[2022] KEHC 16004 (KLR)

In the Matter of Dodore Kenya Limited (Insolvency Cause E055 of 2021) [2022] KEHC 16004 (KLR) (Civ) (2 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16004 (KLR)

Republic of Kenya

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

Civil

Insolvency Cause E055 of 2021

A Mabeya, J

December 2, 2022

Ruling

1. Vide a motion on notice brought inter alia under section 428 of the Insolvency Act (the Act) and dated August 11, 2021 Dodore Kenya Limited (the company) sought an order to stay all legal action and/or proceedings against it pending the determination of the liquidation petition.

2. Further, it sought that the court orders of April 23, 2021 and May 10, 2021 issued in Nairobi MCELRC/E639/2021 Isaac Ogongo v Dodore Kenya Limited And MCMELR/E725/2021 Luciana Ndanu Wambua v Dodore Kenya Limited And Another, respectively, freezing the bank and Mpesa accounts of Dodore Kenya Limited be set aside pending the determination of the liquidation petition.

3. In the alternative, the official receiver sought that the liquidation petition filed by Dodore Kenya Limited be granted and expedited hearing.

4. The application was premised on the grounds that on August 5, 2021 the directors of the company resolved to liquidate the company and a petition for liquidation was filed in court. That due to the company’s financially distressed position, some creditors have filed legal action against the company and have obtained orders freezing the companies accounts.

5. That if such action against the company is allowed to continue, some creditors, including preferential creditors shall not benefit from the remaining assets of the company that are pending liquidation. That such creditor action if allowed will defeat the purpose of liquidation as it will be for the interest of some creditors while leaving out others including preferential creditors.

6. In strong opposition to the application, a creditor and employee of the company, Isaac Odhiambo Ogongo, filed and swore an undated replying affidavit.

7. He averred that that a stay of proceedings is not automatically granted in law the moment the liquidation petition is filed. That the act empowers the court to consider the facts before the stay of proceedings is granted. That the company heavily relied on grants, donations and monetary gifts to fund its operations and projects as none of its projects were profitable or had broken even.

8. He further stated that, the said project funds were made available at the beginning of all project cycles for administrative expenses and employee salaries. That in the premises, the company had no justification to have failed to pay such expenses except on account of fraud and misappropriation of funds.

9. That the company had proceeded to declare him and other employees redundant without following the employment law procedures. That it had disposed of all its assets and closed its offices and relocated its business abroad without paying its employees. That this had provoked the institution of the lower court proceedings.

10. It was averred that the company transferred its remaining assets, bank accounts and Mpesa Agri Wallet accounts to a sham company with the intention of defeating equity and make unavailable its assets as security for the employee-creditors. He denied existence of any attachment orders in MCELRC/E639/2021 Isaac Ogongo v Dodore Kenya Limited.That in the premises, the application was premised on falsehood and misrepresentation.

11. Further, that the company was misleading the court on the amount due to the purported secured creditors. That it relied on statements of financial position and a list of assets and liabilities that had not been authenticated by an independent qualified professional to seek stay and liquidation orders. That the employee creditors will suffer prejudice if the proceedings in the lower court are stayed pending the determination of the liquidation petition.

12. The parties were directed by the court to file respective submissions. However, at the time of writing this ruling neither had filed any.

13. The first issue for determination is whether the court should grant a stay of all legal actions/proceedings against the company pending the determination of the liquidation petition.

14. Section 428 of the act provides: -(1)At any time after the making of a liquidation application, and before a liquidation order has been made, the company, or any creditor or contributory, may—(a)if legal proceedings against the company are pending in the court—apply to the court for the proceedings to be stayed; and(b)if proceedings relating to a matter are pending against the company in another court—apply to the court to restrain further proceedings in respect of that matter in the other court.(2)On the hearing of an application under subsection (1)(a) or (b), the court may make an order staying or restraining the proceedings on such terms as it considers appropriate.”

15. The foregoing provisions clothe the court with the discretion to stay proceedings against a company in another court after a liquidation application has been made on terms.

16. In the present case, the company filed an undated liquidation petition in this court where it was pleaded that the company ceased operations in March 2020 due to Covid 19 pandemic and was unable to pay its debts/meet its obligations. That due to the financial distress the company was facing, its board of directors resolved to file for liquidation proceedings.

17. There are two pending matters against the company: MCELRC/E639/2021 Isaac Ogongo v Dodore Kenya Limited And MCMELR/E725/2021 Luciana Ndanu Wambua v Dodore Kenya Limited And Another.

18. Both cases were filed by the company’s former employees who are creditors of the company having been declared redundant but alleging not to have received their dues.

19. I have considered Mr Ogongo's replying affidavit and the annexures thereto. ‘IOO-A’ is a court order dated October 1, 2021 in MCMELR/E725/2021 whereby the court froze the company’s Absa and Mpesa accounts to the tune of Kshs 1,200,000. ‘IOO-B’ is a court order dated October 28, 2021 in the same matter whereby the court unfroze the aforementioned Absa account by the consent of the parties.

20. In the ruling dated April 30, 2021 in MCMELR/E725/2021 produced as ‘IOO-C’, the court noted that the company had admitted to owing the claimant/employee in the matter some terminal dues arising out of her being declared redundant. Further, the court noted that due to the company’s sale of its assets, the only available assets that a successful litigant could attach was the company’s bank and Mpesa accounts.

21. In the said ruling, it was the court’s finding that the company was in the process of selling its assets and winding up its operations. In the premises, it found that it would be in the interest of justice to issue a mareva injunction against the company’s accounts as the claimant employee would likely not receive any of the money claimed by her.

22. The orders sought are discretionally. I find that it would be gravely prejudicial for this court to interfere with the lower court’s proceedings brought by former employees of the company who have an arguable cases against the company. The company is not operational anymore. Its only known assets in Kenya are the bank account and Mpesa account.

23. It is therefore very possible, if this court were to stay the proceedings in the two cases, that the company would drain its accounts and proceed to close shop to the grave prejudice of the affected employees. The latter must have toiled for the benefit of the company. It would be a grave injustice, if they are left holding the short end of the stick to the benefit of the company.

24. In view of the foregoing, I decline to exercise my discretion in favour of the applicant under section 428(2) of the act and decline to stay the proceedings in MCELRC/E639/2021 Isaac Ogongo v Dodore Kenya Limited And MCMELR/E725/2021 Luciana Ndanu Wambua v Dodore Kenya Limited And Another.

25. There is no freezing order against the company on record in MCELRC/E639/2021 as the company’s Absa account was unfrozen. In this regard, I decline to set aside the court order in the lower court that froze the Mpesa accounts of the company pending the determination of the liquidation petition.

26. Accordingly, the application is without merit and is dismissed with costs.

Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF DECEMBER, 2022. A MABEYA, FCIArbJUDGE