[2022] KEHC 15301 (KLR)

Ponangipalli Venkata Ramana Rao Administrator of Midland Hauliers Ltd v Kotesha & another (Insolvency Notice E008 of 2019) [2022] KEHC 15301 (KLR) (Commercial & Admiralty) (11 November 2022) (Ruling)

Neutral citation: [2022] KEHC 15301 (KLR)

Republic of Kenya

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

Commercial and Admiralty

Insolvency Notice E008 of 2019

A Mshila, J

November 11, 2022

IN THE MATTER OF MIDLAND HAULIERS LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT NO. 18 OF 2015

Between

Ponangipalli Venkata Ramana Rao Administrator of Midland Hauliers Ltd

Applicant

and

Jayesh P. Kotesha

1st Respondent

Sweta Jayesh Kotecha

2nd Respondent

Ruling

1. The Applicant filed an Amended Notion dated 17th May 2021 brought pursuant to section 3, 3A and 63 of the Civil Procedure Act and order 5 rule 22b, order 51 rule 1 of the Civil Procedure Rules, Sections 575, 565, 582, 584, 586, 593, 594 and 692 of the Insolvency Act No. 18 of 2015 Fourth Schedule to the Insolvency Act seeking Orders;a.Spentb.That owing to the current Government Directives with respect to the Covid-19 pandemic, this honourable court be pleased to grant leave to the Administrator/ applicant to effect service of the pleadings and court orders herein to the respondent and their advocates through the following email addresses;a.Jayesh Kotecha: [particulars withheld]b.Mogeni & Co. Advocates [particulars withheld] and [particulars withheld]I.That the term of appointment of the Administrator be extended by a further 12 months from 24th April 2021 to 23rd April 2022 and or for a further 12 months for the date of the court’s decision on the current application and or until the conclusion of the administration process.c.Spentd.Spente.That in the event of default on the part of the respondents, their respective agents, servants and or employees and persons acting on their respective behalf, to voluntarily and peaceably surrender the motor vehicles trucks and semi-trailers and other assets of the company, midland hauliers limited (under administration) then the administrator/applicant be at liberty to forcefully seize the motor vehicles, trucks, semi-trailers and other assets of company midland Hauliers Limited (under Administration) pursuant to the provisions of the insolvency Act 2015. f.Spentg.Spenth.That the reliefs sought in prayers b, c, d, e, f, g and h be granted until the conclusion of the administration process by the administrator/applicant or his successors.i.That costs of this Application born by the Respondents.

2. The Application was based on the grounds on the face of it and the Supporting Affidavit of Ponangipalli Venkata Ramana Rao. It was indicated that on 24th April 2019 Prime Bank Limited appointed Ponangipalli Venkata Romana Rao as the administrator over Midland Hauliers Limited. The initial statutory period of appointment was 12 months which expired on 24th April 2020. The court between 6th May 2019 and 26th November 2019 granted and maintained status quo orders which restrained the powers of the administrator from executing his duties. The parties initiated the process to settle the dispute but it was not successful and the company did not make payment of the outstanding debt.

3. Despite repeated request and pleas and a physical effort to repossess the motor vehicles, truck and semi-trailers from the Respondents. The Respondents have obstructed the administrator and have refused, failed and neglected and/or frustrated the administrator’s efforts in repossessing the motor vehicle, trucks and semi-trailers and other assets of the company.

4. The Respondents refused and wilfully ignored to submit the statement of affairs of the company, Midland Haulier Limited (under administration) within the statutory allowed period of 12 days in accordance with the provisions of section 565 (1) of the Insolvency Act 2015 while failing to submit the statement of Company’s affairs is punishable under section 565 (5) of the insolvency Act.

5. The Respondents’ actions have and shall continue to defeat the Applicants duties and thereby undermine the statutory powers of the debenture holders. They added that there is real and imminent risk of the Respondents and the company selling, transferring and or defeating the debenture holders’ interests and in particularly the many motor vehicles, trucks and semi-trailers owned by the company that are also covered by debentures pursuant to which the administrator has been appointed.

6. The company is indebted to the debenture holder in the sums of USD 6,677,609. 89 and Kshs.6, 826,259. 73 as at 30th June 2019 and which sums continue to accrue interest at various rates of interest. The company’s assets consist mainly of 130 long distance motor vehicles, trucks and semi-trailers and therefore there is an imminent risk of disposal of the assets to the detriment of the debenture holder.

7. Mr Mwangi counsel for the applicant submitted that on 30th July 2020 Nzioka J. allowed the administrator access to the motor vehicles wherever they were situate and allowed him access to business where Midland Hauliers were operating and in a ruling dated 26th July 2020 Majanja J. gave further authority to the administrator.

8. He added that Section 560 565 and 593 of theInsolvency Actgive power to the secured creditor power to appoint an administrator and that there are no credible reasons why Mr. Rao should not be appointed as there was no maleficence nor complaints.

9. The Application was opposed by Mr Mogeni counsel for the Respondents he contended that it was through a consent order that the administrator was given access to the motor vehicles of the company and since then the administrator has never moved them. The administrator in the company of police officers came to seize the property without a court order. Now the administrator wants access to LR 209/16791 property that belongs to Midland Investment.

10. He indicated that there is a complaint lodged against the administrator at the DCI where he was charged with handling the affairs of the company that is pending in the lower court E3632/2021. The administrator cannot therefore discharge functions of the director while having criminal charges pending in court. Additionally, the Applicant was appointed as administrator over two years ago and he has not done much and therefore is not suitable.

11. It was further argued that the Applicant should have applied for an extension before the expiration of the order and therefore the court has no power to enlarge the same.

Issues For Determination 12. Having carefully considered the application and the rival submissions this court has framed only one issue for determination that is;a.Whether the Court should extend the term of appointment of the administrator herein?

Analysis 13. The Applicant moved the court under the provisions of Section 594 of the Insolvency Act which provides as follows:593. The appointment of an administrator automatically ends at the end of twelve months from and including the date on which it took effect.594. (1)Despite section 593-(a)on the application of an administrator, the Court may by order extend the administrator's term of office for a specified period; and(b)an administrator's term of office may be extended by consent for a specified period not exceeding six months.(2)An order of the Court made under subsection (1)(a)-(a)may be made in respect of an administrator whose term of office has already been extended; but(b)may not be made after the administrator's term of office has ended.

14. This court will begin by considering the objectives of an administrator. Those objectives are to be found in Section 522 of the Insolvency Act which provides;Section 552 of the Insolvency Act as follows:“(a)to maintain the company as a going concern;

(b)to achieve a better outcome for the Company’s Creditors as a whole than would likely to be the case if the company were liquidated (without first being under administration);

(c)to realize the property of the company in order to make a distribution to one or more secured or preferential Creditors.”

15. The Respondents argued that the creditor bank cannot appoint the administrator and therefore the application should not be allowed. This is addressed by Section 523 of theInsolvency Act which provides;Who can appoint an administrator?A person may be appointed as administrator of a company—a.by administration order of the Court in accordance with Division 3;b.by the holder of a floating charge under section 534; orc.by the company or its directors under section 541.

16. It can therefore be deduced that directors or shareholders may appoint an administrator under Section 541 of the Insolvency Act. Secured creditors too, may appoint an administrator where such secured creditors hold a floating charge. In both instances, the appointment may be made without the court’s intervention. The third instance is where a company or its directors or its creditors, including contingent and prospective creditors, may approach the court under Section 532 of the Act for an Order placing the company under an insolvency practitioner as an administrator to commence the process of achieving the under Section 522 of the Act and to exercise the prescribed statutory functions.

17. On examination of the record the Respondents have indicated that the Applicant is not capable of dispensing of his duties because of an ongoing criminal case but they failed to attach proof of the same. In light of this, this court finds that the Respondents have not provided any sufficient reason as to why the term of appointment of the administrator herein should not be extended.

Findings and Determination 18. In light of the above this court consequently makes the following orders;i.The term of appointment of the Administrator be and is hereby extended by a further term of two (2) years.ii.That costs of this application shall born by the Respondents.

Orders Accordingly.

DATED SIGNED AND DELIVERED ELECTRONICALLY AT NANYUKI THIS 11TH DAY OF NOVEMBER, 2022. HON.A. MSHILAJUDGEIn the presence of;Kimani h/b for Elijah Mwangi for Prime Bank & AdministratorPurity Makori h/b for Mogeni for the Company.Court Assistant: Lucy.Purity Makori: pray for a stay of the order.Kimani: Opposed to stay.Court: Company at liberty to file a formal application for stay.DATED SIGNED AND DELIVERED ELECTRONICALLY AT NANYUKI THIS 11TH DAY OF NOVEMBER, 2022. HON. A. MSHILAJUDGE