[2021] KEHC 4891 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NYAHURURU

INSOLVENCY CAUSE NO. 01 OF 2018

(FORMERLY NKR. NO. 01/2018)

IN THE MATTER OF: KINANGOP RELIANCE LIMITED, CHARLES MUTAHI MWANGI, GRACE WANGUI MUTAHI AND ALICE WANGUI

RULING

INTRODUCTION:

1. The Applicants/Petitioners lodged Petition and application herein. They sought to be declared insolvent. They expressed to bring same under Insolvency Act No. 15 of 2015.

2. They filed application expressing to be seeking to be declared bankrupt.

3. The same is said to be borne out of a downturn in business that the Applicants more so Charles Mutahi Mwangi had suffered running his company Kinangop Reliance Co. Ltd.

4. The application stated that there were debts worth Kshs.200million. the said amount is said to be owed to various banks, financial institutions and individuals listed on page three (3) of the supporting affidavit and said to be sworn in support of the said application. It also contained certain averments in page 2 of the application under heading liabilities, the figures listed therein totaling Kshs.256,853,023/-.

5. The aforesaid application and petition attracted 3 preliminary objections;

A. The preliminary objection dated 24/09/2018 by KCB Bank listing 5 grounds;

I. That suit as instituted is unprocedural, frivolous, vexatious and an abuse of the process of the Honorable Court in as long as the Petitioners have filed a cause seeking an order of bankruptcy against natural persons i.e. Charles Mutahi Mwangi, Grace Wangui Mutahi and Alice Wangui and in the same petition seek insolvency orders against Kinangop Reliance Limited which is a separate legal persona in law.

II. That the suit herein is a non-starter and fatally defective having failed to comply with the mandatory statutory provisions for want publication of the notice of the application for bankruptcy contrary to Section 34 (4) & (5) of the Insolvency, Act, 2015.

III. That the petition as filed is not accompanied by each debtors mandatory Statement of Financial Position and such Statement of Affairs have not been published and as such the suit offends Section 32 (2) & (3) of the Insolvency Act, 2015 as read with Regulation 18 (3) & (4) of the Insolvency Regulations, 2016.

IV. That the insolvency proceedings as filed against the company Kinangop Reliance Limited are fatally defective for want of a Resolution of the members of the company non-publication of the Notice of Resolution to Liquidate and as such is contrary to Section 393 & 394 of the Insolvency Act, 2015 as read with Regulation 132 of the Insolvency Regulations, 2016.

V. That the Petitioner has further failed to prepare and annex the Kinangop Reliance Company Limited Financial Statement of affairs and as such the petition is incurably defective as it offends Section 626 (3) of the Insolvency Act, 2015 as read with Regulation 1333 (1) (d) of the Insolvency Regulations, 2016.

VI. That the Honorable Court lacks jurisdiction to hear and determine this matter and the suit offends the various mandatory provisions of law cited hereinbefore and we pray that the suit herein be dismissed with costs.

B. The second one by Sidian Bank listing grounds;

I. That the petition herein filed are fatally defective.

II. That the petition herein is bad in law and does not lie.

III. That the Petitioner herein has no properly invoked the Honorable Court’s jurisdiction to hear its petition.

C. And a third one by Cooperative Bank with 5 grounds;

I. That suit as instituted is unprocedural, frivolous, vexatious and an abuse of the process of the Honorable Court in as long as the Petitioners have filed a cause seeking an order of bankruptcy against natural persons i.e. Charles Mutahi Mwangi, Grance Wangui Mutahi & Alice Wangui and in the same petition seek insolvency orders against Kinangop Reliance Limited which is separate legal person in law.

II. That the suit herein is a non-starter and fatally defective having failed to comply with the mandatory statutory provisions for want of publication of the notice of the application for bankruptcy contrary to Section 34 (4) & (5) of the Insolvency Act, 2015.

III. That the petition as filed is not accompanied by each debtor’s mandatory Statement of Financial Position and such Statement of Affairs have not been published and as such the suit offends Section 32 (2) & (3) of the Insolvency Act, 2015 as read with Regulation 18 (3) & (4) of the Insolvency Regulations, 2016.

IV. That the insolvency proceedings as filed the company Kinangop Reliance Limited are fatally defective for want of a Resolution of the members of the company and non-publication of the Notice of Resolution to Liquidate and as such is contrary to Section 393 & 394 of the Insolvency Act, 2015 as read with Regulation 132 of the Insolvency Regulations, 2016.

V. That the Petitioner has further failed to prepare and annex the Kinangop Reliance Company Limited Financial Statement of affairs and as such the petition is incurably defective as it offends Section 626 (3) of the Insolvency Act, 2016 as ready with Regulation 1333 (1) (d) of the Insolvency Regulations, 2016.

VI. That the Honorable Court lacks jurisdiction to hear and determine this matter and the suit offends the various mandatory provisions of law cited herein before and we pray that the suit herein be dismissed with costs.

D. The court directed that the 3 preliminary objections be canvassed via submissions which have been filed by Objectors but no response by the Petitioners/Applicants.

ISSUES

E. After going through the materials before me, I find theissues were whether the application and the petition complied with the law? If above in negative, what is the appropriate order to make? and what is the order as to costs?

F. Fundamentally the preliminary objections were more or less replication of one another all attacking validity of the application and petition by the applicants. The petitioners /applicants have not contested the preliminary objections.

ANALYSIS AND DETERMINATION

G. The court has gone through the record and parties’ submissions on record and cited law.

H. To start with, the Insolvency Act, 2015 recognizes and provides distinct provisions for the insolvency process of natural persons and legal persons. Part III of the Insolvency Act governs the insolvency of natural persons and Part VI of the Insolvency Act governs the insolvency of companies.

I. Section 12 of the Insolvency Act is clear that for the purposes of Part III, a debtor must be “a natural person who owes money to one or more creditors; and, if a trust, partnership or other unincorporated body owes money to a creditor, includes all of the trustees of the trust, all of the partners of the partnership and all of the members of the body.”

J. In the instant matter, the petitioners Charles Mutahi Mwangi, Grace Wangui Mutahi, Alice Wangu (the “Debtors”) are natural persons, and Kinangop Reliance Limited (the “Company”) which is a legal person seek to have this court appoint a trustee of bankruptcy pursuant to Part III, Section 29 of the Insolvency Act and Regulation 16 and 17 of the Insolvency Regulations.

K. On the face of it, the joinder of the company renders the petition defective because it is a legal person and cannot be considered a debtor for the purposes of Part II of the Insolvency Act. In the case of Kwale International Sugar Company Limited v EPCO Builders Limited & 2 Others [2020] eKLR, the court held that provisions relating to personal bankruptcy under the Act are inapplicable to a company. The court sated;

“That reason I have set out the aforesaid provisions is to show to the extent that the company relied on Regulations 16 and 17 that relates to bankruptcy of natural persons in the instant application, the application is incompetent and lacks merit.”

L. Further the Debtors have failed to comply with the provisions of Section 32 (4) of the Insolvency Act which provides that a debtor who makes an application for a bankruptcy order must “publish a notice of the application in a newspaper circulating within the region on which the debtor ordinarily resides in such other publications (if any) as may be prescribed by the insolvency regulations”.

M. No evidence of the publication has been annexed to its application seeking bankruptcy orders. The failure to publish a notice of the application for bankruptcy in a newspaper is a fatal error and this court pursuant to Section 32 (5) of the Insolvency Act has the power to decline to hear the petition.

N. In the case of Jonathan Cheruiyot & Another v Bungoma Chemist Limited [2019] eKLR the court held;

“Section 32 (4) of the Act is in Mandatory terms that the debtor shall publish the notice of the application. The reason for this is to enable all persons to know of the application, the notice to debtors and notice of other people that the Applicant intends to make an application and beware not external credit to him. It is therefore mandatory that the application be published….. Publication is necessary step in this (sic) proceedings and as such step has not been made. I therefore uphold the preliminary objection and decline to consider this application as the requirements of the Insolvency Act have not been complied with.”

O. In addition, the Debtors have failed to comply with the provisions of Section 32 (2) of the Insolvency Act and Regulation 18 (3) of the Insolvency Regulationsin that each of the Debtors has failed to provide the following information;

“….the current address, telephone number and any other contract detail including mobile telephone number or email address, if the debtor has used any other name, including any alias in the last seven years, those other names and aliases, date of birth, whether the debtor is male or female, Kenya Revenue Authority Personal Identification Number, if the debtor has a current passport, his nationality and the passport number, if the debtor is employed, an itemized statement of debtor’s expenses, a statement of the partner’s income, a statement of the debtor’s current assets, including the description, value and location of those assets, a statement of any assets that the debtor has disposed of in the previous three years, a statement of the debtor’s liabilities including any contingent liabilities and a statement of all financial transactions by the debtor during the previous three years.”

P. The Debtors have also failed to fail to arrange for the publication of the statement of financial position in the Kenya Gazette pursuant to Regulations 18 (4) of the Insolvency Regulations.

Q. The Debtor’s failure to strictly adhere with the requirements of Section 32 (2) of the Insolvency Act and Regulations 18 (3) & (4) of the Insolvency Regulations is a material error. The court has the power under Section 32 (2) & (3) of the Insolvency Act to reject and decline to determine this petition on the grounds that the Debtor’s statement of financial position for being incomplete.

R. In the case of Kenneth Kinyua Ephantus v Insolvency Act [2018] eKLR in which the court dismissed a bankruptcy petition for failing to publish a complete statement of financial position and failing to adhere with other requirements of Section 32 of the Insolvency Actwhen it held:

“He has failed to give a full inventory of his assets and their valuations particularly Karingani/Ndagani/866. The Petitioner has also failed to file a full statement regarding his financial position. He has also failed to publish his petition in a newspaper circulating within Tharaka Nithi and Meru County where his creditors ordinarily reside. The petition is therefore disallowed with no order as to costs.”

S. See also the case of Rajendra Ratilal Sanhani v Schoon Ahmend Noorani [2018] eKLR in which the court upheld a preliminary objection on the grounds that the Petitioner failed to, among other things, file a complete statement of financial position when it stated;

“The reluctance by the debtor to disclose other creditors and debtors and to set out his assets and liabilities even in the face of express challenge says something about the bona fides of the application. This court reaches a conclusion that the application may not be an abuse of court process but is so hopelessly wanting as if fails one crucial test.”

T. See further the case of In re Shadrack Kipyatich J. Kibor – Debtor [2019] eKLR in which the court, in dismissing the application for failing to file a complete statement of financial position and advertising the notice for an application of a bankruptcy order.

U. Thus the court without much ado comes to conclusion that this Petition is a grave abuse of court process and is being used by the Petitioners as tactic to avoid paying their debts thus court finds appropriate in permitting the Opposing Creditors to pursue recovery against the Company and its Guarantors.

V. Thus the makes the orders;

I. The application and the petition herein by the petitioners are dismissed in the first instance.

II. Costs to the opposing creditors.

DATED, SIGNED AND DELIVERED AT NYAHURURU THIS 15TH DAY OF JULY, 2021

………………………………..

CHARLES KARIUKI

JUDGE