[2021] KEHC 292 (KLR)
The court found that, although the law generally requires a portion of the proceeds from the sale of assets of a company under administration to be distributed to unsecured creditors, the circumstances of this case justified a departure from the general rule. The applicant, as a secured creditor, was owed a sum...
Source-derived case information.
- Citation
- [2021] KEHC 292 (KLR)
- Parties
- Applicant: NCBA Bank Kenya PLC; Respondent: Arvind Engineering Limited (Under Administration)
- Court
- High Court
- Court Station
- High Court at Nairobi (Milimani Commercial Courts)
- Jurisdiction
- Kenya
- Case Number
- Insolvency Petition 3 of 2019
- Procedural Posture
- Insolvency Petition / Ruling on Creditor's Application for Exemption From Statutory Distribution
- Outcome
- application allowed
- Judges
- A Mabeya
- Legal Topics
- Insolvency Administration, Secured Creditors Rights, Distribution of Assets, Statutory Exemptions
- Source Language
- en
Source-derived case record
Summary, issues, holding and outcome
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Parties
NCBA Bank Kenya PLC
Applicant
Arvind Engineering Limited (Under Administration)
Respondent
Procedural Posture
Insolvency Petition / Ruling on Creditor's Application for Exemption From Statutory Distribution
Legal Issues
- 1 Whether the administrator should be exempted from complying with section 474(2)(a) of the Insolvency Act requiring 20% of proceeds to be distributed to unsecured creditors.
- 2 Whether the entire proceeds from the sale of the company's assets should be applied to offset the secured creditor's debt.
Ratio Decidendi
The court found that, although the law generally requires a portion of the proceeds from the sale of assets of a company under administration to be distributed to unsecured creditors, the circumstances of this case justified a departure from the general rule. The applicant, as a secured creditor, was owed a sum vastly exceeding the value of the assets to be realized. Strict application of the statutory requirement would result in extreme unfairness to the secured creditor, as the available proceeds would not even begin to satisfy its debt. The application was unopposed, and the court was satisfied that granting the exemption would cause less loss and harm than enforcing the general rule....
Court Disposition
application allowed
Orders
- The administrator is exempted from complying with section 474(2)(a) of the Insolvency Act in respect of the sale proceeds.
- The entire proceeds from the sale of the company's plant and machinery shall be applied to offset the debt owed to NCBA Bank Kenya PLC.
Full Case Text
Judgment text and source record
22 paragraphs
In re Arvind Engineering Limited (Insolvency Petition 3 of 2019) [2021] KEHC 292 (KLR) (Commercial and Tax) (26 November 2021) (Ruling)
Neutral citation: [2021] KEHC 292 (KLR)
Republic of Kenya
In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)
Commercial and Tax
Insolvency Petition 3 of 2019
A Mabeya, J
November 26, 2021
IN THE MATTER OF ARVIND ENGINEERING LIMITED (UNDER ADMINISTRATION) COMPANY NO. C 81121 AND IN THE MATTER OF AN APPLICATION BY NCBA BANK KENYA PLC UNDER SECTION 474 (5) (a) & (b) OF THE INSOLVENCY ACT 2015 AND IN THE MATTER OF REGULATION 10(4) & 96 OF THE INSOLVENCY REGULATIONS 2016
Ruling
1. Arvind Engineering Ltd (“the Company”) is under administration. On 21/10/2021, NCBA (“the Bank”) a secured Creditor, applied under Articles 50 (1) & 159 9d) (sic) of the Constitution of Kenya sections 474 95) (a) & (b) of the Insolvency Act (“the Act”) Regulation 10(4) and 96 of the Insolvency Regulations 2016 for the Administrator of the company to be exempted from complying with section 474 (2) (a) of the Act. It also sought that the proceeds of the sale of the assets of the company be applied to offset the debt owed to the bank.
2. The application was supported by the affidavit of Stephen Atenya sworn on 21/10/2021. It was contended that between 2013 and 2015, the company took facilities secured by a debenture dated 13/1/2014 for US $ 4,050,000/= and Kshs 137,000,000/=. That the Company was placed under administration on 31/1/2019 by the bank.
3. That as at the date of the appointment of the Administrator, the Company was indebted to the bank in excess of Kshs 800 million. The Administrator was unable to revive the operations of the Company for reasons including that a huge capital was required to revive the operations thereof.
4. The administrator thereafter opined that in the interests of the Company, its assets should be disposed off.
5. That pursuant thereto, on 2/10/2020, Sosian Steel Mills Ltd made a bid of Kshs 300 million for the assets of the Company. The same was revised to Kshs. 145 m for the plant and machinery only.
6. That whilst the total debt owing to the bank is Kshs 1,056,090,365/03 as at 14/10/2021, the Act requires 20% of the value of the proceeds be distributed to the unsecured creditors under the law.
7. The applicant contended that if the 20% of the sale proceeds were distributed as such, it would be extremely unfair to the applicant considering the debt owing. The applicant therefore sought that the entire sum be distributed to it.
8. I have considered the contestations on record. The applicant is a secured creditor. Its application was served but not opposed. However, the law requires that a portion of the proceeds of an entity under administration be reserved or distributed to the unsecured creditors.
9. Considering the debt that the Company owes the bank, I am satisfied that this is a proper case whereby the Court should depart from the general rule.
10. That in the premises, it will cause less loss and harm in acceeding to the application rather than to confirm and enforce the general rule.
11. Accordingly, the application dated 21/10/2021 is hereby allowed in terms of prayer No. 2 thereof.
It is so orderedDATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF NOVEMBER, 2021. A. MABEYA, FCI ArbJUDGE