Uchumi Supermarket Limited v Commissioner of Domestic Taxes [2022] KEHC 3138 (KLR)

Uchumi Supermarket Limited v Commissioner of Domestic Taxes (Tax Appeal E002 of 2022) [2022] KEHC 3138 (KLR) (Commercial and Tax) (13 May 2022) (Ruling)

Neutral citation: [2022] KEHC 3138 (KLR)

Republic of Kenya

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

Commercial and Tax

Tax Appeal E002 of 2022

DAS Majanja, J

May 13, 2022

Between

Uchumi Supermarket Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

(Being an appeal from the Judgment of the Tax Appeals Tribunal at Nairobi dated 23rd December 2021 in Tax Appeal Tribunal Appeal No. 43 of 2017)

Ruling

1. Before the court for determination is an application by the Appellant brought by way of a Notice of Motion dated 7th January 2022 and made, inter alia, under Order 42 Rule 6 of the Civil Procedure Rules. The Appellant seeks a stay of execution of the judgment of the Tax Appeals Tribunal (“the Tribunal”) dated December 23, 2021 where the Tribunal upheld the Respondent’s (“the Commissioner”) Objection Decision dated February 2, 2017 in which it demanded KES 64,313,678. 00 from the Appellant in respect of Capital Gains Tax.

2. The application is supported by the affidavit of Lawrence Ngao, the Appellant’s Chief Finance Officer, sworn on January 7, 2022. The counsel on record made brief oral submissions on the matter. The matter in dispute revolved around the nature of the security to be provided by the Appellant pending the appeal.

3. From its deposition, the Appellant avers that it went into Company Voluntary Arrangement (‘’CVA’’) under section 624 - 635 of the Insolvency Act, 2015, as an alternative to insolvency and that the Court In The Matter of Uchumi Supermarkets PLC Insolvency Petition No. 25 of 2018 (‘’Re Uchumi Supermarkets PLC’’) ratified the CVA and in the ruling set aside all pending execution proceedings including proclamations of attachment, sequestrations, exercise of statutory power of sale, distress for rent, or eviction from premises occupied by the Company and any other form of execution proceedings against the company.

4. According to the Appellant, the court order effectively protected it from actions that would jeopardize the rights and Interests of all creditors, and/or the operations of the company, which have the effect of defeating the purpose of the CVA. It states the creditors including the Commissioner were invited to a meeting which took place on 30th March 2020 where the creditors voted in favour of the CVA. The CVA was intended to keep the Appellant as a going concern, as well as give it time to make good fortune and start the process paying its debts.

5. Even though the Appellant has attempted to put forth a case that its financial position may be hanging in the balance, it has not supplied the court with updated information on its position since entering into the CVA. The order in Re Uchumi Supermarkets PLC, made 2 years ago, was subject to review every six months through a meeting of creditors. The Appellant has not stated whether subsequent meetings have been held, whether the CVA has been reviewed, whether it has been settling its debts and whether its financial position has improved.

6. At the end of the day, it is the obligation of the Appellant who seeks an order of stay to provide the court with all relevant material to enable it exercise discretion in its favour. On the other hand, the Respondent does not deny that the Appellants affairs are under the CVA. To allow execution or order security would likely upend the arrangement in place to the detriment of all creditors. In view of the objects of the Insolvency Act, that is to enable the company to continue to operate as going concern so that ultimately it may be able to meet its financial obligations to its creditors, this court would rather err in caution.

7. In the circumstance, I adjourn the application dated January 7, 2022 to enable the Appellant provide the necessary information for the court to make an informed decision. The status quo in force shall be maintained until then.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF MAY 2022D. S. MAJANJAJUDGEMs Matata instructed by Kibet Rop and Company Advocates for the Appellant.Mr Ochieng, Advocate instructed by Kenya Revenue Authority for the Commissioner of Domestic Taxes.