Fosroc Kenya Limited v Lakes Construction Support Limited (Company Cause 27 of 2024) [2024] UGCommC 342 (12 November 2024)

Full Case Text

#### THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA **COMMERCIAL DIVISION**

#### COMPANY CAUSE NO. 0027 OF 2024

## IN THE MATTER OF THE INSOLVENCY ACT AND THE **INSOLVENCY REGULATIONS, 2013**

AND

IN THE MATTER OF A PETITION FOR WINDING UP OF LAKES CONSTRUCTION SUPPORT LIMITED BY FOSROC KENYA **LIMITED**

FOSROC KENYA LIMITED....................................

#### **VERSUS**

LAKES CONSTRUCTION SUPPORT LIMITED.......... RESPONDENT

#### Before: Hon. Lady Justice Patricia Kahigi Asiimwe

#### JUDGMENT

Introduction

- 1. This Petition was brought under Section $57(a)$ , 91, 93(2) of the Insolvency Act, seeking declarations that: - a) The debtor is unable to pay its debts and is insolvent; - b) An order that the debtor be wound up and a liquidator be appointed over its assets; and - c) Costs of the Petition be provided for.

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- The Petition was supported by an affidavit sworn by Colm Halley, $2.$ the General Manager of the Petitioner, who stated that: - a) On 14th August 2019, Lakes Construction Support Limited received a credit limit of Kshs 10,000,000 from the Petitioner. The credit limit was valid for 45 days. - b) In the utilization of the credit limit, the Petitioner supplied construction materials to the Respondent pursuant to the Local purchase orders issued by the Respondent. - c) On 24th February 2023, the Petitioner increased the Respondent's credit limit to USD 100,000 for 90 days. - d) In further utilization of the credit limit, the Petitioner made further supplies of construction materials worth USD 62,423.50. - e) On 6th June 2024, the Petitioner served the Respondent with a statutory demand, demanding the payment of USD 62,423.50. - f) The debt is for a liquidated sum payable immediately and the Respondent has failed or neglected to pay it. - 3. Charles Njoroge, the technical director of the Respondent deponed the affidavit in reply and stated that: - a) The Applicant made supplies to the Respondent however, the supplies were not of good quality. Hardware World complained about the quality of the goods supplied.

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- b) The Respondent requested for test results of the product however none were availed. - c) There is a dispute concerning the merchantability of the supplies made, and as such, the Respondent could not make payments to the Applicant. - d) The Respondent is able to pay the money due to the Applicant only after the supplies made are tested and confirmed to meet the customer's desires or to be of merchantable quality. - e) The Petition has been maliciously presented and ought to be dismissed with costs.

### Representation

The Applicant was represented by AF Mpanga & Co. Advocates 4. The Respondent was represented by Kajeke, Maguru & Co. Advocates.

### Resolution:

## *Issue: Whether the Respondent is unable to pay its debts*

- Counsel for the Petitioner filed written submissions which I have $5.$ considered in resolving this matter. However, the Respondent did not submit written submissions. Counsel for the Petitioner submitted that since the Respondent failed to pay the debt within the stipulated time the Respondent is unable to pay its debts. - 6. Section 2 $(1)$ (a) of the Insolvency Act Cap 108 provides that a debtor is presumed to be unable to pay its debts if it fails to comply with a statutory demand. (See: In the matter of a

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## petition for winding up Fravolt Technical Services Limited (In Liquidation) by shareholders (Company Cause 3 of 2023).

- 7. Section 3(2) of the Insolvency Act, stipulates what amounts to a $\frac{1}{2}$ statutory demand. Under section 3 (2) (a) (ii) a statutory demand to a company shall be made in respect of a debt that is "an ascertained debt". - Section 2 of the Insolvency Act defines a debt to mean "a debt or 8. liability, present or future, certain or contingent and includes an ascertained debt or liability for damages". - 9. The deponent of the Affidavit in Reply states that the Applicant made supplies to the Respondent however the goods supplied were not of merchantable quality. The deponent stated that they wrote to the Petitioner and informed them that the goods were not of good quality and requested for test results. The Respondent attached the said email to the affidavit. The deponent of the affidavit of the Respondent further states that the Respondent is able and willing to pay the outstanding sums after the supplies made are tested. - 10. I find the evidence adduced by the Respondent shows a dispute concerning the debt and therefore the debt is not ascertained as is required under section 4(2) of the Insolvency Act. - 11. In the case of Mann and Another Versus Goldstein & Another [1968]1 W. L. R pg. 1091, the Court cited the case of Cadiz Waterworks Company versus Barnett 1874 L. R. 19, where it was held that "a winding up application is not a remedy intended by the legislature, or that ought to be applied, to enforce payment of a debt where these circumstances exist - solvency and a disputed debt."

- 12. In the case of **Re Welsh Brick Industries [1946] 2 ALLER 197,** it was held that in petitions for winding up a company, the judge should consider whether there is a bona fide dispute as to the existence of the debt upon which the petitioner founded his petition and secondly, whether the company is unable to pay its debt. If both facts are found against the company, the judge has the discretion to make the winding-up order. The court also cited Buckley on the Companies Act, 11th Edition pp. 356 where it is stated that "a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is disputed by the company. A petition presented ostensibly for a winding-up order but really to exercise pressure will be dismissed and under circumstances may be stigmatized as a scandalous abuse of the process of court." - 13. In the case of **Parmalat Capital Finance Ltd versus Food** Holdings Ltd (in liquidation) [2008], BCC 371 cited in Founder Group (Hong Kong) Limited (in liquidation) Vs Singapore JHC **Co Pte Ltd [2023] SGHC 159** it was held that "If a petitioner's debt is bona fide disputed on substantial grounds, the normal practice is for the court to dismiss the petition and leave the creditor first to establish his claim in an action. The main reason for this practice is the danger of abuse of the winding-up procedure. A party to a dispute should not be allowed to use the threat of a winding-up petition to force the company to pay a bona fide disputed debt." - 14. In the case of **Joselyn Kalembe Versus Buildnet Construction** Materials and Hardware Insolvency Petition No. 7 of 2022 Ocaya J held that "...the court will only grant an order for the liquidation of a company in the clearest of cases, and where such an order is the most appropriate action."

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15. In the present case, I find that there is a disputed debt and that an order that the Respondent be wound up is not the appropriate action. Therefore, the petition is dismissed with costs to the Respondent.

# Dated this 12th day of December 2024

Patricia Kahigi Asiimwe Judge **Delivered on ECCMIS**