Background and introduction
1. For determination is the application dated 1st October 2024, which seeks to have a licensed Insolvency Practitioner appointed as provisional liquidator of the 1st respondent (the scheme), pending the hearing and determination of the insolvency petition herein. The application is brought under the substantive provisions of Section 425, 427 & 437 of the Insolvency Act. It is supported by the affidavit of YVONNE MUTHWII, the Chief Executive of the applicant. It is opposed by the replying affidavits on behalf of the 1st and 2nd respondents sworn on 22nd October 2024.
Analysis and determination
2. I have carefully considered the application, the responses as well as the evidence and submissions filed by the parties in support of their respective cases.
3. The applicant herein is established under the Retirement Benefit Act for the purposes of regulation, supervision and promotion of retirement benefits schemes and the development of the retirement benefits sector. It is in this capacity that the applicant makes this application.
4. There is overwhelming evidence produced by the applicant to demonstrate that the 2nd respondent, as the sponsor of the scheme, despite deducting contributions from members has defaulted in remitting these monthly contributions to the scheme since May 2015. This default has rendered the scheme unable to fulfil its obligations to its members including payments owed to retirees and a potential default to future retirees, thereby creating a significant financial crisis.
5. It is undisputed that the parties have engaged in discussions to address the outstanding contributions. Correspondence, including letters dated 18th April 2016, 28th April 2016, 17th May 2016, 13th June 2016, and 8th March 2021, alongside a series of meetings, paints a clear picture of a scheme struggling with underfunding and teetering on the brink of financial collapse. evidenced by the staggering unremitted contributions from staff to the scheme.
6. From the evidence on record, it is also apparent that various promises, proposals, and efforts have been made to transfer assets from the 2nd respondent to the scheme with the aim of improving the scheme’s liquidity. However, no evidence has been presented to this court to demonstrate the success of any of these efforts in bridging the scheme’s deficit. The scheme’s indebtedness is undisputed, with the regulator confirming that its debt stood at Kshs. 1.3 billion as of 30th June 2023, a figure that continues to grow. This averment remains unchallenged by the respondent.
7. It is further undeniable that the scheme’s liabilities exceed its assets. This financial position is confirmed by the 2nd respondent in its replying affidavit sworn by one George Hinga. At paragraphs 8 and 9, he states:
“8. THAT the advent of technology and the liberalization of the mail and courier market has resulted in drastic dwindling of the 2nd Respondent’s market share. In the circumstances, revenue generated has been shrinking year-on-year over the past decade. At the time of filing this response, the 2nd respondent remains a loss-making entity.
9.THAT it is not in dispute that as a result of the 2nd respondent’s revenue shortfalls over many years, the 2nd respondent has failed to remit pension dues to the 1st respondent in a timely manner”.
8. The respondents also refer to previous litigation in Civil Suit No. 409 of 2017 (O.S). As a result of that suit, the 2nd respondent confirms that a Board resolution dated 20th June 2017 was made to transfer two properties to the 1st respondent to clear the deficit. However, seven years later, the respondents have failed to demonstrate that the much-awaited cabinet approval for the property transfer has been issued.
9. Having reviewed the (OS) filed in HCCOMM 409 of 2017 and the judgment delivered by this court on 27th January 2023, I respectfully disagree with the submission that this matter is sub judice due to the said judgment. The prayers in the OS, as well as the orders issued by the court, indicate that the previous proceedings were of a recovery nature, where the plaintiffs sought to recover amounts due and owing from the scheme. Recovery proceedings are designed to enforce contractual obligations or statutory duties and are inherently compensatory or restitutionary in character.
10. The current proceedings, by contrast, are insolvency proceedings governed by distinct provisions under the Insolvency Act. Their primary objective is to determine the scheme's financial viability, protect its assets, and ensure equitable treatment of all creditors. These objectives are distinct from those in other related matters. While the insolvency process may intersect with other pending proceedings, such as HCCOMM 409 of 2017, the issues raised here specifically concern the preservation and protection of the scheme’s assets, which is separate from earlier recovery efforts.
11. This court derives its authority to appoint an interim liquidator during liquidation proceedings under Section 427 of the Insolvency Act. The purpose of such an appointment is to preserve the assets of an insolvent entity pending the resolution of the liquidation petition. In this case, the applicant seeks the appointment of an interim liquidator to collect and preserve the scheme's assets while the insolvency petition is heard and determined.
12. In Leisurelodges Limited vs. Yashvin A. Shretta [1990] eKLR, the Court reiterated the purpose of appointing a provisional liquidator, stating:
“The purpose of making the appointment is to preserve the company's assets and to prevent the directors from dissipating them before a winding up can be made - See Pennington's Company Law, 4th Edition, at page 867 where the learned author says:-
"It has been said that a provisional liquidator will only be appointed if the company is the petitioner or if it consents to the appointment, or if the company is clearly insolvent, or if it is obvious to the court that a winding up order will be made. These dicta show the court's reluctance to pre-judge the issue between the petitioner and the company by appointing a provisional liquidator before the hearing of the petition, but it has also been held that the court's power to appoint a provisional liquidator is not limited to such cases, and may be exercised if there is an interest of the public to be protected..."
13. In line with this and other judicial precedents and the material presented before me, I am satisfied that appointing a provisional liquidator is necessary to protect and preserve the assets of the scheme and to prevent further dissipation. This serves the broader interests of all stakeholders involved.
14. In any case, the powers of the interim liquidator are limited. They do not extend to the administration of the 1st respondent’s assets, thereby still leaving an opportunity for the 1st respondent to present its case during the liquidation. As such, I see no prejudice with granting the application at this point.
Disposition
15. Accordingly, the application dated 1st October 2024 is allowed in the following specific terms;
i. Pending the hearing and determination of the insolvency petition filed, MR. LONGET KIPRONO TERER is hereby appointed as interim liquidator of the 1st respondent, Postal Corporation of Kenya Staff Retirement Benefits Scheme, to trace, take possession of, collect, recover, protect and preserve the assets of the scheme;
ii. The 2nd respondent, Postal Corporation of Kenya is directed to stop deducting and remitting contributions from the members of the scheme.
iii. Each party shall bear their own costs.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 5th DAY OF DECEMBER 2024
F. MUGAMBI
JUDGE