In re of an Application for Liquidation [2020] KEHC 2356 (KLR)

Full Case Text

IN THE HIGH COURT OF KENYA

AT NAIROBI

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

INSOLVENCY PETITION NO. E003 OF 2020

IN THE MATTER OF THE INSOLVENCY ACT, 2015

AND IN THE MATTER OF

PRINTING IMPRESSIONS LIMITED

AND

IN THE MATTER OF AN APPLICATION FOR LIQUIDATION

JUDGMENT

1. What is before the court is a liquidation petition dated 23rd January 2020 and presented by Bankim Patel (also “the Petitioner”) in respect of Printing Impressions Limited (“the Company”) which was incorporated under the repealed Companies Act. The Company is engaged in the business of printing and publishing.

2. Bankim Patel, a director of the Company, deponed in his affidavit sworn on 23rd January 2020 that the Company’s Board of Directors, at a meeting held on 10th January 2020, resolved that the Company must be liquidated owing to its insolvency status and inability to pay its debts. It was stated that the Company, which has been in operation for over two decades, has a portfolio of clients/customers across Kenya and has been profitable for quite some time until 2015 when business slowed down due to the harsh economic conditions which resulted in depletion of its working capital.

3. According to the petition, the Company’s assets both movable and immovable are negligible while its liabilities amount to approximately Kshs. 40,000,000. 00. It is averred that despite approaching various banks, it has not received any positive feedback in order to shore up its capital position. The Company stated that it has not been fully operational since the beginning of 2018. In 2019 it shut down its operations with the result that it cannot service its debt obligations as they fall due. The petitioner prayed that as a result it is only just and equitable that the court grants the following orders:

a. The Company, Printing Impressions Limited be and is hereby declared insolvent and placed under an interim liquidator.

b. The Honourable Court appoints the Official Government Liquidator to take over management of the Company.

c. Pending the final order of liquidation there be a stay of all pending proceedings whatsoever against Printing Impressions Limited.

d. Such other orders be made as the Honourable Court deems fit in the interest of justice.

e. Costs be in the cause.

4. The Company employees opposed the Petition through the Replying Affidavit sworn on 4th June 2020 by a former employee, Grace Wamira Njuguna. She depones that the Company has at least 64 employees, who also work for associated companies, on contract and permanent basis. She further depones that contrary to the averments in the Petition, the Company continued with business as usual until 28th November 2019 when the employees were sent on leave and informed to resume work on 7th January 2020. That it was their understanding that they had gone on leave and not that the company was shut down.

5. Ms Njuguna believes that the Company has acted with some mischief. She deponed that the employees were provided with a single leave form and informed that there were no printing papers to make a copy for each employee hence all employees present resolved to sign and attach a sheet with their signatures. They accused the Company of failing to pay employees their salaries from September 2019 despite the fact that they continued to work until 28th November 2019. When the employees reported back to work on 7th January 2020, they found their office locked and a notice posted on the door with instructions that the leave period had been extended to 7th February 2020. They remain under the impression that they are employees of the Company as their personal items and documents still remain in the Company premises.

6. The employees accused the Company of concealing information regarding filing of the petition while they were on leave in order to deprive them of their lawful earnings and dues. Ms Njuguna depones that the Company failed to engage them in seeking how to settle their outstanding dues and that the Company compromised the representatives of their Union, Kupripupa Workers Unions, who never conveyed to them the fact that the Company was insolvent.

7. Ms Njuguna deponed that since filing the Petition, the Company has disposed of a number of assets including motor vehicles and trucks in order to convince the court that the Company lacks financial capacity to clear its debts and that the Company does not deserve the court’s discretion in the matter. She also accused the Company of failing to pay statutory dues despite making deduction from the employees’ salaries.

8. Ms Njuguna also deponed that the Petitioner is a man of means who is capable of paying his debts and that this case fails to meet the threshold. That he owns many high end luxury vehicles, properties in Runda, shares in an aviation company called Capital Airlines where he is the director of flight operations but also a beneficial owner of another company called JPB Works Limited. She thus prayed that the court dismisses the petition and order the Petitioner pay their debts and costs of the suit.

9. The petition was advertised in the Daily Nation Newspaper on 20th February 2020 and fixed for hearing thereafter. Only the employees opposed the petition on the grounds set out in the deposition whose contents I have outlined above. Counsel for the petitioner and employees filed written submissions which I have considered. The issue for resolution is whether, on the facts of the case, the petitioner has made out a case for liquidation of the Company on the ground that it is unable to pay its debts.

10. The petition is grounded on the allegation that the Company is unable to pay its debts and is insolvent. Section 384 of the Insolvency Act, 2014(“theAct”) provides the definition of ‘unable to pay debts’ as follows;

384. The circumstances in which a company is unable to pay its debts

(1) For the purposes of this Part, a company is unable to pay its debts—

(a) -----------

(b) -----------

(2) A company is also unable to pay its debts for the purposes of this Part if it is proved to the satisfaction of the Court that the value of the company’s assets is less than the amount of its liabilities (including its contingent and prospective liabilities).

(3) The insolvency regulations may increase or reduce the amount specified in subsection (1)(a).

11. Section 424 of the Act provides the circumstances under which the court may liquidate a Company. It states, at the material part, as follows:

424. Circumstances in which company may be liquidated by the Court

(1) A company may be liquidated by the Court if—

(a) the company has by special resolution resolved that the company be liquidated by the Court;

(b) ----------

(d) ---------

(e) the company is unable to pay its debts;

(f) ---------

(g) --------

12. Finally, and relevant to this case is section 427(1) and (2) of the Act which sets out the powers of the court when presented with a liquidation petition as follows:

427. Powers of Court on hearing of liquidation application

(1) 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 unconditionally;

(d) 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) --------

(4) --------

13. Has the petitioner made out a case for liquidating the Company? From the documents placed before the court, I am satisfied that the Company is unable to pay its debts and is also insolvent. It has substantial debts among them a tax liability of about Kshs. 35,000,000. 00 and Kshs. 2,518,087. 00 owed to various debtors. While the employees have opposed the petition on the ground that they are owed substantial amounts of money and the application is not brought in good faith, I do not see this as reason not to grant an order of liquidation. All the evidence points to the fact that the Company is unable to pay its debts and is insolvent. Even the employees are owed money. From their own evidence, they have not been working productively. They have the opportunity to present the claims during the liquidation process. The allegation that the petitioner is disposing of company assets is a matter that will be investigated by the liquidator.

14. For reasons I have set out above, I now make the following orders:

a. An Interim Liquidation Order be and is hereby issued in respect of the Company, PRINTING IMPRESSIONS LIMITED;

b. That the Official Receiver be and is hereby appointed as the Provisional Liquidator of PRINTING IMPRESSIONS LIMITED;

c. Cost of the petition shall be borne out of the Company assets.

DATEDand DELIVERED at NAIROBI this23RDday of OCTOBER2020.

D. S. MAJANJA

JUDGE

Court Assistant: Mr. M. Onyango.