https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/9783

Mungai (As Administrator of Cytonn Investment Partners Ten LLP (Under Administration) (Insolvency Notice E192 of 2025) [2026] KEHC 9783 (KLR) (Commercial and Tax) (3 July 2026) (Ruling) Neutral citation: [2026] KEHC 9783 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Commercial Courts) Commercial and Tax Insolvency Notice E192 of 2025 FG Mugambi, J July 3, 2026 IN THE MATTER OF CYTONN INVESTMENT PARTNERS TEN (UNDER ADMINISTRATION) AND TOM OUMA MUNGAI (AS ADMINISTRATOR OF CYTONN INVESTMENT PARTNERS TEN LLP In the matter of Tom Ouma Mungai (As Administrator of Cytonn Investment Partners Ten LLP (Under Administration) Applicant Ruling Background and Introduction 1.By way of a background to the present dispute, the Regulated Cytonn High Yield Fund ("RCHYF") is an investment fund holding funds from over 25,000 investors. It is run by three parties: Goal Advisory Africa Limited (GAAL) as Trustee, SBM Bank Kenya Limited as Custodian and Cytonn Asset Managers Limited as Fund Manager. 2.In 2021, RCHYF extended a facility to Cytonn Investment Partners Ten LLP (CIP 10), one of the Cytonn partners, which facility was secured by a floating charge over CIP 10's assets. When CIP 10 failed to repay the debt, GAA appointed Tom Ouma Mungai as replacement administrator over CIP 10 and two other related partners being Cytonn Investment Partners Eleven LLP (CIP 11) and Epazec Company LLP under similar circumstances. 3.Separately, in another matter, this Court (Mabeya, J), had already ordered the liquidation of two other related entities, Cytonn High Yield Solutions LLP (CHYS) and Cytonn Project Notes LLP (CPN), in Insolvency Cause No. E063 of 2021 and had issued orders preserving and vesting various properties belonging to the Special Purpose Vehicles (SPVs), including some belonging to CIP 10, CIP 11 and EPAZEC, for the benefit of CHYS's creditors. The Official Receiver, who is also the liquidator for both CHYS and CPN, (in liquidation) refused to recognize the Administrator's appointment over CIP 10, CIP 11 and EPAZEC hence the two applications dated 19th January 2026 and 2nd February 2026, both filed by the Administrator, Tom Ouma Mungai (the applicant). 4.For the avoidance of doubt, the application dated 19th January 2026 sought the following orders:i.Spentii.Spentiii.That upon hearing this application inter-partes, this Honourable Court be pleased to give directions to the Applicant under section 579 of the Insolvency Act on the legality and validity of his appointment as administrator under section 534 of the Insolvency Act.iv.That upon hearing this application inter-partes, this Honourable Court clarifies on the role of the Official Receiver and other stakeholders in these proceedings upon notification of appointment of an administrator under section 539 and section 563 of the Insolvency Act.v.That upon hearing this application inter-partes, this Honourable Court gives directions on the extent to which the Applicant may exercise his authority in the pendency of the preservation orders and vesting of the properties with the Official Receiver.vi.That the directions and orders issued in this matter do apply in Milimani HCCOMMIN No. E193 of 2025 In Re Cytonn Investment Partners Eleven LLP and in Milimani HCCOMMIN No. E194 of 2025 In Re Epazec Company LLP. 5.In his affidavit, the Administrator stated that the preservation and vesting orders only affected the properties of the affected entities, not their management or corporate affairs. He therefore accepted his appointment as administrator on the condition that it remained subject to those orders. He relied on the Court of Appeal's judgment in Cytonn Investment Partners Sixteen LLP & 3 Others V The Official Receiver, which held that the preservation orders did not lift the corporate veil of the SPVs. He also relied on this Court's ruling of 22nd November 2024, which set out the vesting and preservation orders affecting the affected entities' properties. The applicant stressed that, although his appointment remained valid, he could not proceed with administration until the court gave guidance on the issues raised by the Official Receiver in his letter declining to accept the administration. I will determine this application in priority, since its outcome would affect the second application, which I note is in many ways similar to this. 6.The Administrator's application was supported by GAAL and Edwin H Dande, through their replying affidavits and submissions. It was opposed by Mark Gakuru, the Official Receiver, through his replying affidavit and written submissions, all of which I have considered. 7.By way of preliminary observations, the Official Receiver challenged the validity of the applicant’s appointment as Administrator of the related entities, noting that the alleged qualifying floating charge in favour of GAAL did not exist, that the application contravened section 528(1)(b) of the Insolvency Act (the Act), that the assets of the affected entities were already vested in the Official Receiver, acting as liquidator of CHYS and CPN pursuant to lawful court orders and that that the purported appointment of Tom Ouma Mungai as Administrator was effected in contempt of judgments previously delivered by both the High Court and the Court of Appeal. 8.The Official Receiver confirmed that preservation orders had been issued against the affected entities, in respect of their properties, being Taraji, The Ridge, and Applewood as the court found that these properties had been acquired using funds invested by members of the public in CHYS and CPN. That the issues in question had been litigated unsuccessfully in the Court of Appeal and at the Supreme Court, that the placement of the 3 Cytonn entities under administration, besides being unmerited, was a calculated scheme devised by the promoters of Cytonn and the applicant herein to delay the progression of the liquidation process and cause confusion. 9.The Official Receiver argued that GAAL had not produced any documentation to establish itself as a secured creditor of the affected entities. That no evidence had been presented of a registered legal charge over the properties in compliance with the Land Registration Act, 2012. It was further stated that the reference to registration under the Movable Property Security Rights Act (MPSRA) was irrelevant, since the properties in question are immovable and could be validly secured under that Act. That without a duly registered charge, the applicants could qualify as secured creditors, and their claim to priority or “ranking” was legally baseless. 10.The Official Receiver further emphasized that liquidation and administration were distinct and mutually exclusive insolvency procedures, which could not be conducted concurrently. Finally, it was stated that this Court had already pronounced itself on the issue of illegal creditors’ meetings, reinforcing that only the liquidator could convene such meetings. 11.In response to the Official Receiver’s affidavit, the applicant filed a further affidavit sworn on 9th March 2026 in which he maintained that his appointment as administrator was made pursuant to sections 534 and 608 of the Insolvency Act, and accepted based on security agreements held by GAAL as trustee of the CHYF. These agreements authorized GAAL to appoint an administrator in the event of default. He stated that the searches conducted under the MPSRA confirmed that GAAL was the first-ranking holder of the qualifying floating charge, therefore entitling it to priority under section 535(2) of the Act. 12.He further clarified that he had engaged with the Official Receiver before receiving the letter dated 29th December 2025, in an effort to align on the scope of his authority without undermining the Official Receiver's role. Finally, the Applicant noted that both GAAL's notification of appointment and his own remained pending review and approval by the Official Receiver as at the time of this application. Analysis and Determination 13.From the parties’ filings, the following issues arise for determination:i.Whether the Applicant’s appointment was valid under section 534 of the Insolvency Act;ii.Whether the Applicant can lawfully exercise powers of administration in respect of entities whose assets are subject to subsisting preservation and vesting orders; Whether the Applicant can lawfully invoke Sections 566, 568, 622 and 579 of the Insolvency Act; andiii.Whether the prayers sought by the applicant should be granted. 14.Regarding the first issue, Section 523 of the Act identifies the parties authorized to appoint an administrator of a company. It provides as follows:“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.” 15.The applicant maintained that his appointment was made pursuant to section 523(b), by a holder of a floating charge. It therefore fell upon him to demonstrate that there was strict compliance with section 534, which sets out the threshold for appointment by such a person, as follows:“(1)The holder of a qualifying floating charge in respect of a company's property may appoint an administrator of the company.(2)For the purposes of subsection (1), a floating charge is a qualifying floating charge if it is created by a document that—a.states that this section applies to the floating charge; orb.purports to empower the holder of the floating charge to appoint an administrator of the company.(3)For the purposes of subsection (1), a person is the holder of a qualifying floating charge in respect of a company's property if the person holds one or more debentures of the company secured—i.by a qualifying floating charge that relates to the whole or substantially the whole of the company's property;ii.by a number of qualifying floating charges that together relate to the whole or substantially the whole of the company's property; oriii.by charges and other forms of security that together relate to the whole or substantially the whole of the company's property and at least one of which is a qualifying floating charge.” 16.Section 534 establishes a strict precondition for exercising the power to appoint an administrator without recourse to the Court. It requires the existance of a valid, enforceable, and properly constituted qualifying floating charge covering the whole, or substantially the whole, of the company’s property. Where this requirement is not satisfied, any appointment made under that provision is defective and liable to be set aside. As to what form a floating charge ought to take, section 534(2), is clear that:“(2)For the purposes of subsection (1), a floating charge is a qualifying floating charge if it is created by a document that—a.states that this section applies to the floating charge; orb.purports to empower the holder of the floating charge to appoint an administrator of the company.” 17.In Re Arvind Engineering Limited, [2019] KEHC 12266 (KLR) the Court, (Tuiyott J., as he then was), clarified that eligibility as a qualifying floating charge was not determined solely by the presence of an express statement in the instrument invoking section 534. Rather, the character of the instrument itself was equally decisive and where a security instrument conferred upon the holder the power to appoint an administrator, it satisfied the statutory test even without an explicit recital of section 534. The Court stated as follows:“By giving the alternative criteria under subsection 2(b), it is clear that eligibility as qualifying floating charge is not just the express saving of the application of the provisions in the Debenture instrument but also the character of the Debenture. If the Debenture empowers the holder to appoint an administrator then it passes the test.” 18.In response to the Official Receiver's submission that no valid or registered floating charge existed to support the applicant's appointment, the applicant and parties in support of the application brought to the Court's attention two cardinal documents: the Loan Note Agreement dated 25th March 2021 and the Security Agreement of even date, executed in respect of the facility that was extended to CIP 10. They relied on Clause 10 of the Loan Note Agreement, which expressly provided that CIP 10's obligations under the Notes:“shall be secured by the Security Agreement, which shall be a Qualifying Floating Charge pursuant to the requirements of Section 534 of the Insolvency Act, 2015.” 19.They further relied on the Security Agreement dated 23rd March 2021 which at Clause 3 granted a first floating charge over the undertaking and assets of CIP 10, and at Clause 13 expressly empowered the holder, GAAL, to appoint an administrator pursuant to sections 534 and 538 of the Act. For the avoidance of doubt, the clauses read as follows:“ 3.1 The Partners, as beneficial owners free from all liabilities and encumbrances, hereby grant in favour of the Grantee as security for the secured obligations, by way of first floating charge, the Partnership interest and related rights. 3.2 The Partnership, as beneficial owner free from all liabilities and encumbrances, hereby grants in favour of the Grantee as security for the payment and discharge of Partnership’s obligations under the Instrument, by way of first floating charge, the whole of the Partnership’s undertaking and assets, present and future, in favour of the Grantee as security for Partnership’s obligations under the Instrument.…………. 13.At any time after demand for payment of the moneys secured or following the occurrence of an Event of Default which is continuing: 13.1 the Grantee or any officer of the Grantee may appoint in writing any person or persons (whether an officer or officers of the Grantee or not) to be a receiver/ administrator and manager or receivers/ administrators and managers jointly and severally of the property and assets hereby charged or any part thereof upon such terms as to remuneration or otherwise as the Grantee decides and such appointment shall be pursuant to the provisions of Section 534 of the Insolvency Act 2015 and shall take effect in accordance with Section 538 of the said Act;” 20.The latter clause of the Agreement does precisely what Arvind Engineering (supra) identifies as sufficient under section 534(2)(b) of the Act as it expressly empowers the holder of the floating charge, being GAAL, to appoint an administrator, and it does so by direct reference to section 534 and section 538 of the Act. 21.Further, it is clear that the Security Agreement was registered on 22nd April 2021 under the MPSRA regime, whose purpose, as set out in the preamble, includes facilitating the use of movable property as collateral for credit facilities. The Official Receiver contends that this registration was defective, arguing that the collateral in question related to immovable property. 22.This assertion is however not supported by the evidence on record. To the contrary, Clause 2 of the Security Agreement set out the full extent of the interests secured by the floating charge including equipment, intellectual property, monetary claims investments, bank accounts, insurances, receivables and sale agreements, goodwill, uncalled capital, and all licences, consents and authorisations in place of the borrowers. The security also extended to rental and other income, debts, rights and claims arising under leases, licences or agreements relating to the company's real property, together with rights against guarantors and sureties of lessees, sub-lessees, or licensees. These categories of collateral are also reflected in the search results furnished by the applicant in support of his application. 23.On the face of it, it is therefore clear that the Security Agreement did not purport to charge any real property itself, that is, land and any buildings or improvements upon it. What was charged was the income streams and contractual rights arising from such property, not the underlying immovable asset. In any case, Section 4(2)(b) of the MPSRA expressly excludes from its scope the creation, lease, or transfer of an interest in land, save for rights to payment arising in connection with such interests or leases. Accordingly, the secured interests under the said Agreement were properly registrable as movable collateral under the MPSRA. 24.For all the above reasons I am satisfied that GAAL held a qualifying floating charge within the meaning of section 534(2) of the Act, and that strictly speaking, the appointment of the administrator within the floating charge was therefore proper. However, that appointment raises a separate question, which is whether, given the existing liquidation of CHYS and CPN, the Administrator could actually exercise his powers. 25.To answer this question, I rely on previous findings of this Court and the Court of Appeal, which established that funds had clearly been commingled between the Cytonn entities and the SPVs. Indeed, the applicant and parties supporting the administration of CIP 10 confirmed, through their affidavits and submissions, that RCHYF drew its funds from over 25,000 investors, the majority of whom also form the body of creditors in the ongoing liquidation process. 26.This position was reaffirmed in the ruling of 6th January 2023 (Mabeya J), in which the Judge justified the need for preservation orders and stated as follows:“In my view, under the common law doctrine of tracing, the creditors would be entitled to trace their funds into these projects. Let those properties be conserved/protected awaiting the realization of the assets of CHYS. Ruling otherwise would be to abate a possible fraud upon the Creditors. This would be so because, the so SPVs may dispose of those projects to the extreme prejudice of the Creditors whose monies was used to acquire them.” 27.Subsequently, the Court of Appeal upheld yet another finding of this Court in their judgment of 21st November 2025 in Nai Civil Appeal No E927, E928, E929, E930, Е 931, E932, E934 OF 2024 & E032 of 2025 and cited with approval the following finding of this Court:“The SPVs have yet to demonstrate that the subject projects are independent of the funds received from CHYS's creditors. Furthermore, CHYS's influence over the SPVs, exercised through its CEO, Edwin Dande, remains unbroken. Significant concerns persist regarding whether the SPVs were deliberately structured as part of a broader scheme to obscure the location of creditor funds and frustrate recovery efforts. With these unresolved issues, the SPVs cannot rely on the doctrines of corporate separateness or privity of contract to shield themselves from scrutiny. They must move beyond these protective legal constructs and provide transparent answers to the creditors' questions…being mindful of the relationship between CHYS, CPN, CIMP and Daniel Harold Dayan Dande and the SPVs, the presumption to be drawn would be that the assets and projects of the SPVs were financed by monies contributed by CHYS and CPN as collecting baskets on behalf of the investors/creditors…It is upon the respective SPVs to adduce evidence showing that part, and if so which of the assets of projects were not in fact financed by the monies collected from the investors/creditors.” 28.Given these and other consistent findings of the courts in the ongoing liquidation process, it still remains upon the SPVs to prove their debts, as ordered by the Court of Appeal, and to be ranked as creditors like any other claimant. Instead of following that path, the entities herein have sought to have an administrator appointed over the very properties that are the subject of the liquidation process. Properties which the courts have already found were likely acquired using funds traceable to CHYS's investors. In effect, this amounts to an attempt to have those same properties managed and dealt with outside the liquidation framework, notwithstanding that the underlying funds used to acquire them were already the subject of recovery efforts on behalf of the general body of creditors. 29.I take note of the applicant's submission that the management of the SPVs' affairs had not been placed under the liquidator, and that the preservation and vesting orders were therefore confined to the properties themselves. I do not find this submission persuasive. Where, as in this case, the properties in question were found to have been acquired using commingled investor funds, it would defeat the purpose of the preservation and vesting orders to permit a separate administrator to take over the management of those same properties independently of the liquidator. 30.To divorce the management of an asset from its ownership and disposal in this manner would create two competing centers of control over the same property and property interests, one intended to preserve it for the liquidation estate and the other purporting to manage it as a going concern for the benefit of the SPV and its own stakeholders. That outcome would be inconsistent with the liquidator's statutory duty to gather, manage, and distribute the insolvent estate for the equitable benefit of all creditors. 31.This duty was reaffirmed by the Court of Appeal Nai Civil Appeal No E927, E928, E929, E930, Е 931, E932, E934 OF 2024 & E032 of 2025 as follows:“We agree that the issuance of preservation and vesting orders are aligned with the liquidator's statutory duty to gather, manage and distribute the insolvent estate in a manner that ensures equitable treatment of all creditors. The management of assets necessarily requires that the liquidators take over the activities of the property in question so as to ensure that it is managed in the best interest of all the creditors. We do not agree that the liquidator's duty is to simply preserve the legal status of the property but that he cannot take over the management of the business being undertaken therein. To do so would mean that the assets under liquidation would not be fully under the control and management of the liquidator. This is in line with section 444 of the Act.” 32.A further difficulty arises from the relationship between the administration and liquidation processes. Administration is, by design, a rescue mechanism, its primary statutory objective being to maintain the company as a going concern. Where that is not reasonably practicable, the Act contemplates realisation of the company's property for the benefit of creditors as a secondary objective. Liquidation, by contrast, is fundamentally a process of asset realisation, which involves the collection and sale of the company's property and the distribution of proceeds among creditors in order of priority under the Second Schedule, in contemplation of the company's eventual dissolution. 33.Where, as in this case, the property in the hands of the affected entities was already the subject of vesting orders made in the CHYS liquidation, orders whose entire purpose was to recover that property into the CHYS estate for realisation and distribution to its creditors, there is no scope for that same property or even the interests arising from such property, as I hear the applicant to be stating, to be simultaneously subjected to a rescue-oriented administration of the affected entities. The two processes are not complementary. They are mutually exclusive as to the same asset. 34.Additionally, it is my understanding that the SPVs subject to the intended administration, including CIP 10, were established for the purpose of carrying out various projects using money borrowed from the Fund. The Administrator has not demonstrated to this Court what other assets he would be managing in administration, if not the very assets already subject to the preservation and vesting orders. In my view, the only plausible reason the Cytonn entities seek refuge under the scheme of administration is to circumvent the liquidation process and divert assets away from the pool available for distribution to creditors. This is contrary to the spirit of the insolvency regime, particularly given that the entities involved are promoters and entities associated with CHYS, CPN and CHYF. 35.This conclusion is reinforced by section 449(3) of the Act, which confirms that, even within a single liquidation, a company's own contributories and connected interests must wait until creditors are paid in full before anything is released to them. It provides as follows:“If, in the case of a company (whether limited or unlimited), all the creditors have been paid in full (together with interest at the official rate), money due on an account to a contributory from the company may be allowed to the contributory as a set off against any subsequent call.” 36.It would be incongruous, and would defeat the policy of that provision, to permit the same connected interests to achieve through a parallel administration of an associated entity what they could not achieve directly within the CHYS liquidation itself, namely, an earlier and unauthorised claim on property destined for CHYS's creditors. Where there is no realistic prospect of the affected entities being restored to viability independent of the very assets already earmarked, by this Court's prior orders, for realisation and distribution to the CHYS estate, the only coherent insolvency mechanism available is liquidation of the affected entities themselves conducted in a manner that respects and gives effect to the antecedent vesting orders and the priority scheme that flows from them not administration purporting to rescue entities whose principal assets have already been ordered elsewhere. 37.In this regard, and given that the Security Agreement is itself relied upon by the applicant as the foundation of his appointment, it is necessary to comment on clause 4.1.4 of that same Agreement, in light of the observations made above. Clause 4.1.4 provides that the charge created under the Agreement shall not be affected by:“… the appointment of any liquidator, receiver, administrator or other similar office in respect of the Borrower or over all or any part of the Borrower's assets.” 38.This clause is, in effect, the contractual mechanism by which the applicant and the parties supporting him seek to keep the floating charge and with it, the prospect of administration alive and enforceable notwithstanding the subsisting liquidation. It is precisely the kind of provision that would enable the outcome I have already found objectionable, which is the diversion of assets, properly recoverable by the CHYS estate, away from the general body of creditors and into a parallel process controlled by parties connected to the promoters. 39.I take the view that, to the extent clause 4.1.4 purports to insulate the charge or the chargeholder's rights from the statutory consequences of liquidation including the priority scheme set out in the Act and the policy underlying section 449(3), it is contrary to the Act and is accordingly void and of no effect. A chargeholder cannot, by private contract, secure for itself and its connected parties a route to priority or control that the statute itself denies them. To hold otherwise would permit exactly the mischief identified above; that promoters and their associated entities using the language of security documents to place assets beyond the reach of the liquidation process, in clear derogation of the statutory scheme that has been enacted for the protection of the general body of creditors. Disposition 40.For all the reasons set out above, I find that the applicant cannot lawfully exercise any powers of administration pursuant to the appointment in question. The reliefs sought are accordingly untenable and are disallowed. Each party shall bear its own costs. Application dated 2nd February 2026: 41.Turning to the second application, this was also filed by TOM OUMA MUNGAI as Administrator of Cytonn Investment Partners Eleven LLP (CIP 11) and Epazec Company LLP. It sought the following orders:i.Spentii.Spentiii.Spentiv.That this application be heard alongside the application seeking general directions under section 579 of the Insolvency Act in this matter on 19th March 2026.v.That upon hearing this application inter-partes, this Honourable Court be pleased to extend the time for submissions of administrator’s proposal and convening of the initial creditors’ meeting by 30 days from the date of determination of the application dated 19th January 2026. THAT the orders in this Cause do apply in Milimani HCCOMMIN E193 of 2025 In the Matter of Cytonn Investment Eleven LLP and Milimani HCCOMMIN E194 of 2025 In the Matter of Epazec Company LLP.vi.That the costs of this Application be provided for. 42.As with the first application, the applicant stated that, by way of a letter dated 6th January 2026, the Official Receiver had declined to approve the notification of his appointment as Administrator. I have considered the affidavits sworn in support of and in opposition to the application, together with the submissions on record. 43.As earlier stated, the arguments raised by the parties in this application substantially mirrored those already determined above, in that the administration sought here was equally affected by the pending liquidation and by the preservation orders over the SPVs' assets, namely, The Alma, Applewood/Miotoni, Riverrun, Ridge, and Taraji. Indeed, the second application concerned some of these very properties. 44.Given my finding that the applicant cannot lawfully exercise powers of administration over the affected entities, it follows that the prayer for an extension of time to comply with the statutory obligations under sections 566 and 568 of the Insolvency Act, as well as for directions under section 579, cannot stand. The prayers are premised on the assumption that a valid and subsisting administration exists in law, an assumption I have already rejected. Disposition 45.Having found that the applicant's administrative powers cannot be exercised in the present circumstances, this application is, for the same reasons, hereby disallowed with no orders as to costs. DATED, SIGNED AND DELIVERED AT NAIROBI THIS 3RD DAY OF JULY 2026.F. MUGAMBIJUDGEDelivered in presence of:Kingori for the administrator/applicantNjenga for the OR with Ms Mugo & SafariCourt Assistants: Lillian & Gloria