ECM (Minor suing Through Next friend & Mother TNG) & 2 others v Xplico Insurance Company Limited & another [2023] KEHC 26180 (KLR)

ECM (Minor suing Through Next friend & Mother TNG) & 2 others v Xplico Insurance Company Limited & another (Insolvency Petition E033 of 2023) [2023] KEHC 26180 (KLR) (Commercial and Tax) (20 November 2023) (Ruling)

Neutral citation: [2023] KEHC 26180 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Insolvency Petition E033 of 2023

JWW Mong'are, J

November 20, 2023

Between

ECM (Minor suing Through Next friend & Mother TNG)

1st Petitioner

Irene Naliaka Makhanu

2nd Petitioner

Daniel Ndirangu Mwangi

3rd Petitioner

and

Xplico Insurance Company Limited

1st Respondent

Commissioner of Insurance

2nd Respondent

Ruling

1. By a Notice of Motion application, the Applicant has moved this Honourable Court under Sections 3(1)(a), (b) and (c), Section 427(1) (a), (b), (d) and (4), 428(1) and (2), 447(1), 629 of the Insolvency Act, Regulation 10 of the Insolvency Regulations 2016, seeking the following orders:-1. Spent2. That this Honourable Court be pleased to issue a temporary injunction restraining the Petitioners jointly and severally by themselves and /or through their agents, servants and /or employees or otherwise whatsoever from advertising the Petition herein in Kenya Gazette and/or in any newspaper and/or howsoever pending hearing and determination of the application herein.3. That this Honourable Court do strike out/dismiss the Petition dated 30th May 2023 for being an abuse of the Court process.4. That in the alternative to prayer 3 above, this Honourable Court be pleased to adjourn the hearing of the Insolvency Petition for a period of 12 months or for such a period the Court may deem fit to enable the company enter and fulfil a payment plan with the Petitioners advocate on settlement of the outstanding balance of the debt.

2. The application is supported by the grounds set on its face and the supporting affidavit of Mohammed Haid, the legal manager of the debtor. The application is opposed by the Petitioners through an affidavit sworn by their advocates. It is the Applicant’s position that the court has powers under section 427 of the Insolvency Act to grant the orders sought. The Applicant argues that if the court allows the petition to be published it shall cause extreme damage and prejudice to the Applicant as the same is likely to cause a run on the assets of the Applicant and cripple its operations.

3. The Applicant argues that it has been settling the decretal amount owing to the Petitioners although counsel for the Petitioners has declined to accept the instalment payments. The Applicant argues that the petition is without merit and premature as the Applicant has been paying the debt due and owing to the Petitioners and has made proposals to liquidate the same through instalments. The Applicant has also sought an alternative prayer to delay the Insolvency by 12 months to allow the Applicant to clear their debt to the Petitioners.

4. The Petitioners/Respondents oppose the Application filed by the Petitioners. The Petitioners argue that the Applicant has not made out a case to warrant striking out of the Insolvency Petition and that it has failed to adduce any evidence to demonstrate that the debt subject matter of the petition or part thereof is disputed. The Petitioners further argue that they have complied with all the conditions necessary for presentation of an insolvency petition and that they have a prima facie case against the Applicant.

5. It is the position taken by the Petitioners that the orders sought in this application are merely meant to further delay the inevitable as the Applicant, despite entering into a consent judgement has failed to make good the same and no payments have been received or at all by the Petitioners since the said consent judgment was recorded. To date, the Petitioners aver, a sum of ksh 850,000/- remains due and outstanding long after the expiry of the 90-day period agreed in the consent. The Petitioners are equally opposed to the grant of the alternate prayers sought.

Analysis And Determination 6. I have considered carefully the application as filed and the supporting affidavit by the Applicant. I have equally considered the response filed on behalf of the Petitioners by their counsel on record in opposing this application and the submissions filed thereto by both parties. To my mind, the only issue that arises for determination is “whether the Applicant has established a case for grant of prayers sought”. I note from the outset that the debt herein is not been disputed and that indeed the Applicant admits that it is indebted to the Petitioners. Both parties agree that there is a consent order by which the parties agreed to liquidate the decretal amount in instalments within a set period.

7. The Applicant in urging the court to allow the application has placed reliance on section 427 of the insolvency Act which sets out the court’s powers on hearing and determination of a liquidation application. Section 427 of the Insolvency Act provides as follows:-427. “Powers of Court on hearing of liquidation application1. On the hearing of a liquidation application, the Court may make such of the following orders as it considers appropriate—a.an order dismissing the application;b.an order adjourning the hearing, conditionally or unconditionallyc.an interim liquidation order; ord.any other order that, in its opinion, the circumstances of the case require.2. However, the Court may not refuse to make a liquidation order on the ground only that the company's assets have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.3. If the application is made by members of the company as contributories on the ground that it is just and equitable that the company should be liquidated, the Court shall make a liquidation order, but only if of the opinion that—a.that the Applicants are entitled to relief either by liquidating the company or by some other means; andb.that, in the absence of any other remedy, it would be just and equitable that the company should be liquidated.4. Subsection (3) does not apply if the Court is also of the opinion that—a.some other remedy is available to the Applicants; andb.they are acting unreasonably in seeking to have the company liquidated instead of pursuing that other remedy

8. Justice Tuiyott (as he then was) in re-Spencon Holdings Limited (under Administration) (2020) eKLR observed as follows:-“on hearing a plea for liquidation, a court has a wide array of Orders which it can make. That is the design of the provisions of section 427 of the Act. This is because companies face different challenges and a one size fits all solution may neither be possible nor desirable.”The observations by learned Judge hold true even in the present case and in my view, it is important to consider when making an order with such far reaching effects as a winding up order, other factors that may contribute to the challenges faced by the company sought to be wound up.

9. Section 427 has to be read alongside the objectives of the Insolvency Act as set out under section 3 of the Act that provide as follows:-“in the case of insolvent companies and other bodies corporate whose financial position is redeemable—i.to enable those companies and bodies to continue to operate as going concerns so that ultimately, they may be able to meet their financial obligations to their creditors in full or at least to the satisfaction of those creditors; andii.to achieve a better outcome for the creditors as a whole than would likely to be the case if those companies and bodies were liquidated;”In my view, the court in exercising its powers under section 427 must consider what the better outcome of company is, based on the surrounding parameters and the operating environment.

10. I have considered the application and the rival arguments put forward by both parties. I note that despite the fact that parties entered into a consent judgment to settle the decretal amount in instalments, the same remains outstanding to date. I also note the argument by the Applicant that counsel has refused to accept the payment by instalments has not been controverted.

11. To my mind, a winding up petition of a company has very drastic and far-reaching effects and in a volatile industry such as the one the Applicant is operating under, may not serve the objectives for which this law was enacted. I note from the application that the Applicant has urged the court to consider in the alternative, a hold on the petition for a period of 12 months to allow it time to sort out the debt. I am therefore persuaded that taking into considerations the interests of the Petitioners who are also desirous of having their debt settled. I am therefore persuaded that the alternate prayer will lead to a better outcome for both parties. The court therefore grants the Applicant the prayers sought in the alternate prayer. The Insolvency Petition is adjourned and placed on hold by the court for a period of 12 months as sought by the Applicant, to enable the company to enter and fulfil a payment plan with the Petitioners on settlement of the outstanding balance.

12. Costs follow the event. The Applicant has partly succeeded in the application before this court. The court however notes that the Applicant in failing to settle the decretal sums in a timely fashion has occasioned the current state of affairs and will not grant it costs in the instant application. Each party will therefore bear its own costs of the application.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 20TH DAY OF NOVEMBER 2023………………………………..J. W. W. MONG’AREJUDGEIn the Presence of:-1. Ms. Wainaina for the Petitioners/Respondents.2. Mr. Mwendwa for the 1st Respondent/Applicant.3. Amos - Court Assistant