[2013] KEHC 753 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

SUCCESSION CAUSE NO.1239 OF 2008

IN THE MATTER OF THE ESTATE OF JAMES KANYOTU (DECEASED)

JANE GATHONI MURAYA-KANYOTU…………………………………………………APPLICANT

VERSUS

MARY WANJIKU KANYOTU…………………………………………………....... 1STRESPONDENT

CHRISTOPHER NGATA KANYOTU………………………………………………..2NDRESPONDENT

ANDREW PETER NGIRICI…………………………………………………………….3RDRESPONDENT

JOHN KARIUKI KANYOTU……………………………………………………………4THRESPONDENT

SANDRA NJAU KANYOTU……………………………………………………………5THRESPONDENT

AND

KAWAKANJA LTD ……………………………………………………………. 1ST INTERESTED PARTY

KANGAITA COFFEE ESTATE LTD……………………………………….. 2NDINTERESTED PARTY

FRANCIS IGANJO MUTAHI……………………………………………….. 3RD INTERESTED PARTY

WILLY KIHARA…………………………………………………………………. 4TH INTERESTED PARTY

DICK MAINA……………………………………………………………………. 5TH INTERESTED PARTY

RULING

The Applicant filed an application pursuant to the provisions of Section 47 of the Law of Succession Act, Rule 49, 59(3) and 73 of Probate and Administration Rules seeking several orders from the court. The first order she sought was an order of injunction to restrain the Respondents from dealing with the properties listed in Prayer 2 of the application pending the hearing and determination of the succession dispute. The properties listed are sixty-one (61) and are situated in various parts of the country. The Applicant further sought an order of injunction to restrain the Respondents from dealing with the shares held in the name of James Kanyotu (deceased) in the twenty-two (22) companies listed paragraph 4 of the application pending the hearing and determination of the succession dispute. In particular, the Applicant is seeking orders to restrain the Respondents from adversely dealing with the properties registered in the said companies, particularly Kawakanja Ltd and Kangaita Coffee estate Ltd. This is pleaded in paragraph 7 of the application. This is pending the hearing and determination of the succession dispute. The Applicant further sought orders to restrain the Respondents from collecting rent from the properties listed in paragraph 9 of the application pending the hearing and determination of the succession dispute. The Applicant further prayed that an order be made that Messrs. Tysons Ltd be authorized to collect rent from the said properties and thereafter deposit the same in an account to be maintained by the advocates on record for the parties to the application. The application is supported by the grounds stated on the face of the application. It is supported by an affidavit sworn by the Applicant. She swore further affidavits in support of the application. The application is opposed. The 1st Respondent filed several affidavits in opposition to the application. The application was also opposed by Kawakanja Ltd, Kangaita Coffee Estate Ltd and by Dick Githaiga, who are all interested parties.

During the hearing of the application, each counsel reiterated the averments contained in their respective clients’ pleadings. Mrs. Thongori for the Applicant and her children submitted that the shares held by the deceased in some of the companies where the deceased was a majority shareholder had been changed without the approval of the court thereby affecting the value of the estate of the deceased. According to Mrs. Thongori, the Respondents effected the changes in the shareholding of the said companies without consulting the other beneficiaries. She explained that at the time of the death of the deceased, the 1st Respondent as the first wife of the deceased did not have shares in either Kawakanja Ltd and Kangaita Coffee Estate Ltd. To support this argument, she relied on annual returns for the two companies filed in the Companies Registry in the years immediately preceding the death of the deceased. She specifically referred to the returns of the years 2006 and 2007. She submitted that in respect of Kawakanja Ltd, at the time of death, the deceased held 999 shares while a company known as Tropical Registrars Ltd held 1 share. She stated that this fact was even acknowledged by the 1st Respondent when she first petitioned the court to be issued with a grant of letters of administration intestate in respect of the estate of the deceased. She submitted that with regard to Kangaita Coffee Estate Ltd, the deceased held 4,995 shares while the 1st Respondent and her children held a share each. One share was held by Kawakanja Ltd. She explained that after the death of the deceased, the 1st Respondent unlawfully convened a meeting where the share capital of the two companies was increased and thereafter the increased shares were allotted to the Respondents and thus effectively diminished the shares of the deceased in the two companies. She argued that there was no proof that any consideration was paid for the increased shares which were allotted to the Respondents. It was the Applicant’s case that it was therefore not possible to argue that the increase of the share capital was meant to raise money to settle the debts owed by the deceased given that the debts of the deceased had been disclosed in the petition for grant of letters of administration intestate. She further submitted that the 1st Respondent had attempted to sell a property registered in one of the companies situate at Limuru. She was stopped from selling the property by the court. She urged the court to allow the application.

Mrs. Mwangi representing Kamute Ltd agreed with the submission made by Mrs. Thongori. She urged the court to maintain the status of the estate of the deceased at the state it was when the deceased died. This would enable the court address all the issues related to the administration of the estate of the deceased. Hon. Alice Wahome representing Margaret Nyakinyua (the 2nd interim administrator) associated herself with the submission made by Mrs. Thongori. She argued that the debts held by the deceased or the companies associated with him should be settled in accordance with the provisions of the Law of Succession Act. She conceded that after the 1st Respondent had attempted to sell the Limuru property (LR.No.3777/416/4), the beneficiaries had later held a meeting where the sale of the property was sanctioned and the proceeds from the sale distributed amicably among the said beneficiaries. Mrs. Mwaura for an Interested Party, George Mwaura submitted that the decisions by the Respondents to increase the share capital of the two companies was irregular and was done with the sole aim of reducing and diminishing the value of the shares held by the deceased in the two companies. She submitted that the meeting where the share capital of the two companies was increased was held in secret because no evidence was tendered to support the contention that all the beneficiaries were issued with notices before the convening of the two meetings.

Harrison Kinyanjui, the advocate of Willy Kanyotu submitted there was no evidence to support the contention by the 1st Respondent that the deceased indeed owed a debt to Pan African Credit Finance Ltd. There was further no evidence that payment was made to the said Finance Company by the 1st Respondent. He submitted that the fact of the payment of the debt was a ruse used by the 1st Respondent to deprive the estate of the deceased the value of the shares held by the deceased. He further submitted that the shares held by the deceased were adversely dealt with by the Respondents despite the fact that there existed a court order prohibiting any dealings in the estate of the deceased. This included any dealings in shares held by the deceased in companies where the deceased was a shareholder. He urged the court to allow the application.

In response, Mr. Ibrahim for the Respondents sought to clarify the issue of the ownership and directorship of the two companies. In respect of Kawakanja Ltd, he produced a copy of the Memorandum and Articles of Association of the company. He also produced the Certificate of Incorporation of the company. The said certificate, showed that the company was incorporated in 1975. At the time of incorporation, Mary Kanyotu held 400 shares while the deceased held 600 shares. He also produced the memorandum and articles of association of Kangaita Coffee Estate Ltd which indicated that the company was incorporated in 1976. At the time of its incorporation, Mary Kanyotu held 1 share while the deceased held 1 share. In both companies, the deceased and Mary Kanyotu were directors. Mr. Ibrahim submitted that a number of properties held by the two companies, were purchased when the deceased was married to only Mary Kanyotu. She was therefore entitled to a share in the properties held by two companies. He explained that at the time of his death, the deceased had incurred huge debts in the name of the two companies. He gave the example of Kawakanja Ltd which owed Pan African Credit and Finance Ltd the sum of Kshs.38,571,240. 75. Judgment had been entered in favour of the company by the court. The deceased was also required to pay the sum of Kshs.5. 2 million. The above sums were required to be paid plus interest at court rates. In respect of Kangaita Coffee Estate Ltd, Kenya Revenue Authority was owed Kshs.16, 440,615/-. Mr. Ibrahim submitted that it was these debts that compelled the 1st Respondent to convene meetings of the two companies to sort out the said debts. In that regard, it was resolved that the only way the debts would be settled was by recapitalizing the two companies. This was done by increasing their share capital.

Mr. Ibrahim explained that before the increased share capital was allotted, members of the deceased’s family were requested to invest in the two companies. It was in that regard that the 1st Respondent was allotted shares in the two companies after she had paid the debt owed by the two companies to Kenya Revenue Authority and to Pan African Credit Finance Ltd to the sum of Kshs.25 million. He submitted that the increase of the share capital in the two companies was therefore done in accordance with the law. In addressing the issue of the sale of the property belonging to Kangaita Coffee Estate Ltd, (i.e. LR. No.3777/416/4), Mr. Ibrahim submitted the leave of the court was sought before the disposal was made. He argued that since the two companies were separate legal entities, this court could not include the said companies as part of the estate of the deceased where the beneficiaries would be entitled to inherit. He submitted that the beneficiaries were only entitled to inherit the shares held by the deceased in the two companies. He finally submitted that the Respondents were not opposed to the shares held by the deceased in the two companies to be preserved for the benefit of the beneficiaries of the estate of the deceased. The submission made by Mr. Ibrahim was supported Mr. Adala who is representing both Kawakanja Ltd and Kangaita Coffee Estate Ltd.

On his part, Mr. Ranja for Dick Githaiga (interested party) opposed the application insofar as it concerned a parcel of land registered as LR.No.Block 32/965. It was his submission that the deceased had sold the property to his client prior to his death. It was his client’s case that the said property did not therefore form part of the estate of the deceased and should not be subject to the orders sought by the Applicant.

This court has carefully evaluated the facts of this case. Under Section 45(1) of the Law of Succession Act, no person shall for any purpose take possession or dispose of or otherwise intermeddle with the free property of a deceased person except where it is so expressly authorized by the court under the provisions of the Act. In the present application, it was the Applicant’s case that the Respondents had interfered with a substantial part of the properties that comprise the estate of the deceased by manipulating the shareholding of companies that the deceased was a majority shareholder. The Applicant gave instances where the Respondents had allegedly convened meetings of the respective companies without the knowledge of the beneficiaries of the estate of the deceased. In the said meetings, the Respondents purportedly increased the share capital of the two (2) companies in question i.e. Kawakanja Ltd and Kangaita Coffee Estate Ltd, with a view to diluting the shareholding of the deceased. It was common ground that in respect of Kangaita Coffee Estate Ltd, the Respondent (Mary Kanyotu) convened a meeting of the company whereby the share capital of the company was increased from 5,000 shares to 100,000 shares. Prior to the increase of shares, the deceased owned 4,995 shares. The 5 other shares were held by the children of the 1st Respondent deceased and Kawakanja Ltd. After the increase of the share capital, the deceased continued to hold 4,995 shares while Mary Kanyotu and her children allocated themselves 95,000 shares. In respect of Kawakanja Ltd the deceased owned 999 shares while Tropical Registrars Ltd owned 1 share. Mary Kanyotu, in a meeting of the company convened on 21st March 2009, increased the share capital of the company from 1,000 shares to 10,000 shares. The increased shares were allocated to Mary Kanyotu and her children. The sharesholding of the deceased was reduced from 99. 99% of the shares to about 10% of the shares. It is further common ground that the two companies, while nominally their shares were of low value, in actual fact, the two companies owned substantial part of the properties that comprise the estate of the deceased. For instance, Kangaita Coffee Estate Ltd owns LR. No.3777/416/4 which is a substantial property. As regard Kawakanja Ltd it owns LR. No.11540/3 which according to some the estimate was worth Kshs.775 million in 2010.

The explanation given by Mary Kanyotu for her action is that the properties that comprise the estate of the deceased were in danger of being wasted and would have been sold by a bank and Kenya Revenue Authority if she had not taken appropriate action. In that regard, Mary Kanyotu argued that she had used the sum of Kshs.22 million to pay off the debt that was owned by the deceased to Pan African Credit Finance Ltd and the tax liabilities of the deceased to the sum of Kshs.3 million. According to Mary Kanyotu, the sum that she paid on behalf of the estate of the deceased were compensated by the purchase of the increased share capital of the two companies. It was her case that the increase of share capital of the two companies was therefore legal and should not be impeached by this court.

From the evaluation of the facts of this case, it was evident that Mary Kanyotu and her children, in convening the meetings of the two companies, proceeded on the assumption that the shareholding of the deceased in the two companies was not subject to the jurisdiction of this court. The deceased died on 13th February 2008. Mary Kanyotu lodged this petition in court on 11th June 2008. A consent entered on 23rd June 2010 between the beneficiaries of the estate of the deceased appointed Jane Gathoni Kanyotu, Margaret Nyakinyua Murigu and Mary Wanjiku Kanyotu as the interim joint administrators of the estate of the deceased. It was therefore clear that prior to the appointment of the administrators of the estate of the deceased, no one had authority to deal with the property of the deceased. The two meetings where the share capital of the two companies were increased to the detriment of the shareholding of the deceased were held on 21st March 2009. From the returns of the two companies filed at the Companies Registry prior to the convening of the said meetings, none of the beneficiaries of the estate of the deceased was a majority shareholder in the two companies. The meetings could not therefore have been convened without the participation of the administrators of the estate of the deceased. Mary Kanyotu had no authority to deal with the shares of the two companies, either by increasing her shareholding or by running the affairs of the two companies without the authority of the administrators of the estate of the deceased. In her defence, Mary Kanyotu explained that she took the action to protect the estate of the deceased from waste. That may have been her motivation. However, any decision touching on the properties of the estate of the deceased can only be made by the administrators of the estate of the deceased and not by some of the beneficiaries of the deceased hiding behind the veil of incorporation of the two companies. It was not her business to be especially concerned with the liabilities of the estate of the deceased. She has no special interest greater than that of all the other beneficiaries. She lacked legal capacity to deal with the shares of the two companies without the consent of the administrators of the estate of the deceased.

There is a notion that where a deceased owned shares in a company, then those shares could be dealt with under the provisions of the Companies Act to the exclusion of the provisions of the Law of Succession Act. With respect, this is not the correct position of the law. Where a deceased owned majority shares in a company, those shares can only be transferred after the succession process has been concluded. In the present application, it was evident that the deceased owned a substantial part of his properties through limited liabilities companies. From the structure of the shareholding, it was apparent that the deceased, for all intent and purposes, was the only shareholder of the said companies. The shareholding of the said companies were such that one limited liability company where the deceased was a majority shareholder, owned a single share in another company where the deceased was also a majority shareholder. A case in point is Kawakanja Ltd where the deceased owned 999 shares while a company known as Tropical Registrars Limited owned 1 share. The total share capital of the company was 1,000 shares. This court would not be off the mark if it holds that the companies that the deceased incorporated were infact alter-egos of the deceased. The companies qualified to be referred to in the Kenyan speak as “Kampuni yangu” i.e the companies could not be separated or be considered as distinct entities from the incorporators. In this regard, Kawakanja Ltd and Kangaita Coffee Estate Ltd were “Kampuni yangu” of the deceased. This does not mean that this court is unaware of the separate legal personalities of the companies and their incorporators. Far from it. The issue here is in respect of the shares that were held by the deceased in the said companies. Those shares cannot be dealt with before the succession process is completed. In the same vein, no lawful could have been convened by the said companies before the administrators of the estate of the deceased were appointed.

In the premises therefore, it is clear from the foregoing that Mary Kanyotu and her children acted unlawfully when they purported to convene the meetings of the two companies. They had no legal authority to convene such meetings without the consent of the administrators of the estate of the deceased. The decisions made in the said meetings were therefore ultra vires and had no sanction of the law. The application dated 25th September 2009 is therefore allowed as a result of which Mary Kanyotu and her children are hereby restrained from dealing with the shares owned by the deceased in all the companies that the deceased was a majority shareholder pending the hearing and determination of this succession cause. Mary Kanyotu is further restrained from dealing with any property belonging to the estate of the deceased without the sanction of the administrators of the estate of the deceased. So that the deceased’s shareholding in the respective companies are preserved, this court hereby issues an order that the shareholding of all the companies where the deceased was the majority shareholding shall remain as at 13th February 2008 when the deceased died. All changes that were made in respect of the shareholdings of the companies where the deceased was a majority shareholder are hereby cancelled. The shareholding of the companies listed in the application shall revert to the position as at 13th February 2008 when the deceased died. Mary Kanyotu shall be refunded any monies that she paid from her own resources to settle the liabilities of the estate of the deceased if she establishes that fact.

Since this court is now seized of this matter, the beneficiaries are ordered to sit down and agree on how to distribute the properties that comprise the estate of the deceased. They should do so within sixty (60) days of today’s date. This court is of the view that the parties herein, with generosity of spirit, will be able to reach a settlement taking into consideration the nature of the properties that comprise the estate of the deceased. In the event that there shall be disagreement, the parties are directed to file further affidavits indicating their preferred mode of distribution of the estate of the deceased. The court shall then distribute the properties that comprise the estate of the deceased to the beneficiaries. This matter shall be mentioned on 29th January 2014 for further orders. There shall be no orders as to costs.

DATED AT NAIROBI THIS 8th DAY OF NOVEMBER, 2013

L. KIMARU

JUDGE