[2022] KEHC 457 (KLR)

In the Matter of Mohini Patel & another (Debtors) (Bankruptcy Cause 4 & 5 of 2010 (Consolidated)) [2022] KEHC 457 (KLR) (Commercial and Tax) (6 May 2022) (Judgment)

Neutral citation: [2022] KEHC 457 (KLR)

Republic of Kenya

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

Commercial and Tax

Bankruptcy Cause 4 & 5 of 2010 (Consolidated)

GL Nzioka, J

May 6, 2022

IN THE MATTER OF MOHINI PATEL AND SHAILESH PATEL (DEBTORS) AND IN THE MATTER OF THE BANKRUPTCY ACT CAP 53 OF THE LAWS OF KENYA. (REPEALED)

Judgment

1. Mohini Patel filed a Petition dated; February 16, 2010, vide Bankruptcy Cause No. 4 of 2010, and at the same time, Shailesh Patel filed a Bankruptcy Cause No. 5 of 2010, each seeking for orders that, a Receiving Order be issued in respect of their respective estate and each one of them be adjudged bankrupt.

2. On October 14, 2011, the two Petitions were consolidated based on the understanding that, they arise from the same subject matter, being a company known as; Pavement Limited t/a Pavement Club and Café (herein “the company”), in which both Petitioners were Directors.

3. The consolidated Petition is supported by affidavits sworn by the Petitioners, (herein “the Debtors”), declarations of inability to pay the debts, within the meaning of; Section 8(1) of the Bankruptcy Act (Cap 53) Laws of Kenya (Repealed), and (herein “the Act”), statement of affairs, and a certificate of compliance.

4. It is averred that, the Debtors are husband and wife and the Financial Manager and Managing Director of the company. That in the year 2006, the company borrowed a credit facility from the Bank of Africa (K) Limited (herein “the 1st Creditor”), and as at 31st December 2007, the outstanding sum was Kshs. 9, 000, 000. and at the time of filing the petition, Kshs. 23, 487, 584. was outstanding. The facility was secured by the Directors’ guarantees.

5. In the same vein, the company contracted Terrazo Enterprises Limited (herein “the 2nd Creditor”), to carry out alterations and extensions of the company’s premises at a cost of Kshs 30, 139, 188. and at the time of filing the Petition, Kshs 12, 550, 000. had been paid leaving a balance of Kshs. 16, 598, 988.

6. That on May 27, 2009, the company’s lease was terminated by the Landlord though it was still valid and the premises handed over to Westlink Developers Limited on June 10, 2009. That within two days the premises were vandalized and demolished.

7. That as a result of the aforesaid, the Debtors lost all their life savings, and were left with no assets, save two cars. As a result, the company was unable to pay its debts to the Creditors and was sued. Upon receipt of judgment and in attempt to execute, the Debtors filed the consolidated Petition.

8. On February 17, 2010, the Official Receiver filed an interim report and on February 19, 2010, the court issued a Receiving Order against the Estate of the Debtors and the Official Receiver appointed as the Receiver of the Estate of the Debtors. On October 2, 2015, the Debtors were subjected to public examination wherein Shailesh Patel, was examined as his own and on behalf of the wife; Mohini, and concluded on October 23, 2019.

9. On December 5, 2019, the Official Receivers filed the final report and on September 30, 2015, Shailesh Patel filed a statement of “proof of debt”. On March 3, 2022, the Debtors filed a bundle of their documents.

10. The consolidated Petition was disposed of by filing of submissions. The Debtors submitted that, from the public examination, the Debtors were forthright individual running a business. That, as evidence by lack of pending invoices, it is clear that, they exercised fiscal responsibility.

11. Further, Shailesh cannot get employment as he is a citizen of the United Kingdom and is admitted into the Country on Investment Visa while, Mohini is not licenced to practice in Kenya, despite being a Pharmacist. Further they are of advanced age.

12. That upon request by the Creditors, and issuance of a Court order, the Debtors provided all documents requested for. That the Debtors have always stayed in their current residential premises thereof the allegation that, they stay in leafy suburb is not correct.

13. Finally, though the Debtors sought to repay the debts by instalments, they were denied NEMA licence to run a company known as Green Plus Limited.

14. However, the 1st Creditor submitted that, the debt of Kshs. 23, 487, 584 as at January 29, 2010, arose as a result of a judgment in its favour in; HCC No. 495 of 2008; Bank of Africa (K) ltd vs Pavement limited & 2 Others. That the Debtors have not made any efforts to pay it.

15. Further, the proposal in the Official Receiver’s interim report by the Debtors to pay the debt by instalments has not been honoured. Yet the Debtors pay rent up to; Kshs 160, 000 at Kiuna, Loresho, a posh area, insisting that, they have to maintain their life style. That, there is no evidence to prove it is paid by the relatives as stated.

16. Similarly, the 2nd Creditor submitted that, its debt arises out of a judgment and decree in; HCCC No. 568 of 2008, Terrazo Enterprises Ltd vs Pavement Limited t/a Pavement Club “N”Café, Blue Elephant and Shalesh Patel, [2009] eKLR. That warrants of attachment could not be executed due to lack of assets.

17. That the public examination revealed contradictions in the Debtors’ evidence that; the Debtors’ children are working in the UK and later stated to be students there, and that, the Debtors rent is paid by their Mother and then changed to a Sister in law. That the rent paid is too high to be paid by a third party. Further, the Debtors have not rebutted the list of cheques’ identified showing rent payment made by them.

18. That the Petition was filed immediately after judgment was entered in; favour of the Creditor and therefore, made in bad faith and therefore lacks merit and should be dismissed and receiving order vacated.

19. I have considered the prayers in the consolidated Petition, in the light of the materials before the Court and the submissions filed and I find that, the consolidated Petition was filed pursuant to the provisions of the Bankruptcy Act, (Cap 53), Laws of Kenya, (repealed). I note that, there is a dispute as to whether that law is applicable or the Insolvency Act, 2015. The Debtors argue that, the Bankruptcy Act, (repealed) applies by dint of section 733 of; Insolvency Act, 2015. The 2nd Creditor argues to the contrary.

20. I have contrary argument and I find that, the Insolvency Act, 2015 was assented to; on September 11, 2015 but commencement dates vary in respect of various parts. Part I (section 1–3); Part III (section 12–302); Part V (section 362–380) commenced on November 30, 2015 by Legal Notice 244 of 2015. Part II (section 4–11); Part VI (section 381–511); Part VII (section 512–519); Part VIII (section 520–623); Part IX (section 624– 676); Part X (section 677–690); Part XI (section 691–700); Part XII (section 701–719) commenced on, 18th January, 2016, vide Legal Notice 1 of 2016.

21. Part XIII, section 721–735 commenced on March 11, 2016 by Legal Notice 38 of 2016, Part XIII, section 720 commenced on June 27, 2016 by Legal Notice 119 of 2016 and Part III, section 148A; Part IV (section 303–361); Part VI, section 474(5)(c); Part VIII, section 560A; Part IX, section 638(c), section 649(1) (fa); Part XIII, section 723A not yet commenced.

22. In addition, the Act provides for transitional clauses on various provisions. Section 733 of the Act provides for transitional provisions: insolvency of natural persons and states that;(1)In this section—"the commencement" means the coming into operation of Parts III to V;"past event" means any of the following that has occurred before the commencement —(a)issuing a bankruptcy notice;(b)making an application for a bankruptcy order; either by a creditor or the debtor;(c)entering into a voluntary arrangement;(d)making an application for a grant of probate or letters of administration in respect of an insolvent deceased's estate under section 89 of the Law of Succession Act (Cap. 160).(2)Despite their repeal, the Bankruptcy Act (Cap. 53) and section 89 of the Law of Succession Act continue to apply, to the exclusion of this Act, to any past event and to any step or proceeding preceding, following, or relating to that past event, even if it is a step or proceeding that is taken after the commencement.(3)Subsection (2) has effect subject to any transitional regulations made under section 735 that relate to the insolvency of natural persons.

23. It is therefore evident that, the Debtors’ submissions are factually correct. Be that as it were, section 3 of the Bankruptcy Act (repealed) provides that a Debtor can file a Bankruptcy Petition and states inter alia at sub section (1) (f), that:1. “A debtor commits an act of bankruptcy in each of the following cases—(f)if he files in the court a declaration of his inability to pay his debts or presents a Bankruptcy Petition against himself”

24. Furthermore, section 8 of the repealed Act states that, a Debtor’s Petition shall state that the Debtor is unable to pay his debts. That the presentation thereof shall be deemed as an act of bankruptcy without the debtor filing any declaration of inability to pay his debts, and the Court shall thereupon make a receiving order, provided that, an order shall be refused unless the debtor has filed with the Official Receiver his statement of affairs prepared in accordance with the provisions of section 16.

25. Be that, as it were, it is not in dispute herein that, the Debtors were Directors of Pavement Enterprises Ltd and the Company owes the amount claimed by the Creditors, and has expressly admitted the same. That, Mohini Patel executed a personal guarantee to secure a loan of, Kshs. 17, 000. 000 from the 1st Creditor, while Shailesh Patel acknowledgment 2nd Creditor’s debt; vide an agreement made on June 16, 2006.

26. The question that arises is whether, the Petitioners have satisfied the Court that, they are unable to pay their debts. I have already analysed the parties’ arguments in relation to the same and considering the same I find that, first and foremost, the Debtors allege that they were unlawfully evicted and their premises destroyed. The expectation would be that; they would enforce their right to recover the loss incurred which would then enable them to pay off their debt. That was not done for reasons unknown herein.

27. Furthermore, I find that in the Debtors filed the Petitions on the 16th February 2010, after the Judgments in favour of the 2nd Creditor was delivered in favour on; October 16, 2009, and a decree in favour of the 1st Creditor dated; 7th July 2009. Yet the business premises is said to have been demolished in the month of June, 2009. Therefore, it is not in vain that the Creditors argue that, the Debtors may have filed the Petitions to defeat execution of the judgments.

28. It also suffices to note that, the Official Receiver interim report indicates that, the Debtors offered payments be instalments as far as February 17, 2010, but ten years down the line, no payment has been made. Additionally, it is in evidence that, the Debtors incorporated another company but nothing came of it.

29. I further find that, the Debtors have not demonstrated any efforts made to gain employment to pay off the debt. With due and utmost respect, the reasons advanced that, Shailesh Patel who he is described as an Accountant, cannot be employed and Monhini Patel cannot practice in Kenya is not tenable. Furthermore, although the Debtors allege they are of advanced age, that was not the case over ten (10) years ago.

30. Be that as it were, it does appear from the evidence that, the Debtors have not changed their life style. It is not in dispute that; they still stay in the same residential premises that they were in before the company collapsed. The 2nd Creditor has at paragraph, 13 of it submissions tabulated the rent payments of generally substantial amount for a person who has petitioned to be adjudged bankrupt.

31. The subject payments have not been disputed or rebutted. The arguments that, the payments are made by the Debtors relative is rather interesting, in that whereas the Creditors are not paid, the Debtors life goes on unhindered by their circumstances. That is not morally acceptable.

32. I have also considered the final report by the Official Receiver dated December 5, 2019 and I find that, it indicates that the Debtors have no assets and/or capacity to settle the debts herein. However, in view of the aforesaid and the fact that, Creditors are desirous of enforcing their fruits of judgment it is only fair and just, they be allowed to do so.

33. I therefore find that, the Petition is not supported by adequate evidence of the Debtors’ inability to pay debts and I dismiss it. I direct that, the Debtors make a proposal within thirty (30) days on how they shall liquidate the sums owing, failure of which the Receiving Order shall be lifted, vacated or discharged. If the proposal is acceptable the costs of this Petition shall be in the cause, if it is not probable the costs shall follow the event. That is be borne by the Petitioners.

DATED, DELIVERED AND SIGNED ON THE 6TH DAY OF MAY, 2022GRACE L. NZIOKAJUDGEIn the presence of;-Mr. Karani for the Petitioner/DebtorsNo appearance for the Creditor Bank of Africa (K)Mr. Odoyo for Terrazo Enterprises LimitedNo appearance for the Official ReceiverEdwin Ombuna – Court Assistant