[2022] KEHC 10422 (KLR)

Uchumi Supermarket PLC v UBA Bank Kenya Limited & 4 others (Insolvency Petition 25 of 2018) [2022] KEHC 10422 (KLR) (Commercial and Tax) (19 May 2022) (Ruling)

Neutral citation: [2022] KEHC 10422 (KLR)

Republic of Kenya

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

Commercial and Tax

Insolvency Petition 25 of 2018

A Mabeya, J

May 19, 2022

In the matter of insolvency act 2015 and in the matter of Uchumi Supermarket PLC

Between

Uchumi Supermarket PLC

Applicant

and

UBA Bank Kenya Limited

1st Respondent

United Housing Estate Limited

2nd Respondent

Kenya Bowling Centres Limited

3rd Respondent

Townsville Holdings Limited

4th Respondent

Attorney General

5th Respondent

Ruling

1. Before me are 5 applications filed at various times by the parties herein seeking various reliefs. I propose to determine them sequentially.

2. However, before determining those applications, I need to point out that the purpose of Insolvency proceedings, by whatever nature, is to give a company in distress a lifeline. It is meant to allow such company to re-organize itself for the greater good of both the secured and unsecured creditors. Any arrangement entered into is supposed to be for the benefit of both the company under distress and the body of creditors.

3. In this regard, the Insolvency Court is always called upon to ensure that the arrangement entered into is adhered to with a view to realizing the aforesaid objective. An arrangement that will subject any section of the body of creditors to hardship and/or further losses will be contrary to the objectives of the Insolvency Act.

4. Having the foregoing in mind, the Court will now proceed to consider the applications on record in the order in which they were filed.

5. The first one is dated 19/3/2021. It was filed by Townsville Holdings Limited, a landlord of the company. It sought that the Provisional Supervisor (‘supervisor’) and the company be cited for being in breach of the Company Voluntary Agreement (“CVA”) adopted by the Court on 1/7/2020. It also sought an order for leave to attach the company's assets in order to recover the outstanding rent arrears owed to the applicant.

6. The grounds were that the Supervisor and the company have failed to implement the resolutions on the CVA and to update the creditors on the progress of the implementation of the CVA; that the company has continued to occupy the applicant’s premises without paying rent citing the CVA as the legal basis for such action and that the court's sanction of the CVA is being abused by the supervisor and the company to the disadvantage of the applicant.

7. The applicant contended that the company owed it accrued rent to the tune of Kshs. 23,523,040. 96 as at 31/3/2021 which was to be paid under the CVA and a sum of Kshs. 11,761,174. 29/- for the period between 1/4/2020 and 31/3/2021 which is not subject to the CVA and which the company has refused to pay.

8. The application was opposed by Owen Njenga Koimburi, the court appointed Supervisor of the CVA vide a replying affidavit sworn on 23/4/2021.

9. He contended that the company vacated the premises on 31/3/2021 and is no longer in possession of the premises; that the implementation of the CVA was ongoing and that the Court lacks the jurisdiction to determine the application as the orders of 1/7/2020 only allowed a person with a security over the company’s property to take steps to enforce the security with the consent of the Supervisor.

10. The issues for determination are whether the supervisor is in breach of the CVA, and if so, whether leave should be granted for the attachment of the company's assets for recovery of rent arrears owed.

11. On 1/7/2020, Kasango J adopted the CVA that was entered into by majority of the creditors on 2/3/2020. It was ordered that: -“2)This Court does hereby approve the Company's Voluntary Arrangement (CVA) passed at the Creditors meeting of 2nd March, 2020 in the following terms: -a.All monetary decrees, debt recovery claims, outstanding loan facilities and rent claims including interest and penalties against the Company as at 2nd March, 2020 (the "old debt") be paid in accordance with the CVA;b.All pending execution proceedings inter alia proclamations of attachment, sequestrations, statutory power of sale, distress for rent, or eviction from premises occupied by the Company and any other form of execution proceedings in respect of the old debt be set aside;c.All pending debt recovery cases, outstanding loans and rent claims before the Court of Appeal, High Court, Magistrates Courts or Tribunals be henceforth marked as settled with costs of the respective suits to be agreed upon or taxed and paid together with the old debt as per the terms of the CVA;d.All other contingent liabilities including damages for torts allegedly committed by the Company on or before 2nd March, 2020 be settled as per the terms of the CVA upon determination of the liabilities thereof by a Court or such other competent Tribunal;e.The CVA be subject to review every six (6) months through a meeting of the Creditors from the date the CVA is approved herein;3)In the event the Company defaults on Clause 2 above, six (6) months from the date a CVA order is made herein:i.A person may take steps to enforce a security over the Company's property only with the consent of the Supervisor or with the approval of this Honourable Court;ii.A person may take steps to repossess goods in the Company's possession under a credit purchase transaction only with the consent of the Supervisor or with the approval of this Honourable Court;iii.The Company's Landlords may exercise a right of forfeiture by peaceable re-entry in relation to premises let to the Company only with consent of the Supervisor or with the approval of this Honourable Court.4)The winding up Petition herein be and is hereby marked as settled with costs to the Petitioner to be agreed upon or taxed and paid together with the old debt as per the terms of the CVA.”

12. The directions of the Court were clear on how the company was to be dealt with. If there was default, the specified actions could be taken against the company as specified.

13. The applicant sought leave to attach the company's assets to recover the outstanding rent arrears as the supervisor and company have failed to implement the CVA and that the company continued to occupy its premises without paying rent.

14. The supervisor’s defence was that the company had already vacated the premises on 31/3/2021, that the implementation of the CVA was ongoing and that the Court lacks the jurisdiction to determine this application as the orders of 1/7/2020 only allowed a person with a security over the company’s property to take steps to enforce the same with the consent of the supervisor.

15. It is not disputed that the company owes rent arrears to the applicant. Some of the rent arrears were due before the CVA was adopted by the creditors (‘old debt’) and some fell due after.

16. It is also clear that the company and/or supervisor have not adhered to the order of 1/7/2020. There is no evidence on record to show that a creditors’ meeting was called within 6 months thereof to review the CVA or to update the creditors on the progress of implementing the CVA.

17. There is nothing on record to show that the company and supervisor have implemented any aspect of the CVA despite claiming that the implementation was underway.

18. Despite the foregoing facts, the Court is unable to grant the leave sought to attach the company’s assets in order to recover the rent arrears. According to the orders of 1/7/2020, a landlord could only obtain leave to re-enter the leased premises. There was no direction as to recovery of rent. The applicant did not seek the review of those orders to include the element of rent. Only a secured creditor could be granted leave to enforce a security over the company’s property.

19. The prayer for re-entry seems to have been overtaken by events as the company indicated that it had since vacated the leased premises.

20. In this regard, prayer no. 1 is granted as both the supervisor and the company are in breach of the CVA and order of 1/7/2020. Prayers 2 and 3 are denied.

21. The 2nd application was by, UBA Bank Kenya Limited. It was an amended Notice of Motion dated 7/4/2021. The bank sought leave to exercise its statutory power of sale and enforce its security over all that property known as LR. No. 209/12593, Nairobi or in the alternative, leave to enforce its security over the aforementioned property by appointing a receiver of the income over the aforementioned property and leave to take possession thereof.

22. The grounds thereof were that the company failed to call creditor’s meeting within 6 months to discuss the CVA as ordered by the court; that due to the default, the bank has a right to enforce its security over the said property; that the company’s failure to review the CVA greatly prejudices the bank’s position as a secured creditor as it relieves the company of its obligation to service the loan extended to it.

23. The bank pleaded that the company had been in default of its facility for close to 4 years which is a huge concern to the bank and its regulators given the negative impact it has on its depositors’ funds.

24. The company responded to the application via a replying affidavit sworn on 12/4/2021 by the supervisor. He contended that the company delayed in calling the creditor’s meeting merely by one month as it had been undertaking a reconciliation of creditor claims before any payments could be made; that the delay was further occasioned by logistical challenges occasioned by the Ministry of Health protocols; that the company is not in default as per the payment schedule of the CVA and the only complaint is the delay in holding the creditor’s meeting.

25. He further contended that a receiver cannot be appointed as prayed under the application as the mandate to supervise the income of the charged land lies solely with him as the court appointed supervisor.

26. The bank lodged a supplementary affidavit through its head of legal and company secretary Violet W Maina on 28/4/2021. This was in response to the company’s aforementioned replying affidavit.

27. She averred that there had been undue delay in the implementation of the CVA; that the company and supervisor had failed to implement the resolutions captured in the CVA, to update on the progress of implementing the CVA as well as the status of the company’s revised business model and to call a creditor’s meeting to review the CVA within the 6 month timeline.

28. Further, that the reconciliation could have been carried within the 6 month timeframe given by the Court; that all of the company’s creditors had already presented their claims in the creditor’s meeting of 2/3/2020 and that a creditor’s meeting could have been held through online platforms and that the company has never illustrated that it has paid the creditors pursuant to the orders of 1/7/2020.

29. From the onset the court notes that this application has been overtaken by events.

30. Vide a ruling of 10/1/2022, the Court found that since the government was in the process of compulsorily acquiring LR. No. 209/12593, Nairobi, the proceeds thereof would first be paid to the bank which holds a security over the same. Indeed, the bank had stated that it was no longer interested in exercising its statutory power of sale over the subject property.

31. Accordingly, the application dated 7/4/2021 stands dismissed with no order as to costs.

32. The 3rd application was by Legacy Spares (T) Ltd, a company registered in Tanzania. The application was dated 27/4/2021 and sought an order for the supervisor to furnish the applicant and the Court with a report clarifying the status and position of secured and unsecured creditors of Uchumi Supermarkets Limited (TZ) in relation to the CVA. It also sought leave to file debt recovery proceedings against the company and Uchumi Supermarkets Limited (TZ).

33. The grounds were that the company and Uchumi Supermarkets Limited (TZ) were indebted to the applicant to the tune of Tshs. 253,598,495/62; that the applicant was not covered under the CVA and was apprehensive that unless it can institute a suit to recover the amount in question, any funds in the possession of the company would be applied to the ongoing voluntary arrangement to its detriment. That finally, the supervisor was in possession of the necessary information sought.

34. The record did not indicate any rebuttal by the supervisor or the company.

35. The orders of 1/7/2020 directed that all of the company’s debts that accrued before 2/3/2020 should be paid out in accordance with the CVA. The applicant indicates that it was not included as one of the creditors to be paid out in the CVA and now seeks leave to institute debt recovery proceedings against the company. The statements attached in the applicant’s supporting affidavit are proof that Uchumi Supermarkets Limited (TZ), a subsidiary of the company, is truly indebted to the applicant.

36. Since the order of 1/7/2020 has not been varied, to permit commencing proceedings and other processes against the company, it will be highly prejudicial to vary them at this juncture. Although the supervisor and the company has failed to honour the terms of the CVA, the order that commends itself to the Court is to order that the applicant be included in the CVA, proves its debt and be paid like all the other creditors. Leave is therefore declined.

37. The 4th application dated 27/4/2021 was filed by Kenya Bowling Centres Limited. It sought that the orders of 1/7/2020 be vacated forthwith in so far as it affected it; an order to have all illegal sub-tenants in L.R 209/409/9 (Adam’s Arcade Branch) be declared as such and orders to evict them accordingly.

38. Alternatively, the applicant sought to have all illegal sub-tenants in L.R 209/409/9 stopped from paying the respondent any rents forthwith and to have the same channelled to the applicant. Lastly, there was an alternative prayer to have all subletting of the premises declared illegal, null and void ab initio.

39. The grounds for the application were that the company had not complied with the order of 1/7/2020; that no payment of rent arrears had been paid to the applicant; that the lease had lapsed and the company owed the applicant rent arrears of Ksh.48,816,194/- as of 31/12/2020.

40. Further, that the company had been illegally subletting the premises and collecting Ksh.619,000/- per month over a couple of months. In the premises, the applicant prayed for vacant possession of the subject property.

41. The company opposed the application vide a replying affidavit sworn on 6/9/2021 by Mohamed Mohamed, its director. The averments in the affidavit mirrored those in the replying affidavit sworn by the company in opposition to the 1st respondent’s application dated 7/4/2021.

42. The company further contended that the applicant’s claim involves a claim on rent arrears and subletting which ought to be determined by the Environment and Land Court which has exclusive jurisdiction over land matters; that the court order of 1/7/2020 only allowed a person with a security over the company’s property to take steps to enforce the security with the consent of the supervisor or this Court; that the applicant does not hold any security over the assets of the company and cannot therefore be allowed to seek the orders sought.

43. It was averred that the allegation that the company was in rent arrears was not true since the applicant had failed to submit evidence of any claims made to the company pursuant to an invitation by the company for all unsecured creditors to submit their claims for reconciliation purposes.

44. The company argued that the application was only meant to frustrate the implementation of the CVA.

45. The present application is similar to the one instituted by the Townville Holdings Ltd, in that rent arrears are owed by the company and Kenya Bowling Centres Ltd seeks to re-enter the leased premises.

46. The supervisor and the company argued that this Court has no jurisdiction to entertain the application. That the issues of vacant possession of the suit premises should be in the preserve of the Environment and Land Court. With the greatest respect, that is argument is untenable. The dominant issue here is the insolvency of the company. The Court that has jurisdiction to supervise insolvency matters is the Insolvency Court and none other.

47. I believe that the application was in pursuance to the orders of this Court of 1/7/2020. The supervisor and the company are seeking to run away from their responsibility. That won’t do!

48. In this regard, I hold that this Court has the jurisdiction to determine the application.

49. As earlier established, the supervisor and/or company did not comply with the order of 1/7/2020 nor the provisions of the CVA. Therefore, in accordance with the said aforesaid holding, I grant Kenya Bowling Centres Ltd leave to re-enter the leased premises within 30 days of this order.

50. Accordingly, the application is allowed in terms of prayer nos. 2, 3 and 6.

51. The 5th application was by United Housing Estate Limited. It was dated 1/7/2021 and was brought under section 663 and 668 of the Insolvency Act and Regulation 10 of the Insolvency Regulations.

52. In it, the applicant sought an order for re-entry into the property known as LR. No. 37/251/1 and Shops 4 & 5 in the premises situated on LR. No. 27/251/2, Nairobi (“the demised premises”). It further sought an order directing the supervisor to hold a creditors’ meeting within 30 days from the date of the order for purposes of reviewing the CVA and to determine whether an administrator ought to be appointed in relation to the company for being unable to pay its debts.

53. The grounds for the application were that; the applicant was a creditor of the company by virtue of being a landlord to the premises rented to the company; that the company has been in constant breach of the leases either by not paying rent as and when it is due or sub-letting the premises without its consent; that as at the time of approval of the CVA on 2/3/2020, the company owed the applicant a sum of Kshs. 26,293,520/- which would incur a 30% discount, an amount which 1 year later, the company had failed to make any payments towards.

54. The applicant averred that the supervisor had failed to hold a creditor’s meeting and make any payments under the CVA; that the applicant wrote to the supervisor on 21/5/2021 seeking permission to exercise its right to forfeiture by way of re-entry in accordance with order 3(iii) of 1/7/2020 but the supervisor failed to respond.

55. That the continued occupation of the demised premises by the company continue to greatly affect the applicant’s business and denies it its right to property and its return on investment.

56. The application was opposed vide a replying affidavit sworn on 6/9/2021 by the company’s director. He averred that the company delayed in implementing the CVA as explained in the affidavit sworn in response to the application by Townsville Holdings Ltd; that the company and the applicant were in the process of negotiating a payment plan; that only the supervisor can apply for the transition from a CVA to either administration or liquidation and that the applicant had no locus to make the present application.

57. It was further argued that the supervisor was an officer of the Court and not a party to the CVA. That in the premises, he could not be sued in his personal capacity.

58. The Court has considered the averments in the affidavits in in support and opposition to the application. The application mirrors that of Townville Holdings Ltd and Kenya Bowling Centres Ltd. The applicant leased out premises to the company which has been in arrears.

59. Having already held that the supervisor and the company are in breach of the orders of 1/7/2022, and in accordance therewith, I grant an order of re-entry as sought by the applicant. Prayer nos. 2, 3 and 6 of the application are hereby granted.

60. The Court observes that, what came out of the applications is that, the landlords of the company were being subjected to un-necessary hardship. They are un-necessarily being kept out of their investments and therefore being subjected to further losses. Obviously, that must not have been the intention of the Court or the arrangement sanctioned by the Court.

61. In the premises, the Court’s orders are as follows: -a.In the application dated 19/3/2021 by the Townsville Holdings Ltd, the Court grants prayer 1 thereof and accordingly cites the supervisor and the company for being in breach of the CVA as ordered on 1/7/2020. Prayers 2 and 3 are not denied.b.The application dated 7/4/2021 by UBA Bank Kenya Ltd is dismissed in its entirety with no order as to costs.c.The application dated 12/4/2021 by Legacy Spares (T) Ltd is declined. However, on order hereby issues to the effect that the applicant be included in the CVA and upon proof of its claim, it be paid in same manner as the other unsecured creditors. No order as to costs.d.The application dated 27/4/2021 by Kenya Bowling Centres Ltd is allowed in terms of prayers 2, 3 and 6 thereof.e.The application dated 1/7/2021 by United Housing Estate Ltd is also allowed in terms of prayers 2, 3 and 6. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF MAY, 2022. A. MABEYA, FCIArbJUDGE