties herein, each holding equal shares.
3. The petitioners stated that disputes arose when it was discovered that one of the directors had registered a competing company, Full Care Surgical Limited, in violation of corporate regulations. This led to tensions, culminating in actions by certain directors that allegedly harmed the company. These included unilaterally proposing the company's winding up, terminating supplier relationships, closing office premises without proper resolutions, and allegedly misappropriating company assets.
4. Efforts to resolve these disputes led to a court case, which was later withdrawn when all parties agreed to dissolve the company due to irreconcilable differences. A series of meetings were held to outline the liquidation process, including notifying business partners and conducting stock reconciliation. However, deadlocks persisted, especially regarding the reconciliation of company assets stored in different warehouses.
5. Despite these challenges, the petitioners affirmed that the company remained solvent, possessing assets worth over Kshs. 16 million with no liabilities.
6. Consequently, the petitioners prayed for the following orders:
“ a) The company SURGISEL LIMITED be and is hereby wound up by the court under the provisions of the Insolvency Act. 2015
b) The Court do make an order for the appointment of a receiver for the purpose of liquidating the company.
c) That the assets of the Company, SURGISEL LlMlTED, be fully ascertained, accounted for, and distributed proportionately between the shareholders as by law provided.
d) That the Courts do make an order to investigate the dealings of the company assets in the last 5 years
e) That this Honourable Court be pleased to make such further orders as may be deemed just and expedient
f) That the petitioners herein be at liberty to apply further orders.
g) That the costs of this Petition be provided to the petitioners out of the assets of the company on priority basis.”
7. In response to the Petition, the respondents filed a replying affidavit sworn by both of them on 27/9/2024.
8. The Respondents clarified that when the company was incorporated in 2016, the 1st respondent was neither a shareholder nor a director as she only became a director in January 2022 and that in a meeting held in November 2021, all directors had agreed to a share transfer to ensure fair representation, which was finalized in January 2022.
9. The respondents denied allegations that Fullcare Surgical Limited, a company incorporated by the 1st respondent in 2020, was in direct competition with the company or was established for that purpose. They argued that there was no non-compete clause barring directors from owning companies in a similar business. Furthermore, they highlighted that the 1st petitioner also held shares in another company, Viridian Company Limited, which provided similar products and services.
10. During a meeting in December 2021, disagreements among directors led the 2nd respondent to propose winding up the company. This proposal was accepted by all directors, who agreed to distribute the company's assets and settle debts. Meetings were held in early 2022 to discuss the winding-up process, with roles assigned among directors. The respondents alleged that the petitioners later changed their stance and failed to cooperate in finalizing the process.
11. The respondents refuted claims that they misappropriated assets, halted operations, or acted without authority. They contended that stock reconciliation was assigned to the 2nd petitioner, but discussions never progressed due to blame-shifting. They also denied disrupting supplies to hospitals and asserted that company stock remained accessible.
12. It was averred that in May 2022, the petitioners attempted to remove the respondents from management, leading to a court case (HCCC 185 of 2022 – Nairobi), however, parties later reached a consent agreement in June 2022, committing to continue the company’s operations. The respondents stated that they complied with the agreement, including returning company assets in October 2022.
13. That by November 2022, the directors had voluntarily agreed to wind up the company, allocating specific tasks to each director. However, the petitioners allegedly later disregarded the agreed process and rushed to court, portraying the respondents as obstructing the wind-up. The respondents argued that no special resolution had been passed for court-ordered liquidation, and the company was not in debt.
14. They concluded that despite past disputes, the company had remained operational, and the petitioners’ actions were misleading and intended to discredit them. The affidavit urged the court to consider the voluntary wind-up agreement rather than proceeding with liquidation.
15. The petition was canvassed by way of written submissions. The Petitioner’s submissions are dated 1/11/2024, whilst the Respondents’ submissions are dated 12/11/2024.
Analysis and determination:
16. I have carefully considered the parties’ respective pleadings and the submissions in support thereof. The issue for determination is whether the petitioners have met the threshold under section 424 of the Insolvency Act for a winding up order to issue.
17. It is not in dispute that the parties herein, as the directors and shareholders of the company, agreed to wind up the company vide a meeting on 17/11/2022. This is evidenced by the minutes produced as “ JF-5” in the petition and the letter dated 13/3/2023 signed by all of the directors produced as ‘BP-15’ in the respondent’s replying affidavit. The directors have however been unable to conclude the winding up process due to differences and acrimony that has arisen between them.
18. Voluntary liquidation is provided for under section 393(1) of the Insolvency Act which states:
“ A company may be liquidated voluntarily—
(a) when the period (if any) fixed for the duration of the company by the articles expires, or the event (if any) occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution providing for its voluntary liquidation; or
(b) if the company resolves by special resolution that it be liquidated voluntarily.”
19. Section 394(1) of the Insolvency Act states:
“ 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).”
20. In this case, the respondents claimed that the company had passed a resolution to voluntarily wind up the company on 17/11/2022, however, no formal steps were taken in compliance with sections 393(1) to 394(1) of the Insolvency Act 2015. Voluntary liquidation legally commences when a resolution is passed and duly published as per Section 394, which the respondents have failed to prove. The mere intent to wind up, as evidenced by a letter dated 13/3/2023, does not satisfy statutory requirements.
21. Circumstances under which the court may liquidate a company are provided under section 424(1) of the Insolvency Act, which states:
“ A company may be liquidated by the Court if—
(a) the company has by special resolution resolved that the company be liquidated by the Court;
(b) being a public company that was registered as such on its original incorporation—
(i) the company has not been issued with a trading certificate under the Companies Act (Cap. 486); and
(ii) more than twelve months has elapsed since it was so registered;
(c) the company does not commence its business within twelve months from its incorporation or suspends its business for a whole year;
d) except in the case of a private company limited by shares or by guarantee, the number of members is reduced below two;
(e) the company is unable to pay its debts;
(f) at the time at which a moratorium for the company ends under section 645—a voluntary arrangement made under Part IX does not have effect in relation to the company; or
(g) the Court is of the opinion that it is just and equitable that the company should be liquidated.”
22. The petitioners submitted that they have met the threshold under section 424(1)(g) of the Insolvency Act, which allows for liquidation where it is just and equitable.
23. The circumstances of this matter are that the parties agreed to wind up the company due to irreconcilable disputes among them. Various correspondences and affidavits provided by the parties confirm that steps were taken towards winding up but were ultimately stalled due to stock reconciliation disputes, leading to a deadlock.
24. The company notified its stakeholders of its intention to wind up, terminated the employment of its sole employee, and distributed some of its office equipment. It is clear that the company does not operate anymore and that the directors who are also its only shareholders are unable to work cordially with one another to operate it.
25. In Abdirashid Mude Ulow v Hassan Omar Kassai [2020] KEHC 10338 (KLR), Muigai J stated:
“ Halsbury’s Laws of England 4th Edition Volume 7 (2) at page 1095, the learned author stated the following:
‘the words just and equitable in company law are a recognition of the fact that a limited liability company is more than a mere judicial entity with a personality in law with its own: behind or among it there are individuals with rights, expectations and obligations which are not necessarily submerged in the company structure.’
The court may subject the exercise of legal rights by various shareholders to equitable considerations of a personal culture arising between the shareholders in order to determine whether any of the actions are just or inequitable.
Several examples are cited to illustrate instances where it may be just and equitable to wind up a company. The instances include;
a) Where the substratum has gone
b) Where it is impossible to carry on a company’s business owing to internal disputes which have produced a state of deadlock
c) Where directors withhold information from shareholders in circumstances which give rise to that suspicion that they are attempting to buy their share at an undervalue.”
26. I concur with the authority above. In this case, there has been a sustained impasse and I believe that a court ordered liquidation section 424(1)(g) of the Insolvency Act is the only viable course and the court therefore allows the petition as prayed in the interests of justice.
Disposition
27. Accordingly, the application herein is allowed, and the Court makes the following orders: -
i. The Company, Surgisel Limited be and is hereby wound up by the Court under the provisions of Section 424(1)(g) of the Insolvency Act, 2015.
ii. The Official Receiver be and is hereby appointed to immediately take over the management of the company for the purposes of liquidating the company.
iii. That the costs of the Petition and liquidation to be provided out of the assets of the company;
28. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 20TH DAY OF MARCH 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant