[2022] KEHC 12491 (KLR)

Abdi & another v African Banking Corporation Ltd & 2 others (Constitutional Petition E013 of 2021) [2022] KEHC 12491 (KLR) (Admiralty) (10 June 2022) (Ruling)

Neutral citation: [2022] KEHC 12491 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Admiralty

Constitutional Petition E013 of 2021

DO Chepkwony, J

June 10, 2022

Between

Ali Noor Abdi

1st Petitioner

Hamza Ali Noor

2nd Petitioner

and

African Banking Corporation Ltd

1st Respondent

Anthony Makenzi Muthusi

2nd Respondent

Julius Mumo Ngonga

3rd Respondent

Ruling

1. The Petitioners filed a Petition together with a notice of motion application all dated November 26, 2021 in which they seek the following orders;a.Spent;b.That this Honourable court be pleased to issue conservatory orders staying the selling and/or disposing of the Company being the Interested Party;c.That this honourable court be pleased to issue an interim injunction pending the hearing and determination of this Petition restraining the 1st, 2nd and 3rd Respondents either by themselves or acting through their agents and/or affiliates from selling, disposing of or any way interfering with the affairs of the Company being the Interested Party herein.d.That this Honourable Court be pleased to make such further orders, as it may deem fit and just to grant.e.That the costs of this application be borne by the Respondents.

2. Before the Petition and the application could be heard and determined, the 1st Respondent, 2nd Respondent, 3rd Respondent and Interested Party filed a Notice of Preliminary Objection challenging the jurisdiction of this Honourable Court. The 1st Respondent’s Notice of Preliminary Objection is dated December 17, 2021 while the 2nd, 3rd Respondents and Interested Party’s notice of preliminary objection is dated January 19, 2022.

3. This Honourable Court’s Ruling is in respect to the two notices of preliminary objection aforementioned. The 1st respondent’s notice of preliminary objection dated December 17, 2021 is couched in the following manner;-1. That the Honourable court has no jurisdiction to hear and determine the Petition and the Application filed herein as the main issue in dispute relates to the Insolvency Act and not Constitutional.2. That the Petitioners herein have no due authority or approval to sue on behalf of the Interested party which is under administration for breach of contract.3. That therefore the Petition and Application by the petitioners/applicants should be struck out with costs.

4. The second notice of preliminary objection by the 2nd, 3rd Respondents and the Interested Party dated January 19, 2022 is premised on the following grounds;1. That this Honourable Court has no jurisdiction to hear and determine the instant Petition and Application as the matter in issue is not constitutional in nature but a dispute relating to insolvency proceedings.2. That the Petitioners have no locus standi to institute a suit in their own capacity on behalf of the Interested party in light of the ongoing administration without the consent of the Administrators or approval by this court pursuant to Section 560(1)(d) of the Insolvency Act , 2015. 3.Thatthe instant Petition does not raise and/or specify the alleged violation of constitutional rights and thus offends the principles relating to constitutional petitions as set out in the case Anarita Karimi Njeru v Republic (1979) eKLR.4. Thatthe present application is hopelessly incompetent and inadmissible and the same ought to be dismissed forthwith.5. Thatthe continued pendency of the Petition and application is an abuse of the court process.

5. I have carefully considered the two notices of preliminary objection, the response and the written submission in support and in opposition to the objections. The only issue for determination by this honourable court is whether this court has the requisite jurisdiction to entertain a suit against a company under administration or differently put whether the placement of the 1st Respondent under administration imposed a moratorium in terms of Section 560(1) of the Insolvency Act , 2015.

6. The starting point is to determine what amounts to a Preliminary Objection. A Preliminary Objection was defined in the highly celebrated case of Mukhisa Biscuits Manufacturing Ltd v West End Distributors Ltd(1969) EA 696, where Law J A stated;“So far as I am aware, a preliminary objection consists of a point of law which has been pleaded or which arises by clear implication out of the pleadings and which objection point may dispose the suit”.The court further stated;“A preliminary objection raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any has to be ascertained or if what is sought is the exercise of judicial discretion”.

7. From the description of a preliminary objection as explained in the case of Mukhisa Biscuits Manufacturing Ltd(supra), it is clear that the instant two notice of preliminary objection by the 1st, 2nd, 3rd respondents and interested party meet the threshold set out of a preliminary objection. In short, it is persuasive that they can be determined without the ascertainment of facts from elsewhere but from the pleadings as filed.

8. The guiding provision of the law is stipulated under Section 560(1) of the Insolvency Act which provides as follows: -“While a company is under administration—a.A person may take steps to enforce a security over the company’s property only with the consent of the administrator or with the approval of the court;b.A person may take steps to repossess goods in the company’s possession under a credit purchase transaction only with the consent of the administrator or with the approval of the court; if the court gives approval—subject to such conditions as the court may impose;c.A landlord may exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company only with the consent of the administrator or with the approval of the court; andd.A person may begin or continue legal proceedings (including execution and distress) against the company or the company’s property only with the consent of the administrator or with the approval of the court."

9. It is clear from the above mentioned provision of the law that one has to obtain a consent of the administrator or approval of the court in order to begin or continue legal proceedings against a company under administration.

10. The sole essence of obtaining the consent of the administrator or approval of the court was an issue that was well explained in the case of In re Hi-Plast Limited (2020) eKLR, where the court stated while quoting the case of AIB Capital Markets PLC & Anor v Atlantic Computer Systems PLC & Others (1990) EWCA CIV 20, where it was held;-“The making of an administration order triggers the prohibition on proceedings being brought or continued against the Company… the owners of property, and of charges over property are disabled from exercising their proprietary rights unless the Administrator consents or court gives leave”.The Prohibition in Section 11(3) (c) & (d) is intended to assist the company, under management of the administrator, to achieve the purpose for which administration was made…. The court has to carry out a balancing exercise, balancing the legitimate interest of the lessor and the legitimate interest of other Creditors of the Company…..”

11. The Petitioners submitted that the instant Petition is not against the Company under administration but against ABC Bank and the Company under administration is only listed as an interested party. My interpretation of Section 560(1)(d) of the Insolvency Act , 2015 is that no suit can be commenced against any Company under administration without consent of the administrator or approval of the court. The purposes of administration are to give Companies breathing space from litigation. Therefore, I find fault in the submissions by the Petitioner that the suit is against ABC bank. The fact that the Company under administration (Interested Party) is a party to a suit will require it to actively participate in the proceedings which is against the intention of the drafters as per the wording of Section 560(1)(d) aforementioned.

12. The effect of a suit filed contrary to Section 560(1)(d) of the Insolvency Act , 2015 is that in the absence of the said consent from the administrator or the approval of the court renders such suit a nullity. It therefore means that the present suit before court is a nullity for the sole reason that it offends the provisions of Section 560(1)(d) of the Insolvency Act , 2015.

13. The concept of administration of Companies was introduced into our jurisdiction by the new Companies Act 2015 and the Insolvency Act 2015 . The new Companies Act 2015 consolidated the law relating to incorporation, registration, operation, management and regulation of companies. The Insolvency Act provided for the liquidation of incorporated and unincorporated bodies, alternative to liquidation procedures that will enable the affairs of Companies, such of those bodies as become insolvent to be administered for the benefit of their creditors.

14. Section 522(l) of the Insolvency Act , 2015 provides for the objectives of the administration of a company are the following:-a.to maintain the Company as a going concern;b.to achieve a better outcome for the Company's creditors as a whole than would likely to be the case if the company were liquidated (without first being under administration);c.to realise the property of the Company in order to make a distribution to one or more secured or preferential creditors.

15. Based on the aforesaid reasons, the notice of preliminary objection dated December 17, 2021 and January 19, 2022 are hereby allowed. This suit is hereby struck out with costs to the 1st, 2nd 3rd respondents and interested party.

RULING DELIVERED VIRTUALLY, DATED AND SIGNED IN NAIROBI THIS 10TH DAY OF JUNE, 2022. D. O. CHEPKWONYJUDGEIn the presence of:M/S Minoo Kimeu and Mr. Steve Ogolla for the PetitionersMr. Gakunga counsel for 1st RespondentMr. Oira counsel holding brief for Mr. Dachi for 2nd and 3rd Respondents as well as Interested Party.