' Background and Introduction
1. By an application dated 29th November 2023, the 2nd and the 3rd defendants, who are the applicants, seek a stay of proceedings against the 3rd defendant pending the hearing and determination of the liquidation processes in HCCOMMIP No. E063 of 2021 Cytonn High Yield Solutions LLP (in liquidation) V Official Receiver and HCCOMMIP No. E064 of 2021 Cytonn Real Estate Project Notes LLP (in liquidation) V Official Receiver. The applicants also seek to restrain any investor of the 1st defendant from initiating or continuing any claims against the 3rd defendant while the liquidation proceedings are still pending.
2. The application is opposed by way of a replying affidavit sworn by SEJAL MANISH KANANI, the 3rd plaintiff on behalf of all the plaintiffs, on 14th February 2024. The official receiver did not file any documents in support or against the application. The parties also filed their respective submissions which I have duly considered.
Analysis and Determination
3. The issue for determination is whether the applicants have demonstrated sufficient grounds to warrant the grant of the orders sought in their application. It is not in dispute that this Court, by its previous orders, placed the 1st defendant under liquidation and appointed the official receiver as liquidator. The Court further directed that all parties with claims against the 1st defendant proceed to file their proofs of debt with the official receiver for verification.
4. Notably, the claim presented by the plaintiffs is against the 1st defendant, as well as the applicants, jointly and severally. The plaintiffs assert that they sought consent from the official receiver to institute the present suit against the defendants, noting that the 2nd and 3rd defendants are not under liquidation. No response was forthcoming from the official receiver. They then filed the application dated 15th May 2023 seeking leave to institute proceedings against the 1st defendant, under liquidation, and the other applicants. I note that this assertion is not denied by the official receiver.
5. The plaintiffs further contend that on 17th October 2023, all the parties entered into a consent agreement allowing the application, which had been brought under Section 432(2) of the Insolvency Act, 2015. That provision governs the continuation or commencement of legal proceedings against a company once a liquidation order has been issued. It reads as follows:
“When a liquidation order has been made or a provisional liquidator has been appointed, legal proceedings against the company may be begun or continued only with the approval of the Court and subject to such conditions as the court considers appropriate.”
6. The record of proceedings before Hon. Stephanie Bett (Deputy Registrar) confirms that Learned Counsel Ms. Koech holding brief for Mr. Shah for the plaintiffs, Ms. Kinuthia holding brief for Ms. Mumo for the official receiver and Ms. Kamau holding brief for Ms. Muriungi for the 2nd and 3rd defendants, were present. A consent was duly recorded allowing the application dated 15th May 2023 as prayed, with no order as to costs. This consent has not been challenged by any party, nor has any material been placed before the Court to suggest that the consent was obtained improperly.
7. The legal weight of consent orders is well established. In Kenya Commercial Bank Ltd V Specialized Engineering Co Ltd, (1982) KLR P. 485, the Court of Appeal held:
“The marking by the court of a consent order is not an exercise to be done otherwise than on the basis that the parties fully understand the meaning of the order either personally or through their advocates, and, when made, such an order is not lightly to be set aside or varied save by consent or on one or other of the recognized grounds.”
8. The recognized grounds for setting aside a consent order were also elaborated by the Court of Appeal in the same matter, citing the decision of the former Court of Appeal for East African in Brook Bond Liebig (T) Ltd V Mallya, [1975] EA 266. In the latter, the Court held that a consent order may only be set aside if it was obtained by fraud, collusion, misrepresentation, or ignorance of material facts, or if it was contrary to public policy. No such grounds have been demonstrated in the present case. The consent therefore stands, and its legal effect is that the parties mutually agreed to vary the Court’s earlier directions requiring the filing of proofs of debt with the official receiver and proceed to have the matter heard and determined.
9. The present application therefore, which seeks to stay the proceedings and restrain further action against the 3rd defendant appears to be a departure from the position that had previously been endorsed by the defendants through the consent. In law, parties are estopped from reneging from a consent order unless they satisfy the threshold for setting it aside.
10. Turning to the substantive prayers, it is trite law that a stay of proceedings is a discretionary remedy, to be exercised sparingly and only in compelling circumstances. In Global Tours & Travels Ltd HC Winding Up Cause No. 43 of 2000, Ringera J. emphasized that the Court must consider whether the applicant has demonstrated that the proceedings are oppressive, vexatious, or otherwise an abuse of process.
11. The applicants argue that the property known as Applewood (Miotoni) is registered to Epazec Company LLP, the 3rd defendant, and is subject to litigation in the insolvency proceedings and a preservation order. They further contend that continuation of the present suit would prejudice the 3rd defendant’s interests, including those of third-party investors and purchasers who have filed applications in the insolvency court seeking recognition of their interests.
12. While these concerns are not trivial, they were within the defendants’ knowledge at the time they consented to the plaintiffs’ application for leave to institute and proceed with the present suit. Moreover, the mere existence of liquidation proceedings does not automatically warrant a stay of proceedings against a non-liquidated party.
13. The respondents are entitled to a determination of their legal rights, particularly in the absence of verified proofs of debt. These proceedings are necessary to establish whether the plaintiffs are creditors, and if so, whether they are secured or unsecured. This classification will materially affect their standing in the insolvency process and their ability to enforce any claims. Such determinations fall squarely within the jurisdiction of this Court and not the official receiver. In light of the foregoing, I find no sufficient basis to grant the prayer for stay of proceedings. The application must therefore fail.
14. As to the prayer for an injunction restraining investors of the 1st defendant from prosecuting claims against the 3rd defendant, such relief is already envisaged under Section 432(2) of the Insolvency Act. The purpose of that section is to serve as a statutory safeguard to ensure that litigation does not interfere with the orderly and equitable winding up of the company’s affairs. It is not intended to bar legitimate claims but to regulate them in a manner that aligns with the insolvency process. The Court retains discretion to grant leave where the proceedings are necessary to determine rights or liabilities that cannot be resolved through the liquidation process alone.
15. Similarly, leave under Section 432(2) is not automatic and must be justified by demonstrating that the proceedings are not frivolous, vexatious, or prejudicial to the liquidation. A blanket injunction as sought would therefore unduly fetter the Court’s discretion to assess each case on its merits and would risk denying legitimate claimants’ access to justice. The Court must retain the ability to evaluate proceedings on a case-by-case basis and impose conditions as appropriate. I am therefore inclined to dismiss the prayer for injunctive relief.
Disposition
16. Accordingly, the application dated 29th November 2023 is dismissed with costs.
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1. By an application dated 29th November 2023, the 2nd and the 3rd defendants, who are the applicants, seek a stay of proceedings against the 3rd defendant pending the hearing and determination of the liquidation processes in HCCOMMIP No. E063 of 2021 Cytonn High Yield Solutions LLP (in liquidation) V Official Receiver and HCCOMMIP No. E064 of 2021 Cytonn Real Estate Project Notes LLP (in liquidation) V Official Receiver. The applicants also seek to restrain any investor of the 1st defendant from initiating or continuing any claims against the 3rd defendant while the liquidation proceedings are still pending.
2. The application is opposed by way of a replying affidavit sworn by SEJAL MANISH KANANI, the 3rd plaintiff on behalf of all the plaintiffs, on 14th February 2024. The official receiver did not file any documents in support or against the application. The parties also filed their respective submissions which I have duly considered.
Analysis and Determination
3. The issue for determination is whether the applicants have demonstrated sufficient grounds to warrant the grant of the orders sought in their application. It is not in dispute that this Court, by its previous orders, placed the 1st defendant under liquidation and appointed the official receiver as liquidator. The Court further directed that all parties with claims against the 1st defendant proceed to file their proofs of debt with the official receiver for verification.
4. Notably, the claim presented by the plaintiffs is against the 1st defendant, as well as the applicants, jointly and severally. The plaintiffs assert that they sought consent from the official receiver to institute the present suit against the defendants, noting that the 2nd and 3rd defendants are not under liquidation. No response was forthcoming from the official receiver. They then filed the application dated 15th May 2023 seeking leave to institute proceedings against the 1st defendant, under liquidation, and the other applicants. I note that this assertion is not denied by the official receiver.
5. The plaintiffs further contend that on 17th October 2023, all the parties entered into a consent agreement allowing the application, which had been brought under Section 432(2) of the Insolvency Act, 2015. That provision governs the continuation or commencement of legal proceedings against a company once a liquidation order has been issued. It reads as follows:
“When a liquidation order has been made or a provisional liquidator has been appointed, legal proceedings against the company may be begun or continued only with the approval of the Court and subject to such conditions as the court considers appropriate.”
6. The record of proceedings before Hon. Stephanie Bett (Deputy Registrar) confirms that Learned Counsel Ms. Koech holding brief for Mr. Shah for the plaintiffs, Ms. Kinuthia holding brief for Ms. Mumo for the official receiver and Ms. Kamau holding brief for Ms. Muriungi for the 2nd and 3rd defendants, were present. A consent was duly recorded allowing the application dated 15th May 2023 as prayed, with no order as to costs. This consent has not been challenged by any party, nor has any material been placed before the Court to suggest that the consent was obtained improperly.
7. The legal weight of consent orders is well established. In Kenya Commercial Bank Ltd V Specialized Engineering Co Ltd, (1982) KLR P. 485, the Court of Appeal held:
“The marking by the court of a consent order is not an exercise to be done otherwise than on the basis that the parties fully understand the meaning of the order either personally or through their advocates, and, when made, such an order is not lightly to be set aside or varied save by consent or on one or other of the recognized grounds.”
8. The recognized grounds for setting aside a consent order were also elaborated by the Court of Appeal in the same matter, citing the decision of the former Court of Appeal for East African in Brook Bond Liebig (T) Ltd V Mallya, [1975] EA 266. In the latter, the Court held that a consent order may only be set aside if it was obtained by fraud, collusion, misrepresentation, or ignorance of material facts, or if it was contrary to public policy. No such grounds have been demonstrated in the present case. The consent therefore stands, and its legal effect is that the parties mutually agreed to vary the Court’s earlier directions requiring the filing of proofs of debt with the official receiver and proceed to have the matter heard and determined.
9. The present application therefore, which seeks to stay the proceedings and restrain further action against the 3rd defendant appears to be a departure from the position that had previously been endorsed by the defendants through the consent. In law, parties are estopped from reneging from a consent order unless they satisfy the threshold for setting it aside.
10. Turning to the substantive prayers, it is trite law that a stay of proceedings is a discretionary remedy, to be exercised sparingly and only in compelling circumstances. In Global Tours & Travels Ltd HC Winding Up Cause No. 43 of 2000, Ringera J. emphasized that the Court must consider whether the applicant has demonstrated that the proceedings are oppressive, vexatious, or otherwise an abuse of process.
11. The applicants argue that the property known as Applewood (Miotoni) is registered to Epazec Company LLP, the 3rd defendant, and is subject to litigation in the insolvency proceedings and a preservation order. They further contend that continuation of the present suit would prejudice the 3rd defendant’s interests, including those of third-party investors and purchasers who have filed applications in the insolvency court seeking recognition of their interests.
12. While these concerns are not trivial, they were within the defendants’ knowledge at the time they consented to the plaintiffs’ application for leave to institute and proceed with the present suit. Moreover, the mere existence of liquidation proceedings does not automatically warrant a stay of proceedings against a non-liquidated party.
13. The respondents are entitled to a determination of their legal rights, particularly in the absence of verified proofs of debt. These proceedings are necessary to establish whether the plaintiffs are creditors, and if so, whether they are secured or unsecured. This classification will materially affect their standing in the insolvency process and their ability to enforce any claims. Such determinations fall squarely within the jurisdiction of this Court and not the official receiver. In light of the foregoing, I find no sufficient basis to grant the prayer for stay of proceedings. The application must therefore fail.
14. As to the prayer for an injunction restraining investors of the 1st defendant from prosecuting claims against the 3rd defendant, such relief is already envisaged under Section 432(2) of the Insolvency Act. The purpose of that section is to serve as a statutory safeguard to ensure that litigation does not interfere with the orderly and equitable winding up of the company’s affairs. It is not intended to bar legitimate claims but to regulate them in a manner that aligns with the insolvency process. The Court retains discretion to grant leave where the proceedings are necessary to determine rights or liabilities that cannot be resolved through the liquidation process alone.
15. Similarly, leave under Section 432(2) is not automatic and must be justified by demonstrating that the proceedings are not frivolous, vexatious, or prejudicial to the liquidation. A blanket injunction as sought would therefore unduly fetter the Court’s discretion to assess each case on its merits and would risk denying legitimate claimants’ access to justice. The Court must retain the ability to evaluate proceedings on a case-by-case basis and impose conditions as appropriate. I am therefore inclined to dismiss the prayer for injunctive relief.
Disposition
16. Accordingly, the application dated 29th November 2023 is dismissed with costs.
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