[2022] KEHC 16490 (KLR)

In re Majestic Printing Works Limited (Insolvency Petition E010 of 2020) [2022] KEHC 16490 (KLR) (17 November 2022) (Ruling)

Neutral citation: [2022] KEHC 16490 (KLR)

Republic of Kenya

In the High Court at Mombasa

Insolvency Petition E010 of 2020

OA Sewe, J

November 17, 2022

Ruling

[1]Coming up for determination is the notice of motion dated August 27, 2021. It was brought by the respondent company, Majestic printing works ltd, under sections 3(1), 692(4) and 698 of the Insolvency Act, no 18 of 2015 and regulation 104(4) of the Insolvency Regulations, 2016 for the following orders:(a)That a temporary injunction be granted pending the hearing and determination of the application, restraining the petitioner from future advertising the petition herein or issuing any other public statements regarding the petition herein or the intended liquidation of Majestic printing works ltd; (spent)(b)That service of the statutory demand dated November 24, 2020 be declared null and void for having been issued in violation of section 384(1)(a) of the Insolvency Act, no 18, 2015;(c)That in consequence to [b] hereinabove, the petition dated March 31, 2021 be struck out for being an abuse of the process of the court;(d)That as a result of the court’s finding in (2) and (3) above, the petitioner be compelled to issue a notice in the Daily Nation newspaper, within 7 days from the date of this ruling, with the same prominence and font as the notice published by the petitioner in the same newspaper on Monday the June 21, 2021, of the striking out of these proceedings;(e)That the costs of this application be borne by the petitioner.

[2]The application was premised on the grounds that, the statutory demand dated November 24, 2020 was never served upon the respondent as required by the Insolvency Act; and that, having not been served with the statutory demand, the respondent was denied an opportunity to dispute the debt. It was thus the assertion of the respondent that, since the petition is being used to force it to pay a disputed debt in disregard of the laid down procedure, the same ought to be struck out without further ado for being an abuse of the process of the court. The respondent further contended that it has suffered negative publicity in respect of its brand in the eyes of, not only the public that has trusted it for 73 years now, but also from its suppliers and business partners who are now unwilling to associate with a “sinking” company. The respondent added that the petitioner ought not to be allowed to abuse the process of the court by using liquidation proceedings as a debt collection tool against the respondent.

[3]The application was supported by the averments set out in the affidavit of the respondent’s general manager-operations, mr Sunil Bhatt. It was the averment of mr Bhatt that the petitioner has carried out business with the respondent for a long time; and that after decades of doing business with integrity, the respondent saw, with shock and disbelief, the notice of the filing of this petition, as published by the petitioner in the Daily Nation of Monday, June 21, 2021. A copy of the advertisement was annexed to mr Bhatt’s affidavit and marked Annexure “SB-2”.

[4]Mr Bhatt further averred that upon seeing the notice and receiving negative reactions from some of the respondent’s business partners, he engaged the respondent’s advocates to find out why the petitioner opted to use the liquidation proceedings to enforce the payment of a debt. Upon being advised that the proper procedure was not followed, the respondent filed the instant application. Its basic contention was that it was never served with a statutory demand in the first place. At paragraph 12 of his affidavit, mr Bhatt added that, as a result of the publication of the notice, the respondent’s reputation, which has been built through decades of hard work and integrity, now faces the imminent threat of destruction; hence prayers (1) and (4) of the instant application.

[5]The petitioner resisted the application. It relied on the affidavit sworn by its director, mr Ebrahim Jagani. He conceded that an advert was indeed placed by the petitioner in the Daily Nation of Monday, June 21, 2021; and added that the same was done procedurally and in accordance with the law. Mr Jagani further averred that the respondent was duly served with a statutory demand dated November 24, 2020 via an email dated March 9, 2021. He therefore asserted that service of the statutory demand was properly done, as it was done pursuant to order 5 rules 22B and 22C of the Civil Procedure Rules which came into force as a countermeasure during the global COVID-19 pandemic.

[6]Accordingly, it was the petitioner’s contention that the respondent was procedurally served as by law provided; and therefore that the notice placed in the Daily Nation was never meant to destroy the reputation of the respondent. The respondent added that the instant application is nothing but an afterthought, intended to scuttle the insolvency proceedings, as it does not deny that the debt is owing.

[7]The application was canvassed by way of written submissions, pursuant to the directions given herein on February 16, 2022; and while the respondent’s submissions do not appear to be on the file, mr Wandati, counsel for the secured creditor, Victoria commercial bank limited, relied on his written submissions filed on July 27, 2022. He submitted that since liquidation of a company is a draconian step, it can only be resorted to where the debt is undisputed. He relied on section 384 of the Insolvency Act and the case of Universal Hardware Limited v African Safari Club Limited. In counsel’s submission, the petitioner did not present documentary proof that the respondent acknowledged the debt and had failed to settle the same.

[8]It was also the submission of mr Wandati that the petitioner had failed to adhere to the procedure for service of a statutory notice as provided for in section 384 of the Insolvency Act. He relied onInvesco Assurance Company Limited v Dama Charo Nzai and 57 Others [2019] eKLR; Re Sucasa at Mombasa Road Limited [2019] eKLR andOldonyo Nairasha Estates (Narok) Limited v OCP Kenya Limited [2021] eKLR to support his argument that, due to the serious nature of insolvency proceedings, a departure from the procedure set out in section 384 of the Insolvency Act is impermissible. Thus, it was mr Wandati’s prayer that the respondent’s application dated August 27, 2021 be allowed as prayed.

[9]On his part, mr Olwande, counsel for the petitioner, relied on his written submissions dated August 3, 2022 in which he proposed the following issues for determination:(a)Was there a valid statutory demand issued by the petitioners?(b)Was the statutory demand duly served as per the existing laws?(c)Should the petition dated March 31, 2021 be struck out for being an abuse of the process of the court?(d)Should prayer 4 of the application be granted?(e)Who bears the costs of the application?

[10]According to mr Olwande, the respondent is truly indebted to the petitioner and has to date not settled the debt. He therefore submitted that the petitioner was within its rights to commence insolvency proceedings against the respondent after serving the company with a statutory demand. He further submitted that the statutory demand dated November 24, 2020 was duly served on the respondent in accordance with the existing laws and procedures. He pointed out that the statutory notice was served at a time when the global Covid-19 pandemic was in full gear; and as such containment measures had been put in place to restrict movement within the country, including movement from and into the County of Mombasa.

[11]Mr Olwande drew the court’s attention to paragraph 5 of the practice directions issued by the Honourable Chief Justice on 20th March 2022, by which it was directed that service of documents and court process during the period be effected through electronic mail and mobile enabled messaging applications as provided for under order 5 rules 22B and 22C of the Civil Procedure Rules. He therefore submitted that service of the statutory notice was duly effected through the email dated March 9, 2021 (marked annexure EJ1) to the replying affidavit sworn by Ephraim Jagani.

[12]On whether the petition dated March 31, 2021 should be struck out, mr Olwande submitted that, in the light of the practice directions issued in March 2020, the instant application is nothing but a blatant attempt to scuttle the lawfully and properly institution proceedings through procedural technicalities. According to him, to allow the application would be to disregard the clear provisions of article 159(2)(d) of the Constitution, which behoves the court to endeavour to determine matters on their merit and not over-rely on procedural technicalities. He urged the court to note that the respondent does not deny the debt; and therefore that this is a matter that ought to be disposed of on its merits.

[13]As for prayer 4 of the respondent’s application wherein the respondent asked that the petitioner be compelled to cause an apology to be advertised in the daily newspapers, it was the submission of mr Olwande that the same cannot lie, for the reason that the Insolvency Act does not provide for such a remedy. He also took the view that the respondent has not laid the basis for the issuance of such an order; for instance, by demonstrating any prejudice suffered by the respondent, or that the advertisement was misleading as to the existence of the insolvency proceedings. Counsel consequently prayed that the application be dismissed with costs to the petitioner.

[14]I have considered the application dated August 27, 2021 together with the averments set out in the affidavits filed in respect thereof. The brief background is that the petitioner, Uneeco paper products limited, filed the instant petition on April 1, 2021, seeking the liquidation of Majestic printing works ltd (the respondent), on the ground the respondent is unable to pay its debts. It averred that, on March 9, 2021, it sent a statutory notice to the respondent, demanding the payment of an outstanding debt in the sum of kshs 5,866,422. 79 within 21 days; and that the 21 days elapsed without any response from the respondent. In the circumstances, the court was urged to find that the respondent was unable to pay its debts and therefore ought to be liquidated on that account. Thus, the petitioner prayed that:(a)Majestic printing works ltd be liquidated by the court under the provisions of the Insolvency Act;(b)The official receiver be appointed as the liquidator;(c)The costs of the petition be granted to the petitioner and be paid out of the assets of the Company; and,(d)Any such other order be made as the court deems just in the circumstances.

[15]In response to the petition, the respondent filed the instant application, dated August 27, 2021, seeking, inter alia, that the petition be struck out for being an abuse of the process of the court. Its basic stance is that no valid statutory demand was ever issued or served as is required by section 384(1) (a) of the Insolvency Act no 18 of 2015. Accordingly, two questions arise for determination; firstly, whether a statutory notice was indeed issued by the petitioner and whether it confirms to the prescribed format. Secondly, it is pertinent to determine whether the notice was duly served on the respondent.

[16]The format of a statutory demand is provided for under regulation 77B of the Insolvency Regulations, 2016 (as amended by the Insolvency (Amendment) Regulations, 2018) thus: 77B (1) For the purposes of section 425 of the act an application for liquidation shall be-(a)by way of a petition in form 32C as set out in the first schedule; and(b)Accompanied by a verifying affidavit in form 32D as set out in the first schedule.(2)The petition for liquidation shall be accompanied by the following documents –a.A statutory demand in form 32E set out in the first schedule if the reason for petition is indebtedness; andb.A statement of financial position in form 32 as set out in the first schedule where necessary.

[17]Having looked at the form 32E (Per Legal Notice no 7 of 2018), I am satisfied that the statutory demand dated November 24, 2020 as issued by the petitioner was indeed compliant with the provisions of the applicable law.

[18]On whether the statutory demand was duly served, section 384(1)(a) of the Insolvency Act, provides thus: -

(1)For the purposes of this part, a company is unable to pay its debts—(a)if a creditor (by assignment or otherwise) to whom the company is indebted for hundred thousand shillings or more has served on the company, by leaving it at the company's registered office, a written demand requiring the company to pay the debt and the company has for twenty—one days afterwards failed to pay the debt or to secure or compound for it to the reasonable satisfaction of the creditor; [19]The petitioner conceded that service in this instance was not done by leaving the statutory notice at the registered office of the respondent, but via email due to the Covid-19 pandemic. In particular, the petitioner averred that the statutory demand was duly served on March 9, 2021 via email by a duly licenced process server one, Ian Keari; and that the email address provided by an employee of the respondent by the name Rose. Copies of the statutory demand and the subject email are annexed to the petitioner’s replying affidavit and marked annexure “EJ-1”.

[20]The court takes judicial notice that Covid-19 was declared a global pandemic in March 2020; and there is no disputing that, thereupon, the Government of Kenya put in place containment measures that included movement restrictions. To that end, the Chief Justice issued, among others, the practice directions for the protection of judges, judicial officer, judiciary staff, Other court users and the general public from the risks associated with the global corona virus pandemic, vide gazette no 3137 dated March 20, 2020. paragraph 5 thereof provides that:"During this period, parties are directed, whenever possible and unless otherwise directed by the court, to serve documents and processes through electronic mail services and mobile enabled messaging applications as provided for under order 5 rules 22V an 22C of the Civil Procedure Rules.”

[21]Needless to say therefore that, in response to the Covid-19 pandemic, the rules of civil procedure relating to service of court process have been amended to include service by electronic means; including service via email and WhatsApp. In this instance, the petitioner has demonstrated that the respondent was served via email. The company has not disowned the email address used by the petitioner to effect service. It is therefore my finding that service of the statutory demand was duly and properly effected.

[22]I am therefore in complete agreement with the position taken inRe Kipsigis Stores Limited[2017] eKLR, on service by hon Onguto, J, that: -…it is a pure question of fact whether service has been effected. By service must be meant the obligation to do all that is reasonably practical to bring a statutory demand to the debtor’s attention. A company may change its registered offices. A company may actually principally conduct its business elsewhere. Where there are enough attempts to trace the company’s registered offices, where all the steps do not lead to fruition, then the court ought to appreciate and acknowledge that service at a place other than the registered office will suffice. This will be satisfied on a balance of probabilities with the purpose being to ensure that spurious applications intended to merely delay proceedings are weeded out…”

[23]Likewise, inMathews v Masika [2022] KEHC 12194 (KLR), it was held that:- This case concerns service of summons through electronic means which is now provided for under order 5 rule 22B of the rules as follows; 1. Summons sent by electronic mail service shall be sent to the defendant's last confirmed and used e-mail address.

2. Service shall be deemed to have been effected when the sender receives a delivery receipt. 3. Summons shall be deemed to have been served on the day which it is sent; if it is sent within the official business hours on a business day in the jurisdiction sent, or and if it is sent outside of the business hours and on a day that is not a business day it shall be considered to have been served on the business day subsequent. An officer of the court who is duly authorized to effect service shall file an affidavit of service attaching the electronic mail service delivery receipt confirming service.

3. From the aforesaid provision, the plaintiff is entitled to serve summons upon the defendant at his last confirmed and used E-mail address. Contrary to the defendant’s suggestion, electronic service is not an alternative or substituted mode of service hence the plaintiff need not to make any attempt to serve the defendant personally. In his supporting depositions, the defendant does not disclose his email address or deny that the address set out in the affidavit of service is his. He does however admit that he received the decree through his personal gmail address...”

[24]In the result, I am satisfied that the statutory demand issued by the petitioner was issued not only in compliance with the prescribed form, form 32E, but also in obedience of the order of the court (hon Chepkwony, J) issued on June 19th 2021. I am further convinced that service of the statutory demand was properly and regularly effected via email; granted the prevailing circumstances. In the premises, it is my finding that the application dated August 27, 2021 lacks merit and is hereby dismissed with an order that the costs thereof shall be in the cause.It is so ordered.

DATED, SIGNED AND DELIVERED IN OPEN court AT MOMBASA THIS 17TH DAY OF NOVEMBER 2022. OLGA SEWEJUDGE