https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12839

# **REPUBLIC OF KENYA** ## **IN THE HIGH COURT OF KENYA AT MOMBASA** ### **BANKRUPTCY CAUSE NO. E005 OF 2023** **IN THE MATTER OF:** **HECTON BUORO ...............................................................................DEBTOR** **AND** **FELIX ODIWUOR ALUOCH T/A RESCUE** **BOOKSHOP ............ ………………………………………………CREDITOR** # **RULING** ## **Introduction and background** 1. Before the Court are two matters for determination which were, by consent of the parties, canvassed together by way of written submissions: (i) the Creditor's Notice of Motion dated 3rd October 2024 seeking, in the main, that this Court reviews with a view to dismissing the bankruptcy application by the Debtor and sets aside and/or annuls the Bankruptcy Order (styled a "Receiving Order") issued on 25th October 2023; and (ii) the Debtor's Notice of Preliminary Objection dated 28th February 2025 seeking to have the said Notice of Motion struck out. 2. The background facts are largely common ground. The Creditor sued the Debtor in *Mombasa CMCC No. 1131 of 2018 – Felix Odiwour Aluoch T/A Rescue Bookshop vs. Hectone Buoro T/A Rescue Book Point Centre alias Hemographics Paper Dealers Limited* ("the primary suit") for goods supplied, invoiced but not paid for. Following a full hearing in which the Debtor testified, judgment was delivered on 9th March 2023 by Hon. J.B. Kalo, Chief Magistrate, in favour of the Creditor for Kshs. 850,625/= together with interest at court rates from the date of filing suit until payment in full, plus costs. A decree dated 14th July 2023 was extracted reflecting a decretal amount of Kshs. 1,378,012.50, together with a certificate of costs in the sum of Kshs. 228,535/=. 3. The decretal sum remaining unpaid, the Creditor commenced execution and a Notice to Show Cause why the Debtor should not be committed to civil jail issued on 2nd August 2023, returnable on 12th October 2023, indicating a total outstanding sum of Kshs. 1,642,557.45. On the return date, the Debtor's advocates intimated that the Debtor had initiated bankruptcy proceedings against himself, whereupon a stay of the execution proceedings was sought and granted. 4. Indeed, on 4th October 2023, eight days before the return date of the Notice to Show Cause, the Debtor presented a debtor's petition in this cause, expressed to be brought "pursuant to section 16(2) of the Bankruptcy Act", accompanied by a statement of affairs in which the Debtor disclosed a single debt and a single creditor, namely the judgment debt owed to the Creditor arising from the primary suit. On 25th October 2023, a Receiving Order on the debtor's petition was made against the estate of the Debtor, constituting the Official Receiver as receiver of the Debtor's property and staying all court and other legal process, including execution against the person of the Debtor, pending final determination of the bankruptcy proceedings. 5. The Debtor's advocates served the Creditor's advocates with the Receiving Order on 27th October 2023. The Creditor thereafter lodged a Notice of Appointment of Advocates dated 16th November 2023, which was served upon the Debtor's advocates and received by the Official Receiver on 24th November 2023. It is not in dispute that, from that point until the filing of the present application almost a year later, and indeed to the date of this Ruling, no further step contemplated by the Insolvency Act, 2015 has been taken by either the Debtor or the Official Receiver to progress the bankruptcy. ## **The creditor's application** 1. By the Notice of Motion dated 3rd October 2024, expressed to be brought under sections 16(2), 24, 32(5), 272(2)(a) and (4), and 698 of the Insolvency Act, 2015, Order 51 Rules 1 and 3 of the Civil Procedure Rules, and sections 1A, 1B and 3A of the Civil Procedure Act, the Creditor seeks orders that this Court reviews with a view to dismissing the bankruptcy application by the Debtor and sets aside and/or annuls the Bankruptcy Order issued on 25th October 2023, with costs in the cause. 2. The application is supported by the grounds on its face and the Affidavit of Felix Aluoch sworn on 3rd October 2024. In summary, the Creditor contends that: a) he holds a valid and unsatisfied decree in the primary suit, which decree is the very debt upon which the Debtor's petition was founded; b) other than the Receiving Order, neither the Debtor nor the Official Receiver ever served him or his advocates with the petition or the accompanying documents; the Receiving Order was thus obtained ex parte and without any input from the only creditor of the estate; c) the Debtor failed to comply with section 32(4)(a) of the Insolvency Act by not publishing a notice of the bankruptcy application in any newspaper, rendering the order statutorily irregular; d) the Official Receiver has, despite notification, failed to nominate a bankruptcy trustee (section 44), failed to advertise the bankruptcy order in the Gazette and a newspaper within thirty days (section 48(3)), failed to serve notice on the Debtor to lodge a statement of his financial position (section 49), failed to ensure the statement is lodged (section 50), and failed to convene a first meeting of creditors (section 52); e) the timing of the petition, the circumstances of its presentation and the subsequent two-year dormancy demonstrate that the bankruptcy was procured, and is being maintained, solely as a device to defeat execution of the decree in the primary suit, and betray collusion or at the very least laxity between the Debtor and the Official Receiver; and f) with interest accruing at court rates while recovery is frozen, it is in the interest of all parties that the order be lifted before the decretal sum outstrips any prospect of recovery. ## **The debtor's preliminary objection** 1. Rather than respond to the application on the facts, the Debtor filed a Notice of Preliminary Objection dated 28th February 2025 on the following grounds: i. that the Creditor is not a party to the suit; ii. that the Creditor has not sought leave of the Court to be joined in the petition; iii. that the Creditor should proceed to the Official Receiver for recovery of his debt; and iv. that the Creditor's application is an abuse of the Court process and should be struck out with costs. ## **Summary of the submissions** 1. In his written submissions dated 19th May 2025, the Debtor reiterated the grounds of the Preliminary Objection and submitted that the Creditor lacks *locus standi* because he has not sought leave of the Court to be enjoined as a party to the bankruptcy proceedings; that the Creditor ought to be directed to proceed to the Official Receiver, who now administers the bankruptcy estate; and that once a bankruptcy order is made, the debtor loses the capacity to be sued in his personal capacity in respect of debts covered by the order. He urged the Court to strike out the Notice of Motion with costs and to allow the Preliminary Objection. 2. The Creditor, in submissions dated 9th July 2025, made three principal responses. First, that by electing to file a Preliminary Objection rather than answer the application on the facts, the Debtor has left the factual allegations in the Supporting Affidavit uncontroverted, citing *Edward Mariga through Stanley Mobisa Mariga v Nathaniel David Schulter & Another [1979] eKLR* for the proposition that evidence can only be challenged by other controverting evidence. Secondly, that the Preliminary Objection does not meet the threshold in *Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd (1969) EA 696*, as restated in *Independent Electoral & Boundaries Commission v Jane Cheperenger & 2 Others [2015] eKLR* and *Aviation & Allied Workers Union Kenya v Kenya Airways Ltd & 3 Others [2015] eKLR*, since it does not raise pure points of law arguable on the assumption that the facts pleaded by the other side are correct. Thirdly, and in any event, that section 272(1) and (2) of the Insolvency Act permits any person claiming to have a legitimate interest in the matter to apply for annulment of a bankruptcy order, and that a creditor whose debt founded the very order sought to be annulled is the paradigm of such a person; the Debtor, having relied on the debt due to the Creditor to secure the order, cannot now be heard to say the Creditor is a stranger to the cause. 3. In the alternative, the Creditor relied on *In the Matter of Stephen Nyaega Mose [2018] eKLR* (Makau J.), for the principle that bankruptcy laws were never meant to protect fraudsters but genuine people hit by harsh business circumstances, and that courts should not allow themselves to be used to shield debtors from paying their lawful obligations through bankruptcy orders. He further relied on *Equity Group Holdings Limited v Commissioner of Domestic Taxes [2021] KEHC 25 (KLR)* for the proposition that a statutory edict is not a procedural technicality but a law which must be complied with, and on the decision of Mativo J. (as he then was) in *In the Matter of Ali Jillo Fallan (Insolvency Cause 6 of 2018) [2021] KEHC 8 (KLR)*, where failure to gazette a bankruptcy order was held to be a ground entitling the Court to annul the order under section 272 of the Act. He submitted that the uncontroverted non-compliance with sections 32(4), 44, 48(3), 49, 50 and 52 of the Act, taken with the surrounding circumstances, compels annulment. ## **Issues for determination** 1. Having considered the application, the Preliminary Objection, the rival submissions and the authorities cited, the following issues present themselves for determination: i. whether the Preliminary Objection dated 28th February 2025 is competent and, if so, whether it is merited; ii. whether the Bankruptcy/Receiving Order made on 25th October 2023 ought to be reviewed, set aside and/or annulled; and iii. what orders should issue as to costs. ## **Analysis and determination** ### **(i) The preliminary objection** 1. The locus classicus on preliminary objections remains *Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd (supra)*, where Law JA described a preliminary objection as one which consists of a pure point of law, argued on the assumption that all the facts pleaded by the other side are correct, and which, if successful, disposes of the suit. Sir Charles Newbold P. added the caution that a preliminary objection cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. The Supreme Court in *IEBC v Jane Cheperenger (supra)* and the Court of Appeal in *Aviation & Allied Workers Union (supra)* have reaffirmed that a preliminary objection which requires evidence to substantiate is not a proper preliminary objection, and that the Court must be satisfied that there is no proper contest as to the facts. 2. Measured against that standard, grounds (iii) and (iv) of the Preliminary Objection, that the Creditor "should proceed to the Official Receiver" and that the application is "an abuse of Court process", are plainly not points of law at all. They are conclusions on the merits which invite the Court to weigh facts and exercise discretion. They fail the *Mukisa Biscuits* test in limine. 3. Grounds (i) and (ii), which together raise the question of the Creditor's *locus standi* and the alleged need for leave, do raise a point capable of being determined as a matter of law. Standing is a proper subject of a preliminary objection (see *Owners of the Motor Vessel "Lillian S" v Caltex Oil (Kenya) Ltd [1989] KLR 1)*. I therefore proceed to consider it on the merits. 4. The answer lies squarely in the statute. Section 272 of the Insolvency Act, 2015 empowers the Court to annul a bankruptcy order in certain circumstances, and permits the application to be made by the bankrupt or by **any person claiming to have a legitimate interest in the matter**. The Act deliberately does not confine the right of audience to persons formally joined as "parties" to the cause, and it prescribes no requirement of prior leave. Bankruptcy proceedings are, by their nature, proceedings *in rem* administered for the benefit of the general body of creditors; a creditor is not a stranger to them but their principal intended beneficiary. Indeed, the very definition of "creditor" in section 2 of the Act includes a person entitled to enforce a final judgment or final order which is precisely the Creditor's position. 5. The point is made irresistible by the Debtor's own pleadings. In his statement of affairs filed pursuant to the petition, the Debtor disclosed one debt and one creditor only: the judgment debt of Kshs. 1,642,557.45 owed to the Creditor arising from CMCC No. 1131 of 2018. The Receiving Order of 25th October 2023 was sought, obtained and stands upon that debt and no other. The Debtor cannot approbate and reprobate; he cannot invoke the Creditor's debt as the foundation of his bankruptcy and, in the same breath, contend that the Creditor is a stranger with no legitimate interest in whether the order stands or falls. If the sole creditor of a single-creditor estate does not have a "legitimate interest" within the meaning of section 272(2), it is difficult to conceive who would. 6. The Debtor's related submission, that once a bankruptcy order is made the debtor loses capacity to be sued in his personal capacity, does not assist him. The Creditor's application is not a fresh suit against the Debtor for recovery of the debt; it is an application within the bankruptcy cause itself, challenging the validity and continuation of the very order which created the status the Debtor now invokes. The Insolvency Act expressly contemplates such applications and expressly identifies who may bring them. For the same reason, I decline the Creditor's invitation (made in reliance on sections 12(2), 48(1), 104(1), 152, 157, 158 and 197 of the Act) to hold that the Debtor lacked capacity to file the Preliminary Objection: a bankrupt retains the right to be heard in proceedings that touch on his very status as a bankrupt, including annulment proceedings, and section 272 itself names the bankrupt as a competent applicant. Both parties were properly before the Court; neither required leave. 7. Accordingly, the Preliminary Objection dated 28th February 2025 fails in its entirety and is hereby dismissed. ### **(ii) Whether the Bankruptcy/Receiving Order of 25th October 2023 should be annulled** 1. A consequence of the Debtor's election to meet the application by way of preliminary objection only is that the factual averments in the Supporting Affidavit of Felix Aluoch sworn on 3rd October 2024 stand uncontroverted. As was held in *Edward Mariga v Nathaniel David Schulter (supra)*, sworn evidence can only be displaced by other controverting evidence; submissions are not evidence. The Court therefore proceeds on the footing that the following facts, deposed to by the Creditor and borne out by the record, are unchallenged: a) the petition was presented on 4th October 2023, on the heels of a Notice to Show Cause returnable on 12th October 2023 in the execution of a decree obtained after a full trial; b) no notice of the bankruptcy application was published in any newspaper as required by section 32(4)(a) of the Act; c) neither the petition nor its accompanying documents were ever served on the Creditor; the first the Creditor learnt of these proceedings was upon service of the Receiving Order itself on 27th October 2023; d) since the making of the order on 25th October 2023, the Official Receiver has not advertised the order in the Gazette or in a newspaper (section 48(3)), has not nominated a bankruptcy trustee (section 44), has not served the notice contemplated by section 49, no statement of financial position has been lodged pursuant to section 50, and no first meeting of creditors has been convened (section 52); and e) interest on the decretal sum continues to accrue at court rates while the Creditor is restrained from any recovery. 1. Section 272(2)(a) of the Insolvency Act empowers the Court, at any time, to annul a bankruptcy order where it considers that the order **ought not to have been made**. Additionally, section 698 of the Act preserves the Court's power to review, rescind or vary its orders in insolvency proceedings, while section 16(2) confers a general power to dismiss a bankruptcy application, or stay proceedings on it, where a requirement of Part III or of the insolvency regulations has not been complied with in a material respect. The question is whether, on the uncontroverted facts, those thresholds are met. In my considered view, they are, for the following cumulative reasons. 2. **First, the mandatory pre-order publication requirement was not complied with.** Section 32(4) of the Act obliges a debtor who makes a bankruptcy application to publish a notice of the application in a newspaper circulating within the region in which the debtor ordinarily resides, and section 32(5) entitles the Court to decline to hear the application where that has not been done to its satisfaction. The purpose of the provision is self-evident: to alert the debtor's creditors, the persons whose rights are most directly affected, so that they may appear and be heard before an order altering their rights is made. Here, the requirement was ignored altogether, with the result that an order profoundly affecting the only creditor of the estate was obtained entirely behind his back. As the Court held in *Equity Group Holdings Limited v Commissioner of Domestic Taxes (supra)*, a statutory edict is not a procedural technicality; it is a law which must be complied with. The non-compliance here was material, and it went to the very fairness of the process by which the order was obtained. 3. **Secondly, the post-order statutory machinery was never set in motion.** The scheme of Part III of the Act is that a bankruptcy order is the beginning, not the end, of a closely regulated process: advertisement of the order within thirty days (section 48(3)); nomination of a bankruptcy trustee (section 44); service of a notice on the bankrupt requiring a statement of his financial position (section 49); lodgment of that statement (section 50); and convening of the first meeting of creditors (section 52). None of these steps was taken, not within the statutory timelines, and not at all in the two years that followed. In *In the Matter of Ali Jillo Fallan (supra)*, Mativo J. held that failure to gazette a bankruptcy order is itself a ground entitling the Court to annul the order under section 272 of the Act. I respectfully agree, and the present case is one such a case where the order may be annulled: it is not one omission but the wholesale abandonment of every process the Act prescribes. 4. **Thirdly, the circumstances compel the inference that the bankruptcy was a device to defeat execution rather than a genuine resort to the protection of insolvency law.** The chronology speaks for itself: judgment after full trial on 9th March 2023; decree and certificate of costs in July 2023; a Notice to Show Cause issued on 2nd August 2023 and returnable on 12th October 2023; a debtor's petition quietly presented on 4th October 2023 disclosing a single creditor, the decree-holder, and a stay of execution obtained on the return date on the strength of it; a Receiving Order obtained ex parte on 25th October 2023; and thereafter, total inertia. A debtor genuinely seeking the fresh start that bankruptcy affords embraces the process that follows the order, the vesting of his estate, the scrutiny of his affairs, the meeting of his creditors and the distribution of his assets. A debtor who wants only the stay, and none of the process, reveals his true purpose. As Makau J. observed in *In the Matter of Stephen Nyaega Mose (supra)*, bankruptcy laws were never meant to protect fraudsters but genuine people hit by factors such as a harsh business environment; it would be wrong for courts to allow themselves to be used to shield debtors from paying for their obligations by hiding behind bankruptcy orders. That admonition applies with full force here. 5. **Fourthly, the continuation of the order serves no legitimate insolvency purpose and prejudices all concerned.** The estate is not being administered; no trustee is in place; no meeting of creditors has been held; no dividend is in prospect. Meanwhile, interest on the decretal sum accrues at court rates, eroding whatever capacity the Debtor may have to satisfy his obligations and diminishing any prospect of recovery by the Creditor. The order thus operates solely as an indefinite, unsupervised moratorium in favour of the Debtor, a state of affairs the Insolvency Act does not countenance. 6. I note, finally, for completeness, that the petition itself was expressed to be brought under "section 16(2) of the Bankruptcy Act" and sought a "receiving order". This is the language of the Bankruptcy Act (Cap. 53), which was repealed by the Insolvency Act, 2015, which, at all material times, was the operative statute. While the Court would not annul an otherwise regular order on account of an infelicity of drafting alone, the anomaly is symptomatic of the casualness with which these proceedings were instituted and prosecuted, and it fortifies the conclusion I have reached on the substantive grounds above. 7. Taking the uncontroverted evidence and the foregoing considerations together, I am satisfied that the debtor should count his blessings that the Receiving/Bankruptcy Order of 25th October 2023 was made, in the first place if section 272(1)(a) of the Insolvency Act is to be strictly applied. That notwithstanding, the subsequent wholesale non-compliance with the Act and the manifest want of good faith would justify its annulment. The Creditor's application accordingly succeeds. ### **(iii) Costs** 1. Costs follow the event under section 27 of the Civil Procedure Act. The Debtor precipitated this application by obtaining, ex parte an order that froze the Creditor's lawful recovery for over two years, and then resisted the application on grounds that were wholly without merit. There is no reason to deprive the Creditor of his costs. 2. Consequently, I hereby order as follows: i. The Debtor's Notice of Preliminary Objection dated 28th February 2025 is hereby dismissed. ii. The Creditor's Notice of Motion dated 3rd October 2024 is hereby allowed. iii. The Receiving/Bankruptcy Order made herein on 25th October 2023 is hereby annulled and set aside pursuant to sections 272(1)(a) and 698 of the Insolvency Act, 2015, with the consequences provided for under section 274 of the Act. iv. For the avoidance of doubt, the stay of all court and other legal process, including execution against the person of the Debtor, granted by the said Order stands discharged, and the Creditor is at liberty to pursue such lawful execution of the decree in Mombasa CMCC No. 1131 of 2018. v. The costs of the Notice of Motion and of the Preliminary Objection are awarded to the Creditor, to be borne by the Debtor personally. It is so ordered. **Dated, signed and published on 14 August 2026** Ngaah Jairus **JUDGE**