[2025] KECPT 324 (KLR)

Karanja (Suing as a Liquidator Nkuene Farmers Co-operative Society Ltd) v Kaguru Farmers Co-operative Society Ltd (Tribunal Case 61 of 2018) [2025] KECPT 324 (KLR) (12 June 2025) (Judgment)

Neutral citation: [2025] KECPT 324 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 61 of 2018

Janet Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

June 12, 2025

Between

Boniface Karanja (Suing as a Liquidator Nkuene Farmers Co-operative Society Ltd)

Claimant

and

Kaguru Farmers Co-operative Society Ltd

Respondent

Judgment

1. The matter for determination is a Statement of Claim dated 15th February 2018. In the Statement of Claim, the Claimant claims that he is the liquidator for Nkuene Farmer’s Co-operative Society. He states that prior to the liquidation of Nkuene FCS, factories that later formed the Respondent herein had entered into an agreement with the liquidator that they would foot 5. 6% of the liquidation expenses. He claims that in the process of liquidation, he has been able to meet some obligations, while some are still pending, for which the Respondent is liable to the tune of Kshs. 704,305/-, being the agreed. The Claimant is aggrieved and prays fora.. Kshs.704,305/=b.Costs .c.Interest on (a) above at court rates until payment in full.d.Any other or further relief as the Honourable court may deem just and fit to grant.The Claimant filed a witness statement and a List of Documents in support of their claim.

2. The Respondent entered appearance on 8th March 2018 and filed a Statement of Defence dated 28th March 2018. In the Defence, the Respondents deny entering into an agreement with the liquidator that it will foot 5. 6% or any other per centum, and any outstanding liabilities.

3. The matter came up for hearing on 23rd August 2023.

4. The Claimant, Boniface Karanja testified. In his testimony, he informed this court he is formerly the liquidator of Nkuene FCS and that he took over in August 2007 when the society was winding up, and was the liquidator until 31st August 2020, when he was discharged. He averred that the liquidator was to have custody of all he assets to sell and distribute to members, and that he received a scheme of distribution by former liquidator, one Mungai. That the chairmen of all the 15 factories were part of the liquidation committee and they signed and approved the scheme. That the assets and liabilities each factory was to receive, was pegged on their previous 5 years productivity. On cross examination, he stated that the total assets of the factories was Kshs. 216,423,334. 00/=, and that the committee vest some assets on the factories and set aside some for sale. That also some properties were taken back by the county government of Meru as the factories only held them in trust of the government and did not belong to them. He also testified that the amount raised so far is Kshs. 32,915,495. 00/= and this has been used to settle some of the liabilities.

5. Three witnesses testified on behalf of the Respondents. One Silas Muriuki, Francis Kiambati and Joseph Muobi. According to Silas Muriuki, farmers were not happy because they were not given what they wanted. That they signed a scheme of distribution on 9th November 2000, without involving the members. That members were furious with Liquidator 1 because he left without a report. That money was withdrawn from the account, and farmers were not paid for their coffee that had been collected that year, that was worth approximately, Kshs. 83,000,000. 00/=.

6. According to Respondent’s second witness, there was no liquidator who came to explain the liability apportioned. He testified that the biggest creditor was staff and the head office and some other properties including “kwa joeli and the landrover’ were to be sold to settle the liabilities. On cross examination, he stated that they should not be forced to pay since the liquidator did not do a good job and also that the coffee not accounted for was over Kshs. 20,000,000/=, and also that at the time of liquidation, the account had over Kshs.83,000,000/=. That there is also no account of the debt owing and the one that has been paid.

7. The third Respondent’s witness, one Francis Mwaki Kiambati, raised the issue of conflict of interest in that one of the vehicles was sold to the son of one of the Chairmen and a member of the liquidation committee James Nkonge Kinoti. That the amount claimed is not legitimate, that there were irregularities and lack of transparency.

8. Both parties filed their submissions.

9. In their submission, the Claimants invited this Tribunal to appreciate that the dispute spans over 25 years. They submitted that the scheme of distribution is a binding agreement with the liquidator and that the Respondents are estopped from denying the liabilities. They relied on the case of National Bank of Kenya –vs- Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR, which provided that a court of law cannot rewrite a contract between the parties. The Claimant also sought to answer the question on whether the Respondent societies have a lawful claim against the liquidator with regard to the affairs of Nkuene Farmers Co-operative Society (Under liquidation). Under this, he submits that the Respondents having willingly signed the scheme of distribution, are estopped from denying the liabilities. They also submitted that the Respondents if the Respondents were not satisfied with the manner in which the liquidation was handling the affairs of the society, they would have appealed to this Tribunal, instead of attacking the liquidator by way of defending the suit. They pray that this court allows their claim with costs.

10. The Respondents, on their part, submitted that if the assets placed before the Claimant were competently managed, the present claim would not be necessary since all the liabilities would have been settled. They also submitted that the liquidator has not been able to provide a clear report on the assets realized and the liabilities settled. They urged this tribunal to dismiss the matter for failure to demonstrate how the liquidation process has been conducted.

Analysis 11. The question before this Tribunal is whether the Claimant is entitled to the relief sought, to wit, a claim against the Respondents in CTC 58 of 2018, CTC 59 of 2018, CTC 60 of 2018, CTC 61 of 2018 and CTC 62 of 2018 as consolidated in CTC 58 of 2018 as a representative Claim.

12. The liquidation of Nkuene FCS Ltd is not disputed. The appointment of the Claimant as a liquidator of Nkuene FCS Ltd is also not disputed. Further, it is not in dispute that the Claimant and some of the liquidation committee members, composed of the chairmen of factories forming Nkuene FCS Ltd signed a distribution schedule on how the assets and liabilities of Nkuene FCS Ltd were to be distributed. What is in dispute is whether the Claimant is entitled to a claim of liabilities that he is claiming in this Claim.

13. The Claimant was a liquidator in Nkuene FCS Ltd. The powers of a liquidator during liquidation are provided for under section 66 of the Co-operative societies Act and they include the power to take control of the society’s assets, settle its debts, collect monies owed, and distribute any remaining assets to members. The liquidator can also carry on the business temporarily with approval, sue or be sued on behalf of the society, summon and examine officers, and dispose of any surplus as provided by law. These powers enable the liquidator to efficiently wind up the society’s affairs under the oversight of the Commissioner for Co-operative Development. The liquidator provides the necessary guidance in dissolving a cooperative, and ensures that the interests of the members and the creditors are well taken care of. The members, being the owners of the cooperative society, have a responsibility of ensuring that the creditors of the society are settled, and indeed the liquidator has a right to call for contributions to be made by members, past members and the estates of the deceased members to the funds cooperative society, under section 66(1)(e) of the Cooperative Societies Act. The liquidator will call for contributions when the available assets are not enough to settle the liabilities of the society or from a member who was indebted to the society. The liquidator will distribute assets of the society to its members when there are surplus after settling liabilities. The liquidator is therefore, not working for individual gain, and must have a basis for any action done or not done.

14. In this present case, the Claimant who is the liquidator is claiming for a share of liquidation expenses from the Respondent, a share that had been allegedly been pre-agreed with the factories that created the Respondent. The question, therefore, before this Tribunal is whether the Claimant is entitled to those expenses. A liquidator is entitled to liquidation expenses because the liquidation is not his but he acts in trust of the members, creditors, and other stakeholders. However, this fiduciary role also means that the liquidator has a duty to act honestly, impartially, and in the best interest of those entitled to the society's assets, particularly the members.

15. Therefore, this Tribunal will interrogate the claim for liquidation expenses by the liquidator. The Claimant has produced to this Tribunal a scheme of distribution as at 30th November 2000 and the same has been signed by members of the liquidation committee on 9th November 2000 and approved by the Registrar of Cooperative Societies on 8th March 2001.

16. According to the scheme of distribution, the expenses to be divided between the factories were liquidation expenses, staff terminal dues, Njuca consolidated and Mwenesi advocates, and the total liabilities was computed at Kshs. 12,576,860. 00/=. The basis of distribution of assets and liabilities was based on the percentage of coffee production by individual societies in the preceding 5 years. The total assets available for distribution as per the Liquidation report and Proceedings was Kshs. 216,423,334. 00/=. The available disposable assets was Kshs. 21,800,000. 00/= and this was proposed to be disposed off to meet the payment of staff benefits, liquidator’s fee and other creditors. According to the summarized scheme of distribution analysis at page 17 of the Liquidation report and Proceedings, the available disposable assets seem not to have been included in the total assets for distribution (Page 15). The liabilities as per the distribution of liabilities schedule was Kshs. 45,492,355. 00/=. The amount claimed in these series of claims is about Kshs. 12,576,860. 00/=. The Claimant claims that he has settled some of the initial liabilities using the sale of some assets. The liquidator, as per paragraph of under Liquidation Account in the Liquidation report and Proceedings, the liquidator was to prepare the final account showing the movement of funds during the liquidation process.

17. During the hearing the distribution schedule was not disputed by the Respondents. The issue of contention was that the liquidator after the first series of meetings conducted the liquidation process without notifying the committee. The respondents contend that the assets that were places under the liquidator could have comfortably repaid all the liabilities. They aver that the liquidation process was not transparent and that in that year of liquidation, farmers were not paid any cent for the coffee cherry that had been delivered despite same having been sold and fetched good proceeds.

18. A liquidation committee is ordinarily set up to walk with the liquidator to manage the affairs of the deregistered society until such time when all the legal obligations are satisfied, all receivable accounts are collected, all claims and creditors verified and paid, and the remaining assets are distributed. In the case of In re Kenyon Limited (Under Liquidation) (Insolvency Cause 019 of 2020) [2022] KEHC 13753 (KLR) the court observed thatInaction on the part of the liquidator jeopardizes the position of the company and the creditors. The law does not envisage a situation where a liquidator assumes office and secretly deals with the company without any accountability. Liquidation does not confer ownership rights to the liquidator to deal with the company as he so wishes. The liquidator is conferred powers to ensure that the company pays its debts and ceases to exist. Anything to the contrary justifies removal from office.

19. In this case, we note that the assets of the society were above Kshs.200,000,000/= while the liabilities were less than Kshs.50,000,000/=. The liquidator has informed this court that the assets were distributed and some were sold to partly satisfy the liabilities that left some pending. The liquidator had not shown this court the justification of distributing the assets before settling all the liabilities, if this was the case. The liquidator has also not set before this court a liquidation report that shows movement of the assets of the society from the inception of the liquidation, to date clearly showing how the deficit arose. It is not enough that the Respondents signed a distribution schedule that apportioned assets and liabilities on the Respondents. Reason being that the Respondents have brought issues that that would have been cleared if the liquidator had filed his liquidation report so far.

20. The other issue that this court has to deal with the fact that the Claimant has since been discharged of his duties as a liquidator. In his testimony, the liquidator informed this court that he took office as a liquidator in August 2007 till he was discharged on 31st August 2020. This means that the Claimant is no longer Nkuene FCS’s liquidator. On what capacity does the liquidator make the claim herein? We note that the matter was instituted in 2018 when the Claimant was still a liquidator. We also note that he instituted the matter as a liquidator and not on his personal capacity. According to the Statement of Claim, the amounts claimed by the claimant are meant to offset liabilities that he has come along as a liquidator such as settling the creditors. Under paragraphs 5 and 6 of the statement of Claim, the Claimant has informed this court that there are remaining liabilities which must be urgently addressed by the liquidator. He also states that “he has been ordered to show cause why he should not be committed to civil jail for failure to meet the liabilities of the former society” (Para 6). This indicates that he instituted the Claim in his capacity as a liquidator. The Cooperative Societies Act is silent on the effects of discharge of a liquidator. Section 68 (b) & (h) of the Co-operative Societies Act envisage a situation whereby a liquidator is discharged after the completion of liquidation proceedings, or when a new one is to be appointed in place of the outgoing one. The Act does not envisage a situation whereby there is vacancy in the office of a liquidator before the completion of the liquidation process. However, we note that the distribution schedule that the Claimant seeks to enforce in this Claim was prepared and executed by a previous liquidator, and therefore, it further shows that the Claimant is here on his capacity as a liquidator and not in his personal capacity. It would have been different if the Claimant was before this court for his own dues as a liquidator.

21. Section 64 of the Cooperative Societies Act, specifies that the sections of the Companies Act specified in Part 1 of the schedule shall apply mutatis mutandis in relation to the winding-up of the co-operative society as they apply to that of a company registered under that Act. The companies registered under the Companies Act are liquidated through the Insolvency Act, and therefore, this court will make reference to the Insolvency Act in instances where the Co-operative Societies Act is silent. The Respondents have informed this court that the liquidator sold some of the property to a person who was the son of a committee member. The Claimant did not dispute this fact. The Insolvency Act, at Section 464 provides that(2)If, in exercising the powers conferred on the liquidator by this Act, the liquidator—(a)disposes of property of the company to a person who is connected with the company; or(b)The liquidator shall, if there is a liquidation committee, give notice to the committee of that exercise of the liquidator's powers.The Respondents testified that the liquidator did not consult them at all during the liquidation process.

22. In light of the evidence presented to this court, this court has failed to deduce due diligence and good faith in the actions of the liquidator, and has failed to see how the liquidator is entitled to the sums claimed without presenting the liquidation report, and an account of the assets sold and how the proceeds from the same was used to settle the liabilities so far. This court notes that it is not enough that there is an executed Scheme of Distribution in place, the Claimant has a duty to show exactly how the amount claimed came about keeping in mind that the Scheme of distribution was signed over 24 years ago. The liquidator was also discharged from office on 30th August 2020. It is not clear to this court whether another liquidator has been appointed, or the liquidation process was completed. What is clear to this court is that should there be pending business under Nkuene FCS Ltd, the Claimant no longer has the capacity to agitate for those issues, or receive payment to settle those issues, since he has since been relieved of his duties as a liquidator.

23. Flowing from the above we find that the Claimant has failed to prove his claim on the required standard of balance of probabilities, and the same is hereby dismissed with costs to the Respondents.

Judgment signed, dated and delivered virtually at Nairobi this 12th day of June, 2025. Hon. J. Mwatsama - Deputy Chairperson Signed 12. 6.2025HON. BEATRICE SAWE - MEMBER SIGNED 12. 6.2025HON. FRIDAH LOTUIYA - MEMBER SIGNED 12. 6.2025HON. PHILIP GICHUKI - MEMBER SIGNED 12. 6.2025HON. MICHAEL CHESIKAW - MEMBER SIGNED 12. 6.2025HON. P. AOL - MEMBER SIGNED 12. 6.2025Tribunal Clerk MutaiGetange advocate for the ClaimantNdege advocate for the RespondentGetange advocate -We request for a copy of the judgment and certified copy of proceedings and leave to appeal.Tribunal orderThe judgment to be supplied upon requisite payment30 days stay of execution grantedLeave to appeal granted.HON. J. MWATSAMA - DEPUTY CHAIRPERSON SIGNED 12. 6.2025