https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12792

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT MILIMANI** **COMMERCIAL AND TAX DIVISION** **INSOLVENCY CAUSE NO E061 OF 2025** **IN THE MATTER OF THE INSOLVENCY ACT** **AND** **IN THE MATTER OF RAK LIMITED** **JOAM CATHERINE WANGUI CHANGE ………………. PETITIONER** **VS** **ROBERT MAREKIA GETHENJI …………………………RESPONDENT** **RULING** 1. By a Petition dated 3rd September, 2025, the Petitioner seeks the following orders, that: 2. ***The court orders for liquidation of the company;*** 3. ***The Official Receiver be appointed as the liquidator;*** 4. ***Any other orders as may be necessary and just in the circumstances.*** 5. The Petition is accompanied by a verifying affidavit sworn by the Petitioner. The Petitioner states that the company, RAK Limited was incorporated on 17th October, 2012. The company’s nominal capital is Kshs.10,000/- divided into 1,000 ordinary shares of Kenya shilling 10/- each. She avers that only two shares were issued and fully paid up, giving the company a paid-up capital of Kenya shillings 20/-. The company’s directors and shareholders are Robert Marekia Gethenji and the Petitioner, Joan Catherine Wangui Change. 6. The Petitioner further avers that she is married to the said Robert Marekia Gethenji under Kikuyu Customary law. However, their marriage has irretrievably broken down and they are currently in the process of making arrangements to cease living together and as such it has become impossible and impractical for the two parties to co-manage the company. 7. The Petitioner further states that the company owns only one asset being House No 41D Waridi Gardens – Kihingo Village, with no liabilities and the company is therefore solvent. She contends that all efforts to amicably wind up the company and dispose of its assets have failed, necessitating the filing of the present Petition. She further expressed concern that the company may fail to comply with its statutory obligations, thereby exposing her to legal penalties. 8. In response to the Petition, Robert Marekia Gethenji a director and shareholder of the company filed a replying affidavit sworn on 18th December, 2025, opposing the Petition. He contends that the liquidation proceedings constitute an abuse of the insolvency process, as they are motivated by personal grievances rather than any insolvency-related grounds. 9. The Respondent avers that RAK Limited was incorporated as a vehicle through which he would hold House No. 41D, a property allocated to him pursuant to a family-owned real estate development undertaken through Wagema Limited and Kihingo Village (Waridi Gardens) Limited. He asserts that the Petitioner was made a shareholder solely to satisfy the statutory requirement for a minimum of two shareholders and that she neither contributed capital to the company nor to the acquisition of the property. 10. He maintains that the company holds the property in trust for him, that he is the sole beneficial owner, and that he has exclusively managed and maintained the asset. The Respondent further avers that the company is solvent, has no liabilities, and remains a going concern. He attributes the petition to personal differences between the parties rather than any insolvency-related concerns and argues that any shareholder grievances ought to be addressed through remedies other than liquidation. Accordingly, he contends that the petition does not meet the threshold under sections 424 and 427 of the Insolvency Act and should therefore be dismissed. 11. Following the Respondent’s replying affidavit, the Petitioner filed a further affidavit in response, sworn on 27th March, 2026. In that affidavit she disputes the Respondent’s assertion that she was merely a nominee shareholder in RAK Limited. She avers that she and the Respondent are the company’s sole directors and shareholders, each holding one share, and that they jointly managed the company’s affairs and its assets, namely House No. 41D Waridi Gardens–Kihingo Village and motor vehicle registration number KCJ 795D. 12. The Petitioner states that from July 2024 the Respondent excluded her from the management of the company by denying her access to company information, assets and decision-making processes, thereby causing a shareholder deadlock and exposing the company to the risk of statutory non-compliance. 13. The Petitioner rejects the Respondent’s claim that the property belongs beneficially to him and maintains that the asset was acquired by the company for value and forms part of the company’s property. She further denies holding her share in trust for the Respondent, contending that she is a *bona fide* shareholder who subscribed for a fully paid share upon incorporation. It is her position that the breakdown in the parties’ working relationship has rendered the company incapable of effective management and that liquidation is the appropriate remedy on the just and equitable ground under section 424(1)(g) of the Insolvency Act. 14. The Petition was heard by way of submissions as follows; ***Petitioner’s Submissions*** 1. The Petitioner submits that she has *locus standi* to present the petition as a shareholder and director of RAK Limited. She argues that the company is a closely held company comprising only two shareholders and directors, namely herself and the Respondent, each holding one fully paid share, and that its principal assets are House No. 41D Waridi Gardens–Kihingo Village and motor vehicle registration number KCJ 795D. The petition is brought under section 424(1)(g) of the Insolvency Act on the ground that it is just and equitable to liquidate the company. 2. The Petitioner submits that the company operated as a quasi-partnership. She contends that the parties were in a long-term domestic relationship, jointly incorporated the company, jointly managed its affairs and shared equally in its ownership and benefits. According to the Petitioner, the company was founded upon mutual trust and confidence and on the understanding that both parties would participate in its management. 3. It is submitted that from July 2024 the Respondent unlawfully excluded the Petitioner from the management of the company by denying her access to the company property, withholding the company’s tax and statutory records, denying her access to company finances and preventing her involvement in securing tenants for the company property. The Petitioner argues that the Respondent’s actions have paralysed the company’s operations, rendered effective management impossible and exposed her, as a director, to potential regulatory and statutory sanctions. 4. The Petitioner argues that the circumstances disclose both shareholder deadlock and exclusion from management, which are recognised grounds for liquidation on the just and equitable basis. Reliance is placed on ***Ebrahimi v Westbourne Galleries Ltd* [1973] AC 360** and ***Re Garnets Mining Co. Ltd* [1978] KEHC 8,** for the proposition that a breakdown of mutual confidence, exclusion from management, or deadlock between equal shareholders may justify winding up. The Petitioner further relies on ***Brand Savvy Limited* [2018] KEHC 4942 (KLR),** arguing that the present circumstances are analogous because the breakdown of the parties’ personal relationship has led to a complete breakdown in the management of the company. 5. The Petitioner further submits that the company’s solvency does not preclude liquidation under Section 424(1)(g) of the Insolvency Act. She argues that insolvency is not a prerequisite where the petition is founded on the “just and equitable” ground and that the relevant inquiry is whether it is just and equitable to wind up the company rather than whether it is capable of paying its debts. 6. On the availability of alternative remedies, the Petitioner submits that none exists. She contends that she attempted to resolve the dispute through a voluntary winding up, but the Respondent refused. She argues that there is no mechanism in the company’s structure to break the shareholder deadlock, compel a share purchase or facilitate an exit by either party. Consequently, liquidation is said to be the only effective remedy available. 7. The Petitioner further challenges the Respondent’s assertion that the company holds the property in trust for him. She submits that no documentary evidence has been produced of any alleged family investment arrangement, trust deed, family compact, shareholder agreement or financial contributions capable of establishing either a resulting trust or a constructive trust. Reliance is placed on ***Shah & 7 Others v Mombasa Bricks & Tiles Ltd & 5 Others* [2023] KESC 106** and ***Ngao v Kitheka* [2024] KECA 21** for the principles governing implied trusts. The Petitioner maintains that the property belongs to the company, having been acquired and registered in its name pursuant to a lease dated 8th May, 2017, and that the Respondent cannot defeat the company’s registered title through unsupported oral assertions. 8. The Petitioner also disputes the Respondent’s claim that she holds her share in trust for him. She submits that no declaration of trust, nominee agreement, shareholder agreement or contemporaneous evidence has been produced to support such an assertion. She relies on ***Themis Investments Ltd v James David Kabeberi* [2008] KEHC 3888 (KLR)** and argues that for fourteen years, the Respondent consistently treated her as an equal shareholder and director, signed company documents jointly with her, and never challenged her shareholding. Consequently, she contends that the Respondent should be estopped from denying her status as a beneficial shareholder in the Company. 9. The Petitioner additionally submits that the loss of mutual trust and confidence between the parties has destroyed the substratum of the quasi-partnership upon which the company was founded. She further argues that the Respondent’s conduct amounts to a breach of fiduciary duties owed to both the company and the Petitioner and that his actions have created a significant risk of regulatory non-compliance. She contends that the affairs of Wagema Limited, Kihingo Village Limited and any alleged family arrangements are irrelevant to the issues before the Court because RAK Limited is a separate legal entity with its own assets and obligations. 10. The Petitioner therefore urges the Court to order the liquidation of RAK Limited, appoint the Official Receiver as liquidator, and direct that the company’s assets be realised and distributed equally between the parties in accordance with their respective shareholding. **Respondent’s Submissions** 1. The Respondent submits that liquidation is a drastic remedy amounting to the “corporate execution” of a company and should only be granted in exceptional circumstances. It is argued that the Court’s discretion under the just and equitable ground must be exercised cautiously and on the basis of the particular facts of each case. Reliance is placed on **In Re Garnets Mining Co. Ltd[1978] KLR 224** for the proposition that whether to order liquidation is a matter of judicial discretion dependent upon the circumstances of each case. 2. The Respondent contends that the Petition is founded on three grievances, namely the breakdown of the parties’ personal relationship, the failure of attempts to voluntarily wind up the company, and the Petitioner’s apprehension regarding possible regulatory non-compliance. Counsel submits that none of these grounds justifies liquidation, particularly because the Petitioner has admitted that RAK Limited is solvent and has no liabilities. 3. The Respondent further submits that the Court should consider the circumstances surrounding the incorporation of RAK Limited and the acquisition of House No. 41D Waridi Gardens–Kihingo Village. It is argued that the property originated from a long-standing family investment enterprise involving Wagema Limited and Kihingo Village (Waridi Gardens) Limited, a special purpose vehicle formed by members of the Respondent’s family for the development of residential units. According to the Respondent, family members contributed capital and assumed financial obligations, including obligations arising from borrowing undertaken by the development company, with the understanding that each family member would ultimately retain one residential unit. 4. The Respondent submits that House No. 41D devolved to him under that family arrangement and that he incorporated RAK Limited solely as a vehicle through which to hold the property. Counsel argues that, because the repealed Companies Act required a minimum of two shareholders for a private company, the Petitioner was included in the company purely for statutory compliance and did not contribute any capital to the company or to the development project. 5. It is further submitted that the lease of House No. 41D to RAK Limited at a peppercorn rent demonstrates that the transaction was not an arm’s-length commercial acquisition but merely a means of holding the Respondent’s beneficially owned property through a corporate entity. Counsel therefore contends that RAK Limited holds the property on a resulting trust for the Respondent and that the Petitioner has no beneficial interest in it. Reliance is placed on the principles governing resulting trusts as stated in **Twalib Hatayan & Another v Said Saggar Ahmed Al-Heidy & 5 Others [2015)]eKLR** and affirmed in **Henry Muli Munguti & Others v Cyrus Robert Sala & Others.** Counsel distinguishes **Shah & 7 Others v Mombasa Bricks & Tiles Ltd & 5 Others [2023] KESC 106**. 6. The Respondent also argues that the Petitioner’s shareholding was never intended to confer a beneficial interest in the company. Counsel submits that the Petitioner acquired her share solely to meet the statutory minimum membership requirement and paid no consideration for it. Consequently, it is argued that she is not entitled to claim any beneficial interest in the company’s assets and should transfer the share back to the Respondent. 7. The Respondent maintains that RAK Limited remains solvent and a going concern and that there is no evidence that it is unable to conduct its business or meet its obligations. It is argued that the Petitioner’s true objective is to procure the sale of the company’s principal asset and obtain a share of property that she neither contributed towards acquiring nor developing. 8. On alternative remedies, the Respondent relies on **Abdirashid Mude Ulow v Hassan Omar Kassai, Insolvency Petition No. 22 of 2018**, for the proposition that a dispute between directors or shareholders does not necessarily justify liquidation where the company remains operational and other remedies are available. The Respondent submits that the dispute before the Court is merely a shareholders’ disagreement and not evidence that the company’s substratum has failed or that the company is incapable of carrying on business. 9. The Respondent further invokes Section 427(4) of the Insolvency Act and argues that liquidation should not be ordered where alternative remedies exist and a Petitioner acts unreasonably in seeking liquidation. Counsel contends that the Petitioner has acted unreasonably and that, if any remedy were appropriate, it would be valuation and transfer of her share rather than liquidation of the company. 10. Finally, the Respondent urges the Court not to permit the insolvency jurisdiction to be used as an instrument of oppression. Reliance is placed on **Matic General Contractors Ltd v Kenya Power & Lighting Co. Ltd**as cited in**Civicon Ltd v Slingshot Ltd**, for the proposition that winding-up proceedings should not be employed oppressively where the company is solvent and the dispute is otherwise resolvable. Accordingly, the Respondent urges the Court to dismiss the petition with costs. ***Analysis and Determination*** 1. Upon considering the Petition, the affidavits on record, the submissions of counsel, the provisions of the Insolvency Act, and the applicable authorities, the sole issue for determination is whether the Petitioner has established sufficient grounds for the grant of a liquidation order against RAK Limited under Section 424 of the Insolvency Act, 2015. 2. The Petition is founded on Section 424(1)(e) of the Insolvency Act, which provides that a company may be liquidated by the Court if: **“*the Court is of the opinion that it is just and equitable that the company should be liquidated*.”** 1. The jurisdiction conferred upon the Court under the “just and equitable” ground is discretionary and must be exercised judiciously, having regard to the circumstances of each case. (See ***Re Garnets Mining Co. Ltd [1978] KEHC 8 (KLR)).*** Further, Section 427 of the Insolvency Act requires the Court, where a petition is brought on the just and equitable ground, to consider whether some other remedy is available and whether the Petitioner is acting unreasonably in seeking liquidation instead of pursuing such alternative remedy. 2. The Petitioner's case is that the company is a closely held company consisting of only two shareholders and directors; that the relationship between them has irretrievably broken down; that she has been excluded from management; and that the resulting deadlock renders the continued existence of the company untenable. 3. The Respondent, on the other hand, contends that the Petition is not founded upon any insolvency-related concern but rather on the breakdown of the parties’ personal relationship. He maintains that the company remains solvent, has no liabilities, retains its assets, and continues to exist as a going concern. 4. It is common ground that RAK Limited is solvent. The Petitioner herself expressly states that the company has no liabilities. There is no allegation that the company is unable to pay its debts, that its substratum has failed, or that it has ceased to exist as a corporate entity. The Petition is therefore not founded upon insolvency in the ordinary sense but upon the just and equitable jurisdiction of the Court. 5. The Court accepts that in appropriate circumstances a company resembling a quasi-partnership may be liquidated where there is a complete breakdown of mutual trust and confidence between the participants. However, the mere existence of disagreements between shareholders or directors does not automatically justify liquidation. 6. In ***Abdirashid Mude Ulow v Hassan Omar Kassai* [2020] KEHC 10338 (KLR)**, the Court emphasized that liquidation on the just and equitable ground is an exceptional remedy and should not be granted merely because disputes exist between shareholders where the company remains operational and alternative remedies are available. 7. Having considered the evidence before the Court, I am not persuaded that the Petitioner has demonstrated that the continued existence of the Company has become impossible or impracticable. The material placed before the Court shows primarily that the parties’ personal and domestic relationship has broken down. While that breakdown may have strained their interactions as directors and shareholders, it does not necessarily follow that the Company itself has become incapable of functioning. 8. The Company is a separate legal entity distinct from its shareholders and directors. The principle established in ***Salomon v Salomon & Co. Ltd* [1897] AC 78**, which remains part of Kenyan company law, requires the Court to distinguish disputes between shareholders from the corporate existence of the company itself. The evidence before Court demonstrates a dispute between the two shareholders; it does not demonstrate the collapse of the corporate entity. 9. The Petitioner alleges exclusion from management and a shareholder deadlock. However, beyond those assertions, there is no evidence that the Company has ceased operating, that its property is endangered, that statutory obligations cannot be met, or that the directors are incapable of recourse within the framework of the Companies Act and the Company's constitutive documents. 10. Indeed, the principal complaint appears to be that the parties can no longer work together owing to the deterioration of their personal relationship. Such a grievance, while genuine, does not without more constitute a sufficient basis for the grant of an order for liquidation in the present circumstances. Even assuming that there exists evidence of a management stalemate, the Court is required under Section 427 of the Insolvency Act to consider the availability of alternative remedies before resorting to liquidation. 11. In the present case, the only attempt alluded to by the Petitioner is a request for voluntary winding up. Unfortunately, the Petitioner has not adduced or sought reliance on the inapplicability of the Company's Articles of Association to the management and operational stalemate as to warrant the intervention of the Court. The Petitioner appears too keen to have the Company liquidated so as to distribute the assets despite the Company being a going concern. The Respondent on the other hand is keen to proceed with the operations of the Company. 12. The manner in which the proceedings have been brought places it beyond the scope of the court to interrogate between the two shareholders and directors, whose assertion is weightier as to carry the day. This is exacerbated by the fact that the parties in disputes have been in a domestic relationship that has since broken down. I take the view that disputes relating to access to information, participation in management, and directors’ conduct are matters for which company law provides remedies that are significantly less drastic than liquidation, and should at least be pursued first. 13. The Court agrees with the reasoning in ***Abdirashid Mude Ulow v Hassan Omar Kassai* (supra)** that liquidation should not be deployed as the first remedy where less drastic alternatives exist and remain capable of resolving the dispute. The just and equitable jurisdiction is intended as a remedy of last resort. It is not designed to provide shareholders with an exit mechanism whenever personal relationships deteriorate. 14. A substantial portion of the parties’ affidavits and submissions concerns the competing claims regarding beneficial ownership of House No. 41D Waridi Gardens–Kihingo Village and whether the Petitioner was merely a nominee shareholder. Those issues raise complex questions concerning trusts, beneficial ownership, family arrangements, and proprietary interests. Such issues cannot properly be determined within the confines of the present liquidation proceedings. For purposes of this Petition, it is sufficient to observe that those disputes themselves point to the existence of unresolved proprietary claims which are more appropriately ventilated in proceedings specifically directed at determining ownership rights rather than by extinguishing the Company through liquidation. In my view, such proprietary interests need to be settled first, in the appropriate forum, before resorting to liquidation, if at all. 15. This court therefore finds that the Petitioner has not established that it is just and equitable to liquidate RAK Limited. The Court finds that viable alternative remedies remain available under company law for disputes relating to management and shareholder participation. In those circumstances, liquidation would be disproportionate and contrary to the principles embodied in Sections 424 and 427 of the Insolvency Act. 16. Accordingly, the Petition fails and the Court makes the following orders: 17. **The Petition dated 3rd September, 2025, is hereby dismissed.** 18. **The prayer for liquidation of RAK Limited is declined.** 19. **The prayer for appointment of the Official Receiver as liquidator is declined.** 20. **Each party shall bear their own costs, taking into account the parties’ prior relationship and the nature of the dispute.** 21. Orders accordingly. ***Delivered, Dated and Signed virtually this 6th day of August, 2026*** **RHODA RUTTO** **JUDGE** **Court Assistant: Wabwire**