[2024] KEHC 11169 (KLR)

Simba Corporation Limited v ARN Securities Limited (Insolvency Notice 13 of 2019) [2024] KEHC 11169 (KLR) (Commercial and Tax) (23 September 2024) (Ruling)

Neutral citation: [2024] KEHC 11169 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Insolvency Notice 13 of 2019

JWW Mong'are, J

September 23, 2024

IN THE MATTER OF THE INSOLVENCY ACT(CHAPTER 53 OF THE LAWS OF KENYA)

Between

Simba Corporation Limited

Creditor

and

ARN Securities Limited

Debtor

Ruling

Introduction And Background 1. It is common ground that the Creditor filed a statutory demand dated 31st May 2019 demanding for the payment of a sum of Kshs.7,114,984. 41/= from the Debtor (“the Statutory Demand”). In response, the Debtor filed an application dated 13th August 2019 seeking to have the Statutory Demand set aside on various grounds inter alia that the Statutory Demand is invalid as the same overstates the actual amount owing. On 17th December 2021, the court (Muigai J.,) delivered a ruling in which it was found that the Statutory Demand was valid but that the same was suspended for a reasonable period on condition that the Debtor pays the Creditor the lump sum of 50% of the amount due within 90 days of the Ruling.

2. On 20th February 2023, the court directed the Debtor to file a supplementary affidavit to confirm compliance of the aforementioned order which was done through the affidavit sworn on 27th February 2023 by its Managing Director, Anthony Rebo Ngure. This was responded to by the Creditor through the affidavit sworn by its Senior Legal Counsel, Jepkoech Katwa, sworn on 27th March 2023. The parties also filed written submissions in addition to their pleadings which were highlighted orally by their parties’ respective counsel. Since the parties’ positions were summarized by the court in the ruling of 17th December 2021, I will not restate the same but just delve straight into the main issue for the court’s determination which is whether the Statutory Demand ought to be set aside.

Analysis and Determination 3. As per the Ruling and court’s directions thereafter, the Debtor was supposed to demonstrate that it has paid 50% of the amount due. The “amount due” in this case is that as at 6th May 2019, which the court stated in the Ruling was Kshs.7,114,984. 41/=. The Debtor deponed that it had retrospectively complied with the orders of the court as it had already made previous payments of Kshs.3,187,393. 17/= out of the demanded Kshs.7,114,984. 41/= and that they paid an additional Kshs.270,099. 00/= bringing the paid amount to Kshs.3,557,492. 21/= which it states is exactly 50% of the demanded debt.

4. The Creditor does not dispute receiving the above payment but depones that the Debtor still owes it Kshs.4,151,261. 00/= which it claims is the other 50% of the debt and that it intends to pursue a liquidation order against the Debtor. Whereas I am in agreement with the Creditor that even though the Debtor has made payment of 50% of the demanded sum, there are still sums outstanding to it from the Debtor, I am of the view that pursuing a liquidation order against the Debtor at this point will not be the most appropriate action.

5. I say so for a number of reasons. First, by the Debtor paying 50% of the demanded debt, it has demonstrated commercial solvency, it is more than capable of paying its debts and that its assets would be sufficient to meet the liability. Second, liquidation should only be resorted to as a step of last resort and that the insolvency law inhibits premature liquidation of sustainable businesses (see Kenya Artisans Limited v Chemical & Allied Workers Union [2021] KEHC 4149 (KLR) and Kenya Power And Lighting Company Limited v National Cereals & Produce Board (2002) 1 KLR 652). Insolvency proceedings by their very nature have the capacity to invite other parties whose debts may not have matured to also lay claims for collection against the debtor and this my, in my view, stress the financial capacity of a liquid business and eventually cause a run on the affairs, hence placing it in a position of not being able to meet its financial obligations.

6. I further note that the Debtor continues to dispute the outstanding debt claimed by the Creditor. It is important for this court to allow the debtor to provide evidence to establish its position. I therefore think that such contestation should be adjudicated in an ordinary civil suit or common law action as opposed to the present proceedings which may turn corporately fatal for the Debtor. Due process in my view should be that the Creditor to initiate civil proceedings and once it obtains judgment against the Debtor for the balance of the claimed debt and if it is successful, it can then proceed to collect the judgment debt in the usual manner and in accordance with civil procedure Act and Rules.

7. It is only when all other modes of execution have failed that the Creditor can resort to liquidating the Debtor, once again, as the last resort (See Mutungi & another v Africa Merchant Assurance Company Limited [2022] KEHC 15438 (KLR)]

Conclusion and Disposition 8. For the reasons stated above, I find that the Applicant’s Notice of Motion dated 13th August 2019 has merit and is hereby allowed as prayed. Consequently, the Statutory Demand dated 31st May 2019 is hereby set side. I direct that each party bear its own costs of this application.

9. It is so ordered.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 23RD DAY OF SEPTEMBER, 2024. ………………………………………..J.W.W. MONG’AREJUDGEIn the Presence of:-Mr. Nyamwaro for the Creditor.N/A for the Debtor.Amos - Court Assistant