[2022] KEHC 9936 (KLR)

Kamau v Africa Merchant Assurance Co. Ltd (Insolvency Cause E035 of 2021) [2022] KEHC 9936 (KLR) (Commercial and Tax) (17 June 2022) (Ruling)

Neutral citation: [2022] KEHC 9936 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Insolvency Cause E035 of 2021

DO Chepkwony, J

June 17, 2022

Between

Priscillah Njeri Kamau

Petitioner

and

Africa Merchant Assurance Co. Ltd

Respondent

Ruling

1. The Petitioner/Judgment Creditor in this case filed a Petition dated August 10, 2021in which she sought for:-a.That Africa Merchant Assurance Co. Ltd be liquidated under the supervision of the Official Receiver and Liquidator and subsequently the Company be wound up.b.That the Directors of the Company be ordered to personally satisfy such liabilities of the Company as shall remain outstanding and owing after liquidation of the Company.c.That such order be made in the premises as shall be just.d.That costs of this Petition be provided for.

2. In response the Respondent filed a Notice of Preliminary Objection dated December 7, 2021against the Petitioner’s Liquidation Petition dated August 10, 2021 on the grounds that;a.The Petition is superfluous, incompetent and an abuse of the court process and the same is fatally defective;b.The Statutory Notice dated July 13, 2021and attached to the Petition offends Regulation 15(3) of the Insolvency Regulations, 2016;c.The creditor does not possess a Certificate of Compliance from the Official Receiver, and has not paid the mandatory fees required before filing this Petition;d.Failure of joinder of the Commissioner of Insurance as provided under Section 121 of the Insurance Act renders the Petition fatally defective.

3. The Respondent also filed an answer to Creditors Petition dated August 10, 2021.

4. In opposition to the Preliminary Objection, the Petitioner swore a Further Affidavit on December 10, 2021and stated that the assertion that her Petition is superfluous, incompetent and an abuse of the court process is defeatist since the Petitioner instituted the Insolvency Petition after the Respondent failed to honor its obligation to pay the whole decretal sum as had been ordered by court.

5. On the ground that the Statutory Notice offends Regulation 15(3) of the Insolvency Regulations, the Petitioner argues that the same must be rejected for the reasons that the Insolvency (Amendment) Regulations, 2018 enacted by Legal Notice No.7 of 2018 amended the Insolvency Regulations, 2016 to the effect that Regulation 15 does not apply to insolvency but to bankruptcy of natural persons.

6. The Petitioner argues that it is Regulation 77B of the said regulations that governs the instant Petition and that it is silent in regard to the issue of endorsement of the Statutory Demand by the Deputy Registrar hence the Statutory Demand in the instant Petition is not fatal for breach of Regulation 15(3) of the Insolvency Regulations, 2016.

7. Further that the Statutory Demand is dated and has been signed by a person authorized to make the demand on the Petitioner’s behalf, that is the Petitioner’s Advocate on record, as contemplated under Section 2 of the Insolvency Act No.18 of 2015. That the Statutory Demand does not show the amount of the debt and consideration for it and it includes an explanation to the Respondent on the purpose of the demand, the consequent of not complying with the demand, winding up proceedings may be initiated.

8. Further, that a Statutory Demand issued under Section 17 of the Insolvency Act, 2015 kick starts the Bankruptcy process once a valid demand is issued and served upon a debtor. It is contended that if a debtor is served with a valid statutory demand and the same is not satisfied within 21 days from the date of service, it is presumed that it is unable to pay the demanded debt and the creditor herein is entitled to move the court vide the instant Petition unless the Statutory Demand is set aside.

9. It is argued that the Statutory Demand should not be set aside on the basis of a technicality but all circumstances should be considered including whether the debt is owed, whether overriding objective will be defeated and that if no prejudice is occasioned by non-compliance then setting aside the notice will serve no purpose.

10. The Petitioner goes on to aver that failure of possessing a Certificate of Compliance is a non-issue since this court has the power to appoint an official receiver who has the power under Section 439 of the Insolvency Act to appoint the Policy Holders Compensation Funds the Interim Receiver.

11. The Petitioner concluded that the failure of joinder of the Commissioner of Insurance cannot stand since the instant Petition is merited and this court has the jurisdiction under the Insolvency Act and is therefore urged to dismiss the Respondent’s Notice of Preliminary Objection with costs.

12. On December 14, 2021, parties were directed to canvass the application by way of written submissions. The Respondent did not file its written submissions despite being granted timelines to do so and several reminders. The Respondent did file its written submissions dated February 3, 2022.

Analysis and Determination 13. For consideration are grounds upon which the Notice of Preliminary Objection is premised in opposing the Liquidation Petition. I have also read through the further affidavit and submissions filed by the Petitioner in opposing the Notice of Preliminary Objection.

14. It is trite that what constitutes a Preliminary Objection was laid down in the case of Mukisa Biscuits Manufacturing Co. Ltd –vs- West End Distributors [1969] EA 696 that:“A preliminary objection consists of a point of law which has been pleaded or which arises by clear implication out of pleadings and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court or a plea of limitation or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration … a preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion.”

15. On the ground that the Petition offends Regulation 15(3) of the Insolvency Regulations, 2016, the Insolvency (Amendment) Regulations, 2018 enacted by Legal Notice No.7 of 2018 amended the Insolvency Regulations, 2016 (LN. No.47 of 2016) (“The Regulations, 2016”)

16. Regulation 15 of the Regulations, 2016 falls under Part V titled, “Personal Bankruptcy” provides that:[15].(1)For the purposes of section 17 of the Act, the procedure Creditor may apply for complying with or setting aside a demand is as provided under for bankruptcy order in respect of debtor. Regulations 16 and 17.

(2)The creditor's application for bankruptcy order shall be in form of a petition in Form 3 set out in the First Schedule and shall be accompanied by the following documents— verifying affidavit which shall be in Form 4 set out in the First Schedule; proof of the debt which shall be in Form 5 set out in the First Schedule; and the application for appointment of trustee which shall be Form 9 of the First schedule.(3)The petition shall be preceded by a statutory demand and shall be in Form 6 set out in the First Schedule.(4)The statutory demand in subregulation (3) shall be endorsed by the Deputy Registrar of the High Court before it is served on the debtor.(5)The statutory demand specified in sub-regulation (3) shall be served on the debtor at least 21 days before the filing of the petition.(6)The service of the statutory demand shall be in accordance with the Civil Procedure Rules, 2010

17. From the said provisions, it is clear that Regulation 15 does not apply to insolvency but to bankruptcy of a natural person. It is Regulation 77B which is applicable in the instant Petition as it provides that:[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; and(b)A statement of financial position in Form 32 as set out in the First Schedule where necessary.

18. I have perused the Statutory Demand in question and noted that the same was signed by the Petitioner’s advocate which is in breach of Regulation 77B (2)(a) of Regulations, 2016. However, as alluded and submitted by the Petitioner, as long as no prejudice is occasioned, the demand notice ought to be considered in disregard to technicalities as to form. This assertion was reiterated in the case of Peter Munga –vs- African Seed Investment Fund LLC [2017]eKLR, where it was held;-“Unless, substantial injustice or prejudice is to be occasioned by some technical defect or irregularity and which injustice or prejudice cannot be remedied by a court order, technical defects and irregularities should not stand in the way of adjudicating disputes. Compliance with time lines, in my respectful view falls in the realm of technical requirements unless the consequences of non-compliance are expressly stated.”

19. The last limb of the Preliminary Objection is on the ground that the Petition is in breach of the mandatory provisions of Section 121 of the Insurance Act that provides;(1)If an application for the liquidation of an insurer is presented by a person other than the Commissioner, the applicant shall serve a copy of the application on the Commissioner.(2)On being served with a copy such an application, the Commissioner becomes a party to the proceedings and is entitled to be heard at the hearing of the application.

20. It is worthy noting that the above provision is couched in mandatory terms. The Petitioner has not shown that the Commissioner of Insurance was served with the Petition herein as required by Section 121 above. However, liquidation of a Company/Insurer requires mandatory compliance of Section 121 of Insurance Act which the Petitioner has not complied with. For this reason, I find that the Preliminary Objection is meritable and proceed to uphold the same, hence the Petitioner’s Liquidation Petition dated August 10, 2021 is hereby struck out with costs to the Respondent.It is hereby ordered.

RULING DELIVERED VIRTUALLY, DATED AND SIGNED AT NAIROBI THIS 17TH DAY OF JUNE, 2022D. O. CHEPKWONYJUDGEIn the presence of:Mr. Langat holding brief for M/S Jeruto for Petitioner/Judgment CreditorNo appearance for RespondentCourt Assistant - Sakina