Ndung’u & another (Suing as the administrator of the Estate of Samuel Ndung'u Thuo (Deceased) & 3 others v Xplico Insurance Company Limited [2022] KEHC 9931 (KLR)

Ndung’u & another (Suing as the administrator of the Estate of Samuel Ndung'u Thuo (Deceased) & 3 others v Xplico Insurance Company Limited (Insolvency Petition E014 of 2021) [2022] KEHC 9931 (KLR) (Commercial and Tax) (14 July 2022) (Ruling)

Neutral citation: [2022] KEHC 9931 (KLR)

Republic of Kenya

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

Commercial and Tax

Insolvency Petition E014 of 2021

WA Okwany, J

July 14, 2022

Between

Mary Wanjiru Ndung'u & Cyrus Nduati Thuo (Suing as the administrator of the Estate of Samuel Ndung'u Thuo (Deceased)

1st Petitioner

Johana Ndung'u

2nd Petitioner

Tabitha Njeri Gitau

3rd Petitioner

Matthews Juma

4th Petitioner

and

Xplico Insurance Company Limited

Respondent

Ruling

Introduction 1. The petitioners filed this petition seeking orders to wind up the Respondent/Company and the payment of an alleged outstanding debt of Kshs 4,164,837 plus costs of the petition.

2. The petitioners’ case is that they obtained judgment against the respondents in various declaratory suits filed before Naivasha Court but have been unable to recover the decretal sum as the respondent does not have any attachable property. They state that the statutory demands that they issued to the respondent did not yield any positive response thus necessitating the filing of the petition.

3. The respondent opposed the Petition through a replying affidavit and an application dated 13th July 2021 that is the subject of this ruling.

Application. 4. The respondent seeks the following orders through the application dated 13th July 2021: -1. Spent.2. That this Honourable court be pleased to issue 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 in the 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 20th April 2021 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 fulfil the payment plan entered into with the petitioners advocates on settlement of the outstanding balance of the debt subject.5. That the cost of this application be in the cause.

5. The application is supported by the affidavits of the applicant’s Principal Officer and Claims Manager respective Mr. Julius Mwangi and Ms Viola Odipo and is premised on the main grounds that:-a.That the petition is an abuse of the court process and is being used unlawfully as a debt collection tool.b.That the company is facing financial constrains due to Covid-19 pandemic.c.That the amount claimed of Kshs 4,164,837 is disputed and the petition is a gross abuse of the court process.d.That a liquidation order is a drastic and draconian measure that should be granted as a measure of last resort.e.That the court has powers to adjourn the hearing of the petition in order to give the respondent an opportunity to settle on the agreed payment plan as the company revives itself.

6. The petitioners/respondents opposed the application through the replying affidavit of their advocate Mr. B. G. Wainaina who states as follows:-a.That there is no legal basis for striking out/dismissing this petition and or to stop the same from proceedings to its conclusion.b.That the respondent/applicant has failed to demonstrate that the petition filed herein is frivolous and an abuse of the court process as alleged or that the debt is dispute on substantial grounds.c.That the debt due to the petitioners is not a disputed debt as the same has been ascertained by lawful orders of the court certifying the amount due as per the decrees and warrants submitted in support of the petition.d.That the respondent has failed to pay on one of the 1st petitioners as per the agreed plan and that the respondent inability to pay a sum of Kshs 50,000 weekly is prima facie evidence that the respondent is unable to pay its debts.e.That granting the orders sought would negate the provisions of Article 159 of the Constitution of Kenya 2010 which articulates on the need for justice not to be delayed.f.That there is no evidence that the respondent/applicant will be prejudiced should this petition proceed for hearing as it will have an opportunity to defend the petition and if dissatisfied with the court orders lodge an appeal.

7. The application was canvassed by way of written submissions which I have considered. The main issue for determination is whether the applicant has made out a case for the striking out of the petition. In determining this issue, the court will consider if there exists a debtor/creditor relationship between the petitioners and the respondent/company and whether the statutory demand was served on the company. 8. Section 384 of the Insolvency Act No. 18 of 2015, provides that:(1)For the purposes of this Part, a company is unable to pay its debts-(a)If a creditor (by assignment or otherwise) to whom the company is indebted for hundred thousand shillings or more has served on the company, by leaving it at the company’s registered office, a written demand requiring the company to pay the debt and the company has for twenty-one days afterwards failed to pay the debt or to secure or compound for it to the reasonable satisfaction of the creditor;(b)If execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or(c)If it is proved to the satisfaction of the Court that the company is unable to pay its debts as they fall due.(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).”

8. The applicant argued that this court has the inherent power to grant the prayers sought in the application in order to do justice to the parties and to prevent an abuse of the court process.

9. The respondents, on the other hand, argued that the applicant has not adduced any evidence to show that the petition will fail. They further stated that the debt in question is not disputed as there are lawful court orders certifying the amount due. The respondents, maintained that they had complied with all the conditions for the presentation of an Insolvency Petition.

10. My finding is that the applicant’s indebtedness to the respondents has not been disputed. Indeed, part of the respondent’s prayer to this court is for the adjournment of the hearing of the petition in order to give it an opportunity to settle on the agreed payment plan as it revives itself. Clearly therefore, the existence of a Debtor/Creditor relationship between the parties herein is not contested and is a matter that the applicant cannot run away from.

11. I also find that the general principle applicable in striking out a petition is whether the petition raises triable issues (see D. T. Dobie and Company (Kenya) Limited vs Muchina [1982] KLR 1). The Company has not controverted the claim that it still owes the respondents the debt and as I have already stated in this ruling, the applicant is asking for time to settle the debt. Liquidation is one of the options under the Insolvency Act which a creditor such as the respondents in the case, can pursue to secure payment of a debt, especially a debt that remains unpaid for several years and in respect of which the respondent has been given adequate time, opportunity and indulgence.

12. Courts have also taken the position that they will not readily strike out pleadings and that the principles applicable in civil proceedings apply to liquidation petitions. This is the position that was adopted in Brahmbhatt vs Dynamics Engineering (1986) KLR 133, where the Court of Appeal expressed the view that: -“In an application to strike out a winding up petition, the Court should consider whether on evidence, it is plain and obvious case for striking out and whether the petition was bound to fail"

13. In Co-operative Merchant Bank Ltd. vs George Fredrick Wekesa Civil Appeal No. 54 of 1999 the Court held: -“The power of the Court to strike out a pleading under Order 6 rule 13(1) (b) (c) and (d) is discretionary and an appellate Court will not interfere with the exercise of the power unless it is clear that there was either an error on principle or that the trial Judge was plainly wrong.....Striking out a pleading is a draconian act, which may only be resorted to, in plain cases...Whether or not a case is plain is a matter of fact....A Court may only strike out pleadings where they disclose no semblance of a cause of action or defence and are incurable by amendment.”

14. I find that the instant petition cannot be said to be entirely frivolous. I therefore decline the invitation to strike it out.

15. Turning to the alternative prayer by the applicant, to be granted a period of 12 months to enable it pay the outstanding balance of the debt due, I note that the instant application was filed on 13th July 2021 which, as at the date of this ruling, is exactly the 12 months that the applicant asked for. The court has, before delivering this ruling enquired if the applicant, has settled the debt and the answer was to the negative.

16. The applicant has not indicated that it has, as at today, settled the full amount due to the petitioners. I am therefore not persuaded that the request for 12 months was made in good faith with the intention of resolving the dispute. In the circumstances of this case, one can say that the alternative prayer was merely intended to buy time or postpone the applicants day of reckoning.

17. In sum, I am not persuaded that the application is merited and I therefore dismiss it with costs.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 14TH DAY OF JULY 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Mugwe for Respondent.No appearance for Applicant.Court Assistant- Sylvia