[2022] KEHC 16598 (KLR)

In Re Multiple Hauliers E.A Limited (Under Administration) (Insolvency Cause E022 of 2021) [2022] KEHC 16598 (KLR) (Commercial and Tax) (8 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16598 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Insolvency Cause E022 of 2021

WA Okwany, J

December 8, 2022

IN THE MATTER OF MULTIPLE HAULIERS (E.A) LIMITED (UNDER ADMINISTRATION) AND IN THE MATTER OF SECTIONS 534, 537 AND 538 OF THE INSOLVENCY ACT NO. 18 OF 2015 AND IN THE MATTER OF REGULATION 102 OF THE INSOLVENCY REGULATIONS 2018

Between

Multiple Hauliers E.A Limited

Applicant

and

NCBA Kenya PLC

Creditor

Ruling

Background 1. Through the petition dated March 3, 2020, Synergy Credit Limited, a creditor, filed liquidation Petition No E010 of 2020; In the Matter of Multiple Hauliers (EA) to Liquidate the Company herein, Multiple Hauliers on account of its failure and/or inability to pay the sum of Kshs 532,090,991 owing to it.

2. Before the hearing of the Liquidation Petition, the Company filed an Application dated March 17, 2020 seeking orders to stay the Petition for a period of twelve months to pave way for a restructure of the Company and to enable it engage its creditors on payment modalities.

3. In a Ruling delivered on September 18, 2020, Majanja J allowed the Company's Application and ordered that the Liquidation Petition be stayed for a period of twelve months and further that the Company engages its creditors for purposes of reaching a consensus on settlement.

4. Before the expiry of the 12 months grace period, the Respondent/Creditor herein NCBA Bank PLC, appointed Julius Mumo Ngonga and Anthony Muthusi Makenzie as the Joint Administrators through the Notice of Appointment of Administrators dated June 7, 2021. The placement of the Company under administration gave rise to the application dated June 9, 2021 that is the subject of this ruling.

Application 5. The application dated June 9, 2021 seeks orders, inter alia: -i.To revoke appointment of the Administrators' herein for failure to comply with the provisions of section 535(1) of the Insolvency Act (No 18 of 2015).ii.To issue temporary injunction against the Administrators to restrain them from advertising their appointment in a daily newspaper of wide circulation and/or any print media.iii.To consolidate this petition with Nairobi HCCOMM/IP/E010 of 2020 Synergy Industrial Credit Limited v Multiple Hauliers (EA) Limited.

6. The application is supported by the affidavit of the applicant’s Chief Executive Officer and Managing Director Mr Rajinder Singh Baryan and is premised on the grounds that: -1)That the applicant/respondent (hereinafter known as “the company”) in Nairobi HCCOMM/IP/E010 of 2020 Synergy Industrial Credit Ltd v Multiple Hauliers (EA) ltd was granted temporary reprieve by Justice DS Majanja on 18/9/2020 for a period of 6 months for it to formulate a restructuring plan of how it intends to settle the debts owed to its unsecured creditors and turning around of its business.2)That the said petition is scheduled for a mention before Honourable Justice DS Majanja on 22/6/2021 to enable the company Nairobi HCCOMM/IP/E010 of 2020 Synergy Industrial Credit Ltd v Multiple Hauliers (EA) Ltd demonstrate to court the steps it has taken towards restructuring its debts, settling its debts and turning around of its business.3)That the petitioner/respondent (hereinafter known as “the Bank”) supported the Company’s application dated 5/5/2020 in Nairobi HCCOMM/IP/E010 of 2020 Synergy Industrial Credit Ltd v Multiple Hauliers (EA) Ltd vide a replying affidavit sworn by Mr Steven Atenya the Senior Legal Counsel at NCBA Bank Kenya PLC opposing the liquidation of the company.4)That the Bank was persuaded by the Company’s turnaround strategy and that its core business was strong and that its financial position was redeemable as evidenced in the replying affidavit sworn by Mr Steven Atenya.5)That the Company has since the said 18/9/2020 up to 18/3/2021 paid its unsecured creditors the sum of Kshs 761,810,505. 00 being more than half the debt owed ( kshs 1,363,705,610. 12) in a span of 6 months.6)That the Company has since the said 18/9/2020 been engaging Barak Fund Plc & KCB Bank who officially communicated to the Bank on 8/6/2021 of their willingness to settle a negotiated amount in full and final settlement of the debt owed by the company.7)That the Company have over 1500 employees with none of them having been let go off on reasons of redundancy throughout the Covid -19 pandemic period.8)That the Company being the largest transport and logistics company in Kenya and one of the biggest in the region continuous to contribute tremendously to the economy of this Nation in terms of payment of taxes and employment.9)That the Company is engaged in the provision of essential services especially needed during this pandemic period on delivering the much needed goods and vaccines in Kenya and the region.10)That an Administration Order against the Company herein will have dire financial effects to numerous families and the economy at large let alone neighboring economies during the precarious times.11)That an Administration Order is a drastic and draconian measure that should only be granted as a measure of last resort.12)That the actions by the Bank constitute bad faith for the reason that it is aware of the of the Orders of 18/9/2020 granted by Honourable Justice DS Majanja granting the Company’s an opportunity to turn around its fortunes and has failed to disclose those facts to this Honourable Court.13)That the Bank has violated the provisions of Section 535 of the Insolvency Act (No 18 of 2015) “ by failing to issue a 3 days’ Notice to any holder of a prior floating charge” well aware that the Company has several other secured creditos’.14)That that the Company conducted a search at the collateral registry dated June 8, 2021 which has determined that the Bank’s securities rank as 5th and 6th in the Collateral Registry in terms of the Movable Property Security Rights Act( Act No 13 of 2017).15)That is it therefore apparent that the Bank usurped the rights of other lenders by failing to notify them of its intention to place the company under administration.16)That it is in the interest of justice that this application be certified urgent and be heard on a priority basis as the Bank appointed Administrators’ on 7/6/2021 without following the laid down procedure as provided in the Insolvency Act (No 18 of 2015).17)That if the appointment of the Administrators’ by the Bank is not revoked pending hearing and determination of Nairobi HCCOMM/IP/E010 of 2020 Synergy Industrial Credit Ltd v Multiple Hauliers (EA) Ltd, the company and several, other creditors stand to suffer irreparable loss.18)That if the Administrators’ are not injuncted/stopped from proceeding with the advertisement of their appointment in a daily of wide circulation and /or any print/electronic media, the Company’s business shall suffer substantial loss with tremendous economic ramifications to its numerous employees let alone the Nation’s economy during these uncertain economic times.

7. The administrators opposed the application through the Grounds of opposition dated July 25, 2021 in which they listed the following grounds: -1. That the application is defective, hopelessly incompetent and bad in law as it was prepared and filed by a party without the authority to do so on the Applicant's behalf.2. That the Application is incompetent and bad in law as it purports to seek permanent orders of injunction restraining the publishing of the Administrators' appointment in an interim application.3. That the Application purports to seek the consolidation of administration and liquidation proceedings even though the two procedures are fundamentally different with fundamentally different end aims and purposes.4. That the entire Application as drawn is entirely incurably defective, misconceived, frivolous, vexatious and incompetent and ought to be dismissed and struck out in limine with costs to the Joint Administrators.

Synergy’s Case 8. Pursuant to the directions issued by this court on June 18, 2022, Synergy filed a statement on its position regarding the Notice of Withdrawal of the application dated June 15, 2022 and submitted that there is a valid Notice of Withdrawal dated June 15, 2021 filed in respect of the Notice of Motion Application dated June 9, 2021. Synergy contended that the Notice of Withdrawal was filed by the firm of Nyaanga & Mugisha having been instructed by the Company. There is a Notice of Change of Advocates, also dated June 15, 2021 to that effect.

9. Synergy Credit Ltd argued that the placement of the Company under Administration, besides being unmerited, was a calculated scheme devised by the Company and Respondent to delay the progression of the Liquidation Petition. They contended that the purported Administration came at a time when the twelve (12) months period granted by Majanja J was coming to an end and the Company was to face the Liquidation Petition. They state that the delay has earned the Company reprieve for a period of twelve (12) months from the time the Administration occurred. They further claim that the delay serves the Company's interest as on one hand the Liquidation Petition is stalled pending the Administration and on the other hand, the Administration has been stayed pending determination of this Application. They noted that as a result of the above position, the Company is operating as usual and suffers no implication from either process.

Synergy’s Submissions 10. Synergy Industrial Credit Ltd (hereinafter “Synergy”) supported the application for the removal of the administrators through the affidavit sworn by Mr Jacob Meeme who states that the placement of the Company under Administration, besides being unmerited, is a calculated scheme devised by the Company and Respondent to delay the progression of the Liquidation Petition. They noted that the application serves the Company's interest as on one hand the Liquidation Petition is stalled pending the Administration and on the other hand, the Administration has been stayed pending determination of this Application thereby allowing the Company to operate as usual and suffers no implication from either process.

11. Synergy argued that the Application for revocation of the Appointment of the Administrators is justified as it is premised on the failure, by the respondent herein, to comply with the express provisions of section 535(1) of the Insolvency Act as the Bank did not notify the persons holding priority security under the aforesaid provisions. Synergy also faulted the respondent for failing to comply with the provisions of section 537 of the Insolvency Act as read with regulation 102(3) (h) that required it to disclose the existence of the Orders of Majanja J delivered on September 18, 2020.

The Administrators’ Case 12. The administrators opposed the application through the replying affidavit of Mr Julius Mumo an insolvency practitioner, appointed by the Creditor herein, together with Mr Anthony Makenzie Muthusi, as the Joint Administrators of the Applicant. He avers as follows: -1. That via Notice of Appointment of Administrators dated June 7, 2021 and filed with this Honourable Court, the Creditor/Respondent herein appointed me, Julius Mumo Ngonga, and Anthony Muthusi Makenzie as Joint Administrators of the Applicant Company that had been placed under administration. (Annexed herein and marked "JMN-I" is a copy of the Notice of Appointment dated June 7, 2021)2. That as a result, all the affairs of the Applicant, including appointment of Advocates for the Applicant, were placed in the care of the Joint Administrators.3. That any action on behalf of the Applicant that is not sanctioned by the Joint Administrators is void ab initio and has no effect in law.4. That consequently, I wish to state that the Application dated June 9, 2021 is misconceived, an abuse of the court process and void ab initio as the Applicant is under administration and has no authority whatsoever to instruct a firm of Advocates to act on its behalf.5. That the Joint Administrators did not appoint and/or instruct the firm of Olendo, Orare & Samba Advocates LLP, who purported to file the Application dated June 9, 2021, to act on behalf of the Applicant.6. That Mr. Rajinder Singh Baryan did not have the authority from the Joint Administrators to swear the Supporting Affidavit in support of the said Application for or on behalf of the Applicant.7. That I have been advised by the Joint Administrators' Advocates on record, which advise I verily believe to be true, that for the Applicant to institute any legal proceedings, it has to seek and obtain leave from the Administrators, or from this Honourable Court in accordance with section 560 (l) (d) of the Insolvency Act, which leave was not sought nor obtained.8. That consequently, the Application is void ab initio as the firm of Olendo, Orare & Samba Advocates I-LP are not properly instructed to act on behalf of the Applicant in this matter, and neither did Mr Rajinder Singh Baryan have authority to swear the Affidavit in support of the Application.9. That as a result, we do not wish to proceed with the Application and intend to withdraw the Application dated June 9, 2021, purportedly filed on behalf of the Applicant and have made an Application to that effect. (Annexed herein and marked "JMN-2" is a copy of the Notice of Withdrawal of the Application dated June 9, 2021, dated June 15, 2021.

13. The administrator submitted that it is trite law that once a corporate body is placed under administration, all the affairs of the company are put in the care of the Administrator, and no action concerning the company may be taken without the Administrator's authorization.

14. The administrators noted that the company was placed under administration on June 7, 2021, and that from that point onward, the affairs of the company were placed in their hands, in which case, the Application dated June 9, 2021 filed after the appointment of the Administrators without the Administrators' authorization is unsustainable.

15. It was submitted that the instant application is of no legal effect as it was filed without the Administrators' leave and was consequently withdrawn by the Administrators. They added that even if the Administrators had not filed the Notice of Withdrawal, the Application would still be considered as defective and ripe for dismissal.

16. The administrators submitted that their appointment should not be revoked as it was necessitated by the Company’s default in the repayment of its loan facilities offered by letters dated November 7, 2002, September 16, 2004, June 5, 2008, April 28, 2015, October 29, 2015, October 4, 2017, 8th and May 25, 2018, December 10, 2018, and February 20, 2020. The administrators argued that their appointment was proper and in accordance with the Insolvency Act and the Regulations thereto. They maintained that a permanent injunction should not issue restraining them from publishing their appointment and further, that orders of permanent injunction cannot be issued in an Application as the same is only available in a substantive suit upon the determination of the issues to conclusion. For this argument, the administrators cited the decision in Kenya Power & Lighting Co Limited v Sheriff Molana Habib [2018] eKLR, where the court held that:“A permanent injunction which is also known as perpetual injunction is granted upon the hearing of the suit. It will determines the rights of the parties before the court and is thus a decree of the court. The injunction is granted upon the merits of the case after evidence in support of and against the claim has been tendered.”

17. Regarding the prayer to consolidate this suit with the Liquidation Petition No E010 of 2020: Synergy Industrial Credit Limited v Multiple Hauliers EA Limited, the administrators observed that while the instant proceedings are aimed at maintaining the Applicant company under administration as a going concern in order to restructure it accordingly as it pays its debts, the liquidation petition is intended to wind up/dissolve the Company by distributing its assets amongst creditors as a means of repaying its debts. It was submitted that the consolidation of the two suits would be untenable as the end purposes of the two proceedings are different and conflicting.

18. The administrators noted that section 528 of the Insolvency Act bars an administrator from being appointed in respect of a company that is under liquidation. The Section provides that: -“A person may not be appointed as administrator of a company that is in liquidation because of a resolution for voluntary liquidation or a liquidation order".Section 558 (l) provides that:-"on the making of an administration order in respect of a company, an application for the liquidation of the company may not be made, and any application for the liquidation of the company that is then pending is suspended while the company is under administration.'

19. The administrators’ case was that the letter and spirit of the Insolvency Act is to give insolvent entities a second chance by placing them under administration and maintaining them as going concerns as opposed to killing them even as they repay their debts. They proposed that the best course of action would be to give room for the administration procedures already initiated to proceed and the liquidation petition stayed for a further period as the court may determine. It was submitted that administration ought to take precedence over liquidation as liquidation ought to be a measure of last resort. Reference was made to the decision in Cecilia Wacuka Nganga v Bernadus Nganga Kamau & another [2016] eKLR, where the court held that:-“The foregoing notwithstanding, it is now trite that winding up ought to be a last resort remedy and that even where a good basis has been made for it, the court may nevertheless consider and give alternative remedies. (See Jasbir Singh Rai & 3 others v Tarlochan Singh Rai & 13 others [2002] eKLR and The Matter of Tatu City Limited & Kofinaf Company Limited [2013] eKLR). The question that arises therefore is whether there is an alternative remedy to ameliorate the Petitioner's grievances.”

The Respondent’s Case 20. The respondent/NCBA Bank opposed the application through the replying affidavit of its Senior Legal Counsel, Legal Governance and Company Secretarial Division Mr Stephen Atenya who states that prayers l, 4, 5, 6 and 7 have been overtaken by events by the date of the swearing of this affidavit.

21. The respondent submitted that the Administrator is validly appointed under the provisions of Section 534 of the Insolvency Act and that his appointment took effect on June 7, 2021 by reason of section 538. The respondent noted that by virtue of sections 576, 580 and the fourth schedule of the Insolvency Act, only the Administrators are empowered by law to bring or defend any action or other proceedings in the name and on behalf of the Applicant or to appoint an advocate.

22. They noted that the Applicant had not sought the consent of the Administrators to file the Application and argued that the Application is made in violation of section 581(1) of the Insolvency Act.

23. It was further submitted that the firm of M/s Olendo, Orare & Samba Advocates does not have instructions or consent from the Administrators to file or prosecute the Application for or on behalf of the Applicant as is required under paragraph 4 of the fourth schedule of the Insolvency Act. The Respondent maintained that the Applicant, being under the control of the Administrators appointed by the Respondent, cannot purport to sue or defend a claim in court without the consent of the Administrators.

24. The Respondent relied on the decision of this Court in Midland Energy Limited vs African Banking Corporation Ltd & another [2020] eKLR, where it held that a suit filed without the permission of an administrator was incompetent ab initio.

The Unsecured Creditors’ Case 25. The unsecured Creditors Andrew Ian Moore Gordon and Robert James Scott Gordon observed that the Company did not comply with the orders by Majanja, J delivered on September 18, 2020 directing it to engage all the unsecured Creditors in formulating its restructuring plan, and file and updated plan within a period 6 months. They contended that the Company should be found to be in contempt court and that the main suit of liquidation should be dispensed with.

26. I have carefully considered the application dated June 9, 2021, the respective responses filed by the bank and creditors. I find that the main issues for determination are as follows: -i.Whether the Appointment of the Administrators should be revoked;ii.Whether a Permanent injunction should be issued restraining the Administrators from publishing their appointment; andiii.Whether Nairobi HCCOMM/IP/E010 of 2020: Synergy Industrial Credit Limited v Multiple Hauliers EA Limited should be consolidated with the Present Petition.

Revocation of Appointment 27. The Application for revocation of the Appointment of the Administrators is premised on the main ground that the Bank did not comply with the express provisions of Section 535(1) of the Insolvency Act which required it to notify the persons holding priority security under the aforesaid provisions.

28. It was further, the applicant’s case that the Bank did not make full and frank disclosure as required under Section 537 of the Insolvency Act as read with Regulation 102(3) (h) by failing to disclose the existence of the Orders of Majanja J delivered on September 18, 2020.

29. Section 535 (1) of the Insolvency Act stipulates as follows: -“(1)A person may not appoint an administrator under section 534 unless the person has given at least three days’ notice to the holder of any prior floating charge that satisfies subsection (2) of that section.(2)For the purposes of subsection (1), the priority of a floating charge shall be determined in accordance with the Movable Property Security Rights Act.”

30. The Administrators, on their part, submitted that the allegation that the other creditors were not informed of the impending administration was not proved as the applicant did not identify any holder of a prior floating charge that was not served with the 3-day notice prior to the Administrators’ appointment. They contended that the allegation of failure to comply with section 535 (1) not only remains a general and vague allegation but is unsupported by evidence.

31. It was further the respondent’s case that that applicant did not dispute the fact that it complied with the obligation under section 535 (1) of the Insolvency Act in appointing the Administrators as seen the applicant’s reference to the letter dated March 12, 2021 issued to KCB Bank Kenya Limited, Co-operative Bank of Kenya Limited and Barak Fund SPC Limited stating the Respondent’s intention to appoint the Administrators.

32. I have perused the letter dated March 12, 2021 and I note that indeed, the said debenture holders were given the requisite notice of the administration and that they have not objected to it. I further note that it was not disputed that the Respondent appointed the Administrators pursuant to its rights under the debentures. I note that while the debentures in question were entered into on diverse dates, the earliest debenture dated November 19, 2003 at Clause 17 thereof made the Respondent Bank the holder of a qualifying floating charge as it provided for the Respondent’s right to appoint a receiver-manager whose powers and functions are akin to that of an administrator. I therefore find that the Bank was within its powers to appoint the administrators in its capacity as a holder of a qualifying floating Charge. I therefore find that prayers 2 and 3 of the application are not merited.

Injunction 33. Turning to the prayer for permanent injunction to restrain the Administrators from publishing their appointment, I note that having found that the Bank was within its rights, as a debenture holder, to appoint the administrators, nothing should stand in the way of the administrators in publishing their appointment. Moreover, as rightly pointed out by the respondent, it is trite that an order for permanent injunction cannot be issued in an interlocutory Application as the same is only available in a substantive suit upon the determination of the issues to conclusion (See Kenya Power & Lighting Co Limited v Sheriff Molana Habib(supra).

Consolidation 34. The applicant also sought orders to consolidate this cause with the liquidation petition on the basis that the two matters relate to the same subject matter.

35. The respondent, the creditors and the administrators opposed the consolidation on the basis that consolidation will be untenable since the end purpose of the instant proceedings are aimed at maintaining the Company under administration as a going concern in order to restructure it accordingly as it pays its debts, while the liquidation petition is intended to wind up/dissolve the Company by distributing its assets amongst creditors as a means of repaying its debts.

36. Section 528 of the Insolvency Act provides that: -“A person may not be appointed as administrator of a company that is in liquidation because of a resolution for voluntary liquidation or a liquidation order".Section 558 (l) provides that:-"on the making of an administration order in respect of a company, an application for the liquidation of the company may not be made, and any application for the liquidation of the company that is then pending is suspended while the company is under administration.'

37. A simple reading of the provisions of Section 528 and 558 of the Act reveals that it bars an appointment of an administrator in respect of a company that is under liquidation and that on making an administration order, any pending application for liquidation should be suspended while the Company is under administration. The rationale for the above provision is that while an administration order is geared towards giving the Company a second chance by maintaining it as a going concern, the liquidation petition sounds a death knell on the Company by killing/winding them even as they repay their debts.

38. It was submitted that in the circumstances of this case, the best course of action would be to give room for the administration procedures already initiated to proceed and the liquidation petition stayed for a further period as the court may determine. It was submitted that administration ought to take precedence over liquidation, and liquidation ought to be a measure of last resort. Reference was made to the decision in Cecilia Wacuka Nganga vs Bernadus Nganga Kamau & another [20161 eKLR, where the court held that:“The foregoing notwithstanding, it is now trite that winding up ought to be a last resort remedy and that even where a good basis has been made for it, the court may nevertheless consider and give alternative remedies. (See Jasbir Singh Rai & 3 others v Tarlochan Singh Rai & 13 others [2002] eKLR and The Matter of Tatu City Limited & Kofinaf Company Limited [2013] eKLR). The question that arises therefore is whether there is an alternative remedy to ameliorate the petitioner's grievances.”

39. In the present case, it is clear that Majanja J. while dealing with the liquidation petition on September 18, 2020 gave the Company a grace period of 12 months to put its house in order and settle its debts. In the same vein, on May 30, 2022, this court directed the company to heed the order by Majanja J. It is not clear if the Company seized the opportunity granted to present its written proposal on a settlement plan in respect to the unsecured creditors. As at the time of issuing a date for ruling in respect to the application dated 9th June 2021, the Company had not provided its proposal on settlement. In the circumstances of this case, it is not clear if the administration will yield the intended results. I find that the applicant cannot have its cake and eat it by on one hand removing and/or restraining the administrators from performing their duties and, on the other hand not heeding the court’s reprieve/directions on providing a window for debt settlement.

40. Be that as it may and having regard to the above cited provisions of the Insolvency Act, I find that the liquidation petition and these proceedings are incompatible and incapable of being consolidated into one cause.

41. For the reasons that I have stated in this ruling, I find that the Application dated June 9, 2021 is not merited and I therefore dismiss it with orders that costs shall abide the outcome of the suit.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 8TH DAY OF DECEMBER, 2022. WA OKWANYJUDGEIn the presence of: -Mr Orare for the Company.Mr. Ndungu for NCBA Bank.Ms Wangui for Ms Asli for Synergy.Ms Ngumo for Nganga for the Administrators.Mr Diro for Diro Advocate an Interested Party.Court Assistant- Sylvia