[2022] KEHC 16025 (KLR)

Planlink Limited v Wellcrest Hospital Limited (Insolvency Petition E012 of 2021) [2022] KEHC 16025 (KLR) (Commercial and Tax) (2 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16025 (KLR)

Republic of Kenya

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

Commercial and Tax

Insolvency Petition E012 of 2021

A Mabeya, J

December 2, 2022

IN THE MATTER OF WELLCREST HOSPITAL LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT( ACT NO. 18 OF 2015) OF THE LAWS OF KENYA IN THE MATTER OF AN APPLICATION UNDER S.560 (I) (c), S. 561(I) & (4) OF THE INSOLVENCY ACT, NO. 18 OF 2015

Between

Planlink Limited

Applicant

and

Wellcrest Hospital Limited

Respondent

Ruling

1. Before Court is an application dated 5/5/2021. It was brought under sections 560(1) (c), 561(1), (4)(e) of the Insolvency Act, 2015, sections 3 & 3A of the Civil Procedure Act Cap 21, and Order 51 Rule 1 of theCivil Procedure Rules 2010.

2. The applicant sought leave to proceed with the process of forfeiture and peaceable re-entry of the premises leased to the respondent being spaces F-27, F-28, F-29, F-30 and F-31 situated on 1st Floor at Spur Shopping Mall, Ruiru. It also sought that the respondent do furnish a full and accurate inventory of all the equipment or assets in the suit premises within 21 days of such orders.

3. The grounds for the application were set out on body of the application and the supporting affidavit of Joanne Ndungi sworn on 5/5/2021. The applicant’s case was that the respondent had leased its premises for a monthly rent of Kshs 320,763/= payable quarterly in advance.

4. That about July 2019-March 2020, the respondent defaulted and fell into arrears of Kshs 2,286,870/=. Demands for settlement went unheeded whereby auctioneers were instructed to levy distress for the rent.

5. In February, 2020, the respondent obtained ex-parteorders from the Business Premises Rent Tribunal restraining the levying of distress. The Tribunal also ordered the applicant to open the premises and allow the respondent to continue with its business.

6. Since then, the respondent had not taken any effort to prosecute that matter. That the respondent was enjoying the ex parte orders issued more than one year ago while the rent continued to increase. That liquidation would take up to 12 months-time in which the applicant would continue losing out on income if the respondent was allowed to stay in the premises.

7. The respondent opposed the application vide the replying affidavit of Dr Evans Aketch Imbuki sworn on 12/5/2021. He averred that the applicant did not comply with the orders of the Tribunal and failed to open the premises as directed. He produced photos of the premises locked doors in support of that assertion.

8. That if the applicant had allowed re-entry, the respondent would have generated income and settled its debts, thus avoid filing the instant liquidation proceedings. That at the time the premises were locked, the respondent was engaging Equity Bank Ltd for a loan, but the Bank pulled out when it found the premises locked.

9. That during the Covid-19 Pandemic, the applicant refused to allow the respondent entry to collect oxygen cylinders from the premises. That the application before the tribunal had a hearing date of 12/5/2021. That there were fittings and furniture that belonged to the respondent and are part of the liquidation process. That it has no space to keep its equipment.

10. In response, the applicant filed a further affidavit dated 28/5/2021. It contended that it complied with the orders of the Tribunal and opened the premises but none of the respondent’s officials went back to the premises. That the photos attached by the respondent were taken before the orders of the Tribunal. That the respondent had not sought the help of the OCSRuiru to regain entry as ordered. That there was no evidence that it had failed to comply with the aforesaid orders.

11. The application was canvassed by way of written submissions.12. Section 560 (1) (c) of the Insolvency Act (“the Act”) provides: -

“c) A landlord may exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company only with the consent of the administrator or with the approval of the Court”

13. Section 561 of the Act applies if an application for administration in respect of a company has been made and the application has not yet been granted or dismissed or the application has been granted but the administration order has not yet taken effect.

14. It provides for interim moratorium during the pendency of an application for an administration order. It is during such period, that under section 561(4)(e) of the Act that a landlord may exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company only with the approval of the court.

15. In Lazari Investments Limited Vs Peter Mark Saville & Others [2015] E W H C 2590, after considering the case of Aib Capital Markets Plc & Another Vs Atlantic Computer Systems Plc & Others [1990] E W C A Civ 20. The court held: -“The guidance in Atlantic Computer Systems also states that the court, in seeking to give effect to the statutory purpose of the administration, has to conduct a balancing exercise of the legitimate interests of the lessor and the legitimate interests of other creditors of the Company. The court has to compare the financial loss suffered by the landlord, if permission to commence proceedings is refused and he is temporarily denied the relief sought, with the loss suffered by other creditors, if permission to issue proceedings is granted.The court must take into account money paid by the administrators to compensate the landlord. The court also attaches great importance to the proprietary interests of the landlord, who should not be prejudiced by the way in which the administration is conducted save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent”.

16. The respondent submitted that above provision was not applicable to liquidation proceedings only in administration. The Court has noted that there is no provision in the Act that restricts the provision to only administration. The provision in my view is meant to protect a financially distressed company from being torn asunder.

17. In my view, the objective of the entire Act is to protect financially strained company from adverse dealings by its creditors without the court’s supervision or approval. For the respondent to insist that section 560 of the Act is not applicable to liquidation proceedings, it would then mean that the applicant is free to repossess the premises and evict it without recourse to this court.

18. On the merit of the application, the Court has to balance between the legitimate interests and rights of the landlord, and the legitimate interests and rights of the other creditors, as well as the respondent.

19. The Court notes that the orders of the Tribunal given ex-parte on 28/2/2020 are now over 2 years old. That is quite a long time for an ex-parte order of injunction to remain in force.

20. What is clear is that, the respondent has remained in the premises despite being in default and there is no evidence of any attempt to pay any part of the accrued debt.

21. This Court appreciates that the applicant cannot be expected to continue hosting the respondent who is not paying rents which is already owing and continue to accrue. The purpose of administration is to rescue a company on its death bed and revive it. However, a case for liquidation is different. The respondent has petitioned to be liquidated and confessed of its inability to pay its debts. There is no option for survival.

22. It is not clear how the granting of the orders sought will be an impediment to the liquidation. In my view, taking the full inventory of the respondent’s equipment will safeguard them pending the conclusion of the liquidation. The applicant will be denied enjoyment of it’s proprietary rights if it is made to wait until the entire liquidation process is concluded before it can regain possession of its property.

23. The Court notes that the applicant continues to lose out on income of approximately Kshs 320,763/= per month by the respondent’s continued occupation of the premises. The Court is alive to the respondent’s assertion that it has no other space to put its equipment. However, it cannot expect its interests to override those of the applicant who continue losing on rent. As correctly submitted by the applicant, the respondent is at liberty to hire a safe storage space for its equipment.

24. In the end, the Court finds that the applicant has made a case for the orders sought. The application is therefore allowed as follows: -a.The respondent to file and serve a full and accurate inventory of all the equipment and/or assets in the applicant’s premises within 21 days of this ruling.b.Leave is granted to the applicant to proceed with the process of forfeiture and peaceable re-entry of the premises leased to the respondent within 14 days of the respondent’s compliance with order a) above. The date and time of such re-entry to be communicated to the respondent in writing 48 hours in advance. The respondent is at liberty to be present during re-entry.c.For avoidance of doubt, if the respondent fails to comply with order a) above, the applicant shall be be at liberty to re-enter the premises within 3 days of such non-compliance without further recourse to court.d.Costs to the applicant.

It is so ordered.DATED and DELIVERED at Nairobi this 2ndDecember, 2022. A. MABEYA, FCIArbJUDGE