In Re matter of Les Belles Sauvages Limited [2010] KEHC 785 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBICOMMERCIAL DIVISION, MILIMANI

WINDING UP CAUSE NO. 23 OF 2009

IN THE MATTER OF LES BELLES SAUVAGES LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT(CHAPTER 486, LAWS OF KENYA)

JUDGMENT

Mona Hussein Ali Duale, a director and shareholder of Les Belles Sauvages Limited and former wife of the only other director Paul Savage, has petitioned this court praying, inter alia, that:

a)Les Belles Sauvages Limited be wound up by an order of the court, it being just and equitable to do so, pursuant to the provisions of the Companies Act.

b)Alternatively the other director and shareholder (do) purchase the shares of the petitioner on such terms as the court deems fit proper and just.

c)Alternatively an officer other than the Official Receiver be appointed under Section 231 of the Companies Act for the purposes of winding up the company.

d)hat such other orders be made as shall be fair and equitable.

Les Belles Sauvages Limited (hereinafter called “the company”) was incorporated on 11th February 2008 under a certificate of incorporation No.150081 with a registered office at plot No. KWALE/DIANI BEACH/783. The nominal share capital of the company is KShs.100,000/= divided into 100 shares of KShs.1000/= each, with the two shareholders and sole subscribers to the Memorandum and Articles of Association holding 50 shares each.

As stated in paragraph 4 of the petition filed on 28th July 2009, the core business of the company is in tourism trade, encompassing the provision of accommodation to tourists, organizing safaris and tours, managing lodges, and tented camps, provision of necessary equipment, catering services, agency services, securing travel bookings, rendering agency and other services relevant to the tourism trade, both locally and internationally.

The petitioner states in her petition that she was instrumental to the formation of the company during the subsistence of her marriage to the co-director which is now dissolved by way of a divorce. In view of the relationship between the two directors the petitioner considers the company a quasi-partnership and/or a family business. She states that as a direct consequence of the divorce it has become impossible to conduct the affairs of the company due to the disagreements and acrimony between the two sole directors/shareholders. She complains that the respondent, Paul Savage has taken over the sole management of the company whose only asset is a house situate at KWALE/DIANI BEACH/783/2, presently managed by one Maureen Bell under the unilateral instructions of the co-director Paul Savage; the respondent.

The petitioner further complains that the said Maureen Bell refuses to divulge to the petitioner any information pertaining to the rental status and related income saying that her instructions emanate from the respondent. The petitioner further states that the respondent has purported to make unilateral decisions regarding the running and all affairs of the company to the exclusion of the petitioner and in violation of the law. She considers the manner in which the respondent is conducting himself as regards the affairs of the company to be contrary to the objects and purposes of the company and in breach of the law. She particularly states that:

1)No accounts of the affairs of the company have been published.

2)The co-director has not called an Annual General Meeting for the purposes of approving annual accounts.

3)There is no good faith and the co-directors powers are being exercised mala fides and in a manner that is oppressive to the petitioner.

For the above reasons the petitioner feels that the conduct of the co-director in the running of the affairs of the company continue to expose the petitioner to the risk of possible culpability in the face of the stated illegalities and any future liabilities likely to ensue therefrom.

The petitioner states further that dissolution of the marriage between herself and the respondent has resulted in a stalemate in so far as the running of the affairs of the company is concerned owing to the mistrust and mutual lack of confidence amongst the sole directors, which has left the petitioner totally excluded from any decision making and all the affairs of the company and making it no longer viable for the company to continue business in its present state. She contends that to allow the status of affairs to continue would be injurious to her as a contributory.

The petitioner prays, alternatively, and with a view to bringing to an end the matters complained of, for orders under Section 211 of the Companies Act as follows:

a)An order of valuation of the petitioners’ shareholding by an independent auditor.

b)A removal and barring of the respondent or his nominees from acting as directors of the company.

The petition is opposed on the strength of the Respondent’s Affidavit in Opposition dated 30th November 2009 and filed on the same date. In it, the Respondent admits paragraphs 1 to 6 of the petition to wit:  the incorporation of the company and its registered office, the objects thereof, the marriage between himself and the petitioner in the year 2003 and the dissolution of the marriage through divorce in 2008.

The Respondent denies that the petitioner contributed to the formation and incorporation of the company and refutes the allegations of wrongdoing in the management of the company as contained in the petition. He denies that it is no longer viable for the company to continue in operation owing to mistrust and lack of confidence between the co-directors, that the continuation of the company in business would be injurious to the petitioner or that, given the current status of affairs brought about by the strained relations between the co-directors, it would be unjust and inequitable for the company to continue in business.

Further, the respondent denies that the situation calls for the invoking of Section 211 of the Companies Act with a view to ordering the valuation of the petitioner’s shareholding and/or removing the respondent or his nominees from acting as directors of the company. He submits that the greater part of the petition is false.

The respondent contends that like two other previous legal proceedings by the petitioner, the present petition is but a 3rd attempt in the petitioner’s scheme to take over the respondent’s self generated and inherited property. He cites a subsisting suit, H.C.C.C. No. 50 of 2008 (O.S.) in which the petitioner seeks declaratory orders to the effect that she is entitled to 80% of the matrimonial home, L. R. No. 1/1298 and 50% of KWALE/DIANI BEACH/783/3 registered in the name of Les Belles Sauvages Ltd, and a previous winding up petition, Milimani Winding Up Cause No. 3 of 2009 which was struck out at the respondent’s application.

The respondent offers to buy off the petitioner’s 50 shares in the company at KShs.50,000/= which he says is all she is entitled to in his opinion. He accepts that the property (cottage) known as KWALE/DIANI BEACH/783/3 is the only movable asset registered in the name of the company but claims to have bought it himself from one Colin Sharon Forbes for KShs.8. 5 million which money he says was from his salary, and inheritance from his mother which he had paid into the petitioner’s bank account in New York. He has exhibited copies of correspondence and bank documents evidencing the transfer of his funds to the petitioner’s New York account but nothing to show the transfers of that money from New York to the petitioner’s account in Kenya for the purchase of the cottage against which she drew the cheques for the sale proceeds as alleged in paragraph 51 of his affidavit in opposition. The respondent contends that in view of his being the financier of the said company asset, then the company holds the same in trust for him absolutely. He states that he appointed Maureen Bell to manage the cottage because she lived nearby. He also employed two persons as assistants to the said Maureen. As regards the petitioner’s interest in the said asset the respondent depones that:

“The petitioner was involved in the purchase of the cottage, the incorporation of the company and the subsequent management of the cottage only as a wife but not as an investor”

and also that:

“At the time I bought the cottage it was clear that it would be managed by persons other than the petitioner and I.”

The above depositions seem to stem from the depositions in paragraphs 39 and 48 of the Respondent’s affidavit where he states as follows:

“39. That the petitioner was opposed to the purchase of the cottage but because it was my inheritance with which I was going to buy the same she could not stop me from investing the money as I chose.”

48. That on my request the petitioner agreed to serve as a co-subscriber to the Memorandum and Articles of Association of the company.”

It is not disputed that the purchase price for the company’s cottage was paid vide the petitioner’s Nairobi bank account No. 23451308 at Kenya Commercial Bank Gigiri, against which she drew cheque Numbers 000217 (for Shs.850,000/= deposit) and 000225 (balance of purchase price).

In paragraph 17 of the pending civil suit H.C.C.C. No. 50 of 2008, annexed to the Respondent’s affidavit in opposition as “PJS1” the petitioner admits that:

“The respondent had contributed 50% of the purchase price with proceeds from his share of his late mother’s estate.”

In the submissions filed in support of this winding up petition, the petitioner states clearly that the company which was incorporated with the petitioner and the respondent as the sole directors and shareholders belonged to the two of them and is therefore, according to her, a quasi-partnership. Her position is that the marriage between the two having been dissolved, it means that the relationship between the sole shareholders/directors has irretrievably broken down and that the same constitutes a valid ground for the winding up of the company under Section 219(f) of the Companies Act on the ground that it is just and equitable to do so.

The petitioner submits also that the manner in which the respondent has been running the company, his own admission being that he has not tendered any accounts, would bring the petitioner’s complaint within the ambit of Section 211 of the Companies Act, which authorizes the Attorney General to petition for a winding up order. According to the petitioner the court should observe and take into account the allegations the parties hereto have made against each other in their respective affidavits, and proceed to find that the same are incompatible with the running of a company. To support these submissions the petitioner has citied the authorities of

(1) JITENDRA BRAHMBHATT –VS- DYNAMICS ENGINEERING LTD (1982-88) 1KLR 1001.

(2) CHARLES FORTES INVESTMENTS LTD –VS- AMANDA[1963]2 All ER 940.

(3) EBRAHIMI –VS- WESTBOURNE GALLERIES LTD [1973] AC 360.

The said authorities have been carefully considered.

In his written submissions, the respondent sees only three prayers pending in the petition, namely prayers (a) (b) and (c). This he says is because prayer (d) appears to have been dropped or abandoned and the petitioner is no longer pursuing the appointment of an interim liquidator. I accept this proposition and find that the petitioner is seeking, mainly, that the company be wound up (prayer (a)) or that, in the alternative, the respondent be ordered to purchase the petitioner’s shares on such terms as the court will deem fit, proper and just (prayer (b)). As rightly observed by the respondent, prayer (c) follows from prayer (a).

The respondent has submitted that the petitioner has not produced any evidence to prove the allegations made in the petition. He prays, therefore, that the petition be dismissed or he be allowed to purchase the petitioner’s shareholding of 50 shares at Shs.1000/= each, and to buy her interest off at a sum of KShs.50,000/=. He argues that the petitioner’s desire that the assets of the company be sold and proceeds be shared equally should not be allowed because the assets are held by the company in trust for the respondent. He contends that the petition is an abuse of the process of the court as the same is being used by the petitioner in to acquire property bought during the subsistence of her marriage to the respondent with the sole object of enriching herself at the expense of the husband who paid the entire purchase price in the acquisition thereof. He challenges the petition for not being supported by a detailed affidavit which would have explained how the sole asset was purchased. He submits that he has adequately responded to the petition in a manner that, without question, defeats the same. He is of the view that the status of affairs does not fall within the circumstances in respect of which a petition, such as is before the court, can succeed and that the petition does not meet the criteria for a winding up of the company on the ground that it is just and equitable to do so. To support his opposition the respondent has cited the Companies Act (Cap.486), The Evidence Act (Cap.80) several texts and case law as listed in his List of Authorities dated 27th April 2010. The same have been carefully considered.

The following facts are not in dispute.

1. That the petitioner was married to the respondent since 2003.

2. That the company was incorporated on 1-2-08 with the two spouses as the sole shareholders, directors and subscribers to the Memorandum and Articles of Association during the subsistence of the marriage.

3. That the asset in dispute was acquired and registered in the name of the company during the period December 2007 to March 2008.

4. That the marriage broke up in divorce in November 2008.

5. That there is a subsisting suit (originating summons) for the sharing out of the matrimonial property of the contestants herein.

Although the respondent claims that he bought the subject matter as an investment for himself, the abstract of title exhibited as annexture “PSJ 6” of his affidavit in opposition clearly shows that the lease over the same is in the name of Les Belles Sauvages Limited. Applying the principle of distinction between a company and its members, as set out in the celebrated case of SALOMON VS. SALOMON [1987] A.C. 22cited in the respondent’s authority No.7 in his list of authorities, the asset in issue belongs to the company and not to either of the contestants. The respondent’s claim to have purchased it singly, without the contribution of the petitioner has not been proved, which means that the alleged trust in his favour has also not been proved.

With due respect, it appears to me that the respondent has misapprehended the petitioner’s claim, when he offers to buy her out, only by the refund of her share of contribution at inception. It should not be overlooked that the company, Les Belles Sauvages Ltd is a business, with the cottage being its asset and the only one that is movable. The Memorandum and Articles of Association, as well as the depositions by the parties clearly demonstrate that the business was purchased as a going concern and is still in operation. The respondent himself has deponed as follows:

“At the time I bought it (the cottage) the seller was letting it to tourists who came to the South Coast”.

The same status prevailed at the time the respondent swore his affidavit in opposition as is clear from paragraph 55 thereof. In paragraphs 19 and 20 of the Affidavit in opposition the respondent depones as follows:

“19. That at the time the company was incorporated, the assumption was that the marriage would subsist and that the Petitioner would be available to serve as a partner and manager of the resources which came to us during the marriage”

“20. That the company was incorporated to manage my cottage whose revenue would be at the disposal of the two of us”

In paragraphs 66 of his Affidavit the respondent admits that the petitioner participated in the formation of the company. In paragraph 67 he depones as follows;

“However, it is not true that the petitioner has been excluded from the management and control of the company”

yet in paragraph 70 he depones that:

“ In view of the breaking of the marriage and the fact that the cottage is my sole investment, I alone had no choice but to take decisions on behalf of the company”

Among the unilateral decisions made and acts executed by the respondent pursuant thereto was to “arrange for one Maureen Bell to serve as a site manager and to employ two people to assist with the work in the cottage”as stated in paragraphs 58, 61 and 62 of the respondent’s deposition.

I find the petition herein falls squarely within the ambit of the respondent’s authority, RE: GARNETS MINING CO. LTD [1978] KLR 224 where it was held inter alia, that:

“... whether or not a company should be wound up by the court on grounds that it is just and equitable to do so under Section 219 (f) is a matter of discretion. The court’s discretion in this respect is wide and must be exercised judiciously. Each case depends on its own facts as they are at the time of the hearing; but generally where a petitioner can show that he has lost confidence in the management of the company because it has a lack of probity, the court’s discretion (in the absence of special circumstances) is likely to be exercised in his favour”.

It was held in RE: YENIDJE TOBACCO CO. LTD [1916] 2CH 426 (followed in the petitioners authority JITENDRA BRAHMBHATT–VS - DYNAMICS ENG. LTD)(supra) that:

“... if the directors quarrelled about everything and the company was in a state which the parties should never have contemplated when it was formed, so that, were it a partnership it would be dissolved, it would be terminated if it were a company.”

Clearly the above obtains in the present case. The respondent has stated as much in paragraph 19 of his deposition cited above and in paragraph 69 where he depones that:

“Although we lived in the same matrimonial home between April 2008 and November 2008 neither of us talked to the other about anything.”

The subsistence of cordial relations was a fundamental prerequisite to the running and survival of the subject company. Indeed, under Articles 20, 28 and 29 of the Memorandum and Articles of Association of Les Belles Sauvages Limited, the contestants herein are constituted the engine or driving force of the company. The said Articles provide for the conduct of the company affairs and the powers and duties of the Directors and provide as follows:

Article 20.

“No business shall be transacted at any general meeting unless a quorum of members is present at the time the meeting proceeds to business and such quorum shall consist of not less than two members present in person or by proxy and holding or representing in the case of an Ordinary General Meeting not less than one-tenth of the issued capital

.... and in the case of an Extraordinary General Meeting ... not less than one-half of the issued capital of the company, .................”

Article 28

“A meeting of the Directors at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretion by or under the regulations of the company for the time being vested in or exercisable by the directors generally.”

Article 29

“A resolution in writing, signed by all the directors shall be valid and effectual as if it had been passed a meeting of the directors duly called and constituted.”

It is quite unlikely that given the status of affairs, the requirements of the above articles can be fulfilled, which clearly means that the objects for which the company was formed cannot be realized for the benefit of either the company, the petitioner or even the respondent. Clearly the respondent is running the company singly, contrary to the provisions of the Memorandum and Articles thereof, thereby jeopardizing the very existence of the company, particularly since, whatever decisions he is making without the participation of the petitioner are prima facie, ultra vires. A clear demonstration of this is the Annual Report & Financial Statements 2009 (PJS8) which are neither signed nor approved by the joint directors.

In the premises, I have no alternative than to find that a case for the winding up of the company has been made out and there exists no other remedy open to the petitioner. It follows, therefore, that the petition succeeds. My decision has been arrived at bearing in mind that beyond the subscriber’s shares and the movable asset there are profits and losses of the business which can only be ascertained and distributed and/or apportioned upon the taking of accounts and a valuation.

Accordingly, I hereby order that:

1. Les Belles Sauvages Limited be wound up under the provisions of the Companies Act, Chapter 486 of the Laws of Kenya.

2. The costs of the petition shall be borne by the company.

3. As prayer (c) is made in the alternative I am unable to grant the same at the moment. The parties are however directed to consider their position and appoint a suitable person as the Receiver for the court’s approval.

DELIVERED and SIGNEDat Nairobi this 21ST day of OCTOBER 2010.

M. G. MUGO

JUDGE