' Introduction
1. Before this Court is the Respondent’s Notice of Motion dated 26 February 2025 seeking leave to file an application for setting aside the statutory demand issued by the Petitioner on 7 November 2024.
2. The statutory demand was served on 15 November 2024 and again on 19 December 2024. The statutory 21-day period for applying to set aside lapsed on or about 6 December 2024.
3. The Respondent contends that the debt is not owed by it but by a distinct entity, Moran Lounge & Grill Limited, from whom it merely purchased assets. The Petitioner maintains that the Respondent is liable under the Transfer of Businesses Act, having continued the same business operations without issuing the requisite Gazette notice.
Analysis and Determination
4. Having duly considered the submissions by the parties, I identify the following issues as requiring this Court’s determination: -
i. Whether the Respondent is entitled to leave to file the application out of time.
ii. Whether the Respondent has demonstrated a genuine and substantial dispute warranting the setting aside of the statutory demand.
Whether the Respondent is entitled to the leave.
i. Whether the Respondent is entitled to leave to file the application out of time
5. Regulation 16(1)(a) of the Insolvency Regulations, 2016 provides in mandatory terms that a debtor who wishes to apply to set aside a statutory demand must do so within twenty-one (21) days of service. The statutory framework is designed to ensure expedition and certainty in insolvency proceedings, given their far-reaching commercial consequences.
6. The Respondent concedes that the statutory period lapsed but seeks the Court’s indulgence to extend time. The jurisprudence on extension of time is well settled. In Salat v Independent Electoral and Boundaries Commission & 7 others [2014] KESC 12 (KLR), the Supreme Court settled the general principles to be considered by a court in an application for extension of time. The Apex Court stated that:
“85. This being the first case in which this court is called upon to consider the principles for extension of time, we derive the following as the underlying principles that a court should consider in exercise of such discretion:
Extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party at the discretion of the court; A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the court Whether the court should exercise the discretion to extend time, is a consideration to be made on a case to case basis; Whether there is a reasonable reason for the delay. The delay should be explained to the satisfaction of the court; Whether there will be any prejudice suffered by the respondents if the extension is granted; Whether the application has been brought without undue delay; and whether, in certain cases, like election petitions, public interest should be a consideration for extending time….”
7. In the present case, the delay is for approximately two months. The Respondent explains that the statutory demand was served just before the Christmas recess, that it responded by letter dated 8 January 2025, and that it genuinely believed the matter could be resolved amicably without recourse to litigation. The Court must assess whether this explanation is reasonable and made in good faith.
8. The Petitioner, on its part, argues that the delay is inordinate and inexcusable, invoking the equitable doctrine of laches. It submits that equity aids the vigilant, not those who sleep on their rights, and that the Respondent’s silence and inaction until February 2025 is prejudicial to the creditor’s legitimate recovery process.
9. The Court in Thuku v Atlantis Finance Limited [2024] KEHC 1560 (KLR), emphasized that mere absence of prejudice is insufficient; the applicant must still demonstrate a credible explanation for delay. However, the same decision acknowledged that extension may be granted for the purpose of finality and resolution of the question before the court, particularly where the respondent has not pleaded prejudice. The Court stated that:
“9. It is not enough for the applicant to simply state that since the creditor has not demonstrated the prejudice to be occasioned if leave is granted, then such leave ought to be granted. I would allow the application only for the purpose of finality and resolution of the question before the court and even more, since the respondent has not pleaded any prejudice that he may suffer by the court allowing the application.”
10. Applying the above principles to the facts of this case, I note that while the explanation provided by the Respondent is not robust, it is not entirely devoid of merit. The service of the demand during the festive recess, the subsequent correspondence in January, and the attempt at amicable resolution provide some context for the delay.
11. Further, the Petitioner has not demonstrated specific prejudice beyond the passage of time. Insolvency proceedings are drastic, and the Court must be cautious not to shut out a party from ventilating a potentially genuine dispute merely on account of procedural default.
12. The balance therefore tilts in favour of granting leave. The discretion of the Court is intended to prevent injustice, not to punish parties for procedural lapses where substantive rights are at stake. As the Supreme Court observed in Salat, extension of time is a case-by-case determination, guided by fairness and the interests of justice.
13. Accordingly, the Respondent’s Notice of Motion dated 26th February 2025, though filed out of time, is hereby deemed to be properly on record.
Whether the debt is genuinely and substantially disputed
14. Leave having been granted, the Court must now consider whether the Respondent has demonstrated a genuine and substantial dispute that would warrant setting aside the statutory demand under Regulation 17(6)(b) of the Insolvency Regulations, 2016.
15. The jurisprudence is clear that a statutory demand will only be set aside where the debtor shows a dispute that is bona fide, substantial, and not a mere assertion. Regulation 17(6)(b) of the Insolvency Regulations, 2016 provides the legal framework for setting aside a statutory demand. It provides that setting aside may be done where: -
i. the debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;
ii. the debt is disputed on grounds which appear to the Court to be substantial;
iii. it appears that the creditor holds some security in respect of the debt claimed by the demand, and either paragraph (6) is not complied with in respect of the demand, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
iv. the Court is satisfied, on other grounds, that the demand ought to be set aside.”
16. The Court Appeal in Universal Hardware Limited v African Safari Club Limited [2013] KECA 507 (KLR), underscored that winding-up proceedings are not appropriate where the debt is disputed on substantial and bona fide grounds. A creditor’s petition should not be used as a debt collection tool where the alleged debt is genuinely contested. The Court stated as follows:
“The thread running through these authorities is that in entertaining a petition to wind up a company on account of non-payment of debts, the court must be satisfied that the debt is not disputed on substantial grounds and is bona fide. If it is, then the winding-up proceedings are not the proper remedy. The substantial dispute must be the kind of dispute that in an ordinary civil case will amount to a bona fide, proper or valid defence and not a mere semblance of a defence. It is not sufficient for a company to merely say for instance that we dispute the debt. The company must go further and demonstrate on reasonable grounds why it is disputing the debt.”
17. Similarly, in Flower City Limited v Polytanks & Containers Kenya Limited [2021] KEHC 34 (KLR), the Court articulated the indicia of a genuine dispute: it must be plausible, bona fide, real, in good faith, and contain a serious question to be tried. It must rise above mere bluster or assertion and have sufficient factual particularity to exclude fanciful or spurious claims. The Court held that:
“Simply put, a debtor must demonstrate the existence of a genuine dispute. Though it may not be possible to provide a closed list of the elements of a genuine dispute, the applicant must:
i. Show a plausible contention requiring investigation;
ii. Be bona fide, genuine and real;
iii. Be in good faith and show a prima facie plausibility;
iv. Truly exist in fact, and contain a serious question to be tried;
v. Be something more than mere bluster or mere assertion;
vi. Be a claim that may have some substance;
vii. Have a sufficient degree of cogency to be arguable;
viii. Have objective existence; and
ix. Have sufficient factual particularity.”
18. Applying the above principles to the present case, I note that the Respondent’s principal contention is that the debt was owed by Moran Lounge and Grill Limited and not by Moran Reloaded Lounge and Grill Limited. It relies on company search records to demonstrate that the two are distinct legal entities with separate incorporation and directorship. On this basis, the Respondent argues that it never contracted with the Petitioner and therefore cannot be liable for the debt.
19. However, this argument falters when examined against the Asset Sale and Purchase Agreement dated 6 December 2019. The agreement does not merely contemplate the acquisition of isolated assets; rather, it expressly references the Transfer of Businesses Act. Clause 12 in particular provides for “Notice under the Transfer of Business Act and Completion Laws.” Such language is deliberate and conclusive. It signals that the parties themselves understood the transaction to be a transfer of business as a going concern, not a bare asset purchase. The invocation of statutory notice requirements under the Act cannot be dismissed as incidental drafting—it is evidence of intent to transfer the business in its entirety.
20. Section 3(1) of the Transfer of Businesses Act stipulates that where a business is transferred, the transferee becomes liable for all liabilities incurred in the business by the transferor unless due notice is given. Section 3(3) further requires publication of such notice in the Kenya Gazette. In this case, no Gazette notice has been produced before this Court. The absence of statutory notice is fatal: it means that the liabilities of Moran Lounge and Grill Limited passed to Moran Reloaded Lounge and Grill Limited by operation of law. The Respondent cannot, therefore, rely on corporate separateness to shield itself from obligations that were expressly contemplated in the agreement and statutorily imposed by the Act.
21. Moreover, the Respondent has not denied that the funds were received, nor has it provided evidence that the debt was settled. Its reliance on separate legal personality and privity of contract is undermined by the continuity of operations. The hospitality business continued seamlessly under Moran Reloaded, substantially progressing with the activities of Moran Lounge. The same premises, clientele, and line of business were carried forward. This continuity is a hallmark of a transfer of business as a going concern. To allow the Respondent to disclaim liability in such circumstances would be to permit evasion of lawful obligations through corporate restructuring.
22. The Court must guard against misuse of insolvency proceedings as a debt collection tool, but equally, the Courts are enjoined to guard against debtors using technicalities to frustrate creditors.
23. In this case, the Respondent’s attempt to disown the debt is not supported by credible evidence. It amounts to a calculated abuse of the insolvency process, designed to delay recovery and evade responsibility. The dispute raised is therefore neither genuine nor substantial within the meaning of Regulation 17(6)(b). It fails the threshold established in Universal Hardware, Flower City, and Tripple Nine Associates.
24. In the result, while the Respondent’s application for leave to file its application out of time is merited, the substantive application to set aside the statutory demand is found to be without merit and is accordingly dismissed with costs.
25. The statutory demand dated 7 November 2024 remains valid and enforceable.
26. It is so ordered.
SIGNED, DATED, and DELIVERED AT NAIROBI THIS
27TH NOVEMBER 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
Ms. Muturi………………...for the Petitioner/Respondent
Ms. Mithi………….…..... for the Respondent/Applicant
'
1. Before this Court is the Respondent’s Notice of Motion dated 26 February 2025 seeking leave to file an application for setting aside the statutory demand issued by the Petitioner on 7 November 2024.
2. The statutory demand was served on 15 November 2024 and again on 19 December 2024. The statutory 21-day period for applying to set aside lapsed on or about 6 December 2024.
3. The Respondent contends that the debt is not owed by it but by a distinct entity, Moran Lounge & Grill Limited, from whom it merely purchased assets. The Petitioner maintains that the Respondent is liable under the Transfer of Businesses Act, having continued the same business operations without issuing the requisite Gazette notice.
Analysis and Determination
4. Having duly considered the submissions by the parties, I identify the following issues as requiring this Court’s determination: -
i. Whether the Respondent is entitled to leave to file the application out of time.
ii. Whether the Respondent has demonstrated a genuine and substantial dispute warranting the setting aside of the statutory demand.
Whether the Respondent is entitled to the leave.
i. Whether the Respondent is entitled to leave to file the application out of time
5. Regulation 16(1)(a) of the Insolvency Regulations, 2016 provides in mandatory terms that a debtor who wishes to apply to set aside a statutory demand must do so within twenty-one (21) days of service. The statutory framework is designed to ensure expedition and certainty in insolvency proceedings, given their far-reaching commercial consequences.
6. The Respondent concedes that the statutory period lapsed but seeks the Court’s indulgence to extend time. The jurisprudence on extension of time is well settled. In Salat v Independent Electoral and Boundaries Commission & 7 others [2014] KESC 12 (KLR), the Supreme Court settled the general principles to be considered by a court in an application for extension of time. The Apex Court stated that:
“85. This being the first case in which this court is called upon to consider the principles for extension of time, we derive the following as the underlying principles that a court should consider in exercise of such discretion:
Extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party at the discretion of the court; A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the court Whether the court should exercise the discretion to extend time, is a consideration to be made on a case to case basis; Whether there is a reasonable reason for the delay. The delay should be explained to the satisfaction of the court; Whether there will be any prejudice suffered by the respondents if the extension is granted; Whether the application has been brought without undue delay; and whether, in certain cases, like election petitions, public interest should be a consideration for extending time….”
7. In the present case, the delay is for approximately two months. The Respondent explains that the statutory demand was served just before the Christmas recess, that it responded by letter dated 8 January 2025, and that it genuinely believed the matter could be resolved amicably without recourse to litigation. The Court must assess whether this explanation is reasonable and made in good faith.
8. The Petitioner, on its part, argues that the delay is inordinate and inexcusable, invoking the equitable doctrine of laches. It submits that equity aids the vigilant, not those who sleep on their rights, and that the Respondent’s silence and inaction until February 2025 is prejudicial to the creditor’s legitimate recovery process.
9. The Court in Thuku v Atlantis Finance Limited [2024] KEHC 1560 (KLR), emphasized that mere absence of prejudice is insufficient; the applicant must still demonstrate a credible explanation for delay. However, the same decision acknowledged that extension may be granted for the purpose of finality and resolution of the question before the court, particularly where the respondent has not pleaded prejudice. The Court stated that:
“9. It is not enough for the applicant to simply state that since the creditor has not demonstrated the prejudice to be occasioned if leave is granted, then such leave ought to be granted. I would allow the application only for the purpose of finality and resolution of the question before the court and even more, since the respondent has not pleaded any prejudice that he may suffer by the court allowing the application.”
10. Applying the above principles to the facts of this case, I note that while the explanation provided by the Respondent is not robust, it is not entirely devoid of merit. The service of the demand during the festive recess, the subsequent correspondence in January, and the attempt at amicable resolution provide some context for the delay.
11. Further, the Petitioner has not demonstrated specific prejudice beyond the passage of time. Insolvency proceedings are drastic, and the Court must be cautious not to shut out a party from ventilating a potentially genuine dispute merely on account of procedural default.
12. The balance therefore tilts in favour of granting leave. The discretion of the Court is intended to prevent injustice, not to punish parties for procedural lapses where substantive rights are at stake. As the Supreme Court observed in Salat, extension of time is a case-by-case determination, guided by fairness and the interests of justice.
13. Accordingly, the Respondent’s Notice of Motion dated 26th February 2025, though filed out of time, is hereby deemed to be properly on record.
Whether the debt is genuinely and substantially disputed
14. Leave having been granted, the Court must now consider whether the Respondent has demonstrated a genuine and substantial dispute that would warrant setting aside the statutory demand under Regulation 17(6)(b) of the Insolvency Regulations, 2016.
15. The jurisprudence is clear that a statutory demand will only be set aside where the debtor shows a dispute that is bona fide, substantial, and not a mere assertion. Regulation 17(6)(b) of the Insolvency Regulations, 2016 provides the legal framework for setting aside a statutory demand. It provides that setting aside may be done where: -
i. the debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;
ii. the debt is disputed on grounds which appear to the Court to be substantial;
iii. it appears that the creditor holds some security in respect of the debt claimed by the demand, and either paragraph (6) is not complied with in respect of the demand, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
iv. the Court is satisfied, on other grounds, that the demand ought to be set aside.”
16. The Court Appeal in Universal Hardware Limited v African Safari Club Limited [2013] KECA 507 (KLR), underscored that winding-up proceedings are not appropriate where the debt is disputed on substantial and bona fide grounds. A creditor’s petition should not be used as a debt collection tool where the alleged debt is genuinely contested. The Court stated as follows:
“The thread running through these authorities is that in entertaining a petition to wind up a company on account of non-payment of debts, the court must be satisfied that the debt is not disputed on substantial grounds and is bona fide. If it is, then the winding-up proceedings are not the proper remedy. The substantial dispute must be the kind of dispute that in an ordinary civil case will amount to a bona fide, proper or valid defence and not a mere semblance of a defence. It is not sufficient for a company to merely say for instance that we dispute the debt. The company must go further and demonstrate on reasonable grounds why it is disputing the debt.”
17. Similarly, in Flower City Limited v Polytanks & Containers Kenya Limited [2021] KEHC 34 (KLR), the Court articulated the indicia of a genuine dispute: it must be plausible, bona fide, real, in good faith, and contain a serious question to be tried. It must rise above mere bluster or assertion and have sufficient factual particularity to exclude fanciful or spurious claims. The Court held that:
“Simply put, a debtor must demonstrate the existence of a genuine dispute. Though it may not be possible to provide a closed list of the elements of a genuine dispute, the applicant must:
i. Show a plausible contention requiring investigation;
ii. Be bona fide, genuine and real;
iii. Be in good faith and show a prima facie plausibility;
iv. Truly exist in fact, and contain a serious question to be tried;
v. Be something more than mere bluster or mere assertion;
vi. Be a claim that may have some substance;
vii. Have a sufficient degree of cogency to be arguable;
viii. Have objective existence; and
ix. Have sufficient factual particularity.”
18. Applying the above principles to the present case, I note that the Respondent’s principal contention is that the debt was owed by Moran Lounge and Grill Limited and not by Moran Reloaded Lounge and Grill Limited. It relies on company search records to demonstrate that the two are distinct legal entities with separate incorporation and directorship. On this basis, the Respondent argues that it never contracted with the Petitioner and therefore cannot be liable for the debt.
19. However, this argument falters when examined against the Asset Sale and Purchase Agreement dated 6 December 2019. The agreement does not merely contemplate the acquisition of isolated assets; rather, it expressly references the Transfer of Businesses Act. Clause 12 in particular provides for “Notice under the Transfer of Business Act and Completion Laws.” Such language is deliberate and conclusive. It signals that the parties themselves understood the transaction to be a transfer of business as a going concern, not a bare asset purchase. The invocation of statutory notice requirements under the Act cannot be dismissed as incidental drafting—it is evidence of intent to transfer the business in its entirety.
20. Section 3(1) of the Transfer of Businesses Act stipulates that where a business is transferred, the transferee becomes liable for all liabilities incurred in the business by the transferor unless due notice is given. Section 3(3) further requires publication of such notice in the Kenya Gazette. In this case, no Gazette notice has been produced before this Court. The absence of statutory notice is fatal: it means that the liabilities of Moran Lounge and Grill Limited passed to Moran Reloaded Lounge and Grill Limited by operation of law. The Respondent cannot, therefore, rely on corporate separateness to shield itself from obligations that were expressly contemplated in the agreement and statutorily imposed by the Act.
21. Moreover, the Respondent has not denied that the funds were received, nor has it provided evidence that the debt was settled. Its reliance on separate legal personality and privity of contract is undermined by the continuity of operations. The hospitality business continued seamlessly under Moran Reloaded, substantially progressing with the activities of Moran Lounge. The same premises, clientele, and line of business were carried forward. This continuity is a hallmark of a transfer of business as a going concern. To allow the Respondent to disclaim liability in such circumstances would be to permit evasion of lawful obligations through corporate restructuring.
22. The Court must guard against misuse of insolvency proceedings as a debt collection tool, but equally, the Courts are enjoined to guard against debtors using technicalities to frustrate creditors.
23. In this case, the Respondent’s attempt to disown the debt is not supported by credible evidence. It amounts to a calculated abuse of the insolvency process, designed to delay recovery and evade responsibility. The dispute raised is therefore neither genuine nor substantial within the meaning of Regulation 17(6)(b). It fails the threshold established in Universal Hardware, Flower City, and Tripple Nine Associates.
24. In the result, while the Respondent’s application for leave to file its application out of time is merited, the substantive application to set aside the statutory demand is found to be without merit and is accordingly dismissed with costs.
25. The statutory demand dated 7 November 2024 remains valid and enforceable.
26. It is so ordered.
SIGNED, DATED, and DELIVERED AT NAIROBI THIS
27TH NOVEMBER 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
Ms. Muturi………………...for the Petitioner/Respondent
Ms. Mithi………….…..... for the Respondent/Applicant
'