[2023] KEHC 24910 (KLR)

Uchumi Supermarket PLC v UBA Bank Kenya Limited & 4 others (Insolvency Petition 25 of 2018) [2023] KEHC 24910 (KLR) (Commercial and Tax) (3 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24910 (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

November 3, 2023

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

The Attorney General

5th Respondent

Ruling

1. On 19/5/2022, this court delivered a ruling by which it dismissed an application dated 7/4/2021 by UBA Bank Kenya Ltd. In that application, the Bank had sought leave to exercise its Statutory Power of Sale over LR No. 209/12593, Nairobi.

2. The reason for dismissal was because the government had commenced the process of compulsorily acquiring the said property. The Bank also indicated that it had lost interest in pursuing the said application.

3. However, on 29/3/2023 the bank lodged yet another Motion under Order 45 Rule 1 of the Civil Procedure Rules seeking that the said ruling be reviewed and it be allowed to exercise its Statutory Power of Sale.

4. I have considered the averments in the affidavit in support thereof by Mickey Matheka, the replying affidavits of Owen Njenga Koimburi the Supervisor of the company and Lawrence Ngao. The principles applicable are that where there is new evidence, an error on the face of the record or for sufficient reason, a review application will be allowed.

5. In Lawrence Ngao’s affidavit, it is alleged that the application is res-judicata as the issues are similar to those in the application dated 7/4/2021 which was dismissed. That there continues to be in existence a Company Voluntary Arrangement (CVA). That the debt due to the applicant is only Kshs. 161,502,000/= which is only 10% of the value of the security held.

6. It was further contended that the applicant had not obtained the consent of the other lenders, ie the Government of Kenya (Kshs. 1. 2b) and ICDC Ltd (Kshs. 115,918,091/=). That the entire body of creditors had approved the revival of the CVA on 31/8/2023. That the subject property is a key income generator and the success of the CVA depends on it. That the CVA proposes to repay the applicant’s loan in two years’ time rather than recall the amount immediately.

7. In the supplementary affidavit of Mickey Matheka sworn on 17/10/2023, the applicant stated that it was unaware of the alleged meeting of 31/8/2023 as it was not invited thereto. That it did not recognize the revised CVA and the one in force is that of 2/3/2020. That under S 635 of the Act, the CVA had prematurely ended. That the company was not repaying the debt. That the open market value of the subject property as at 10/9/2018 was Kshs 600M and forced sale value of Kshs. 450M. That the amount of income generated from the subject property had not been disclosed.

8. I have considered the rival representations of the parties. On 18/10/2023, I was about to deliver the ruling on the present application. However, Mr. Bett, Learned Counsel for National Treasury informed the Court that he wanted to file an objection on behalf of National Treasury. I therefore set aside the proceeding for delivery of the ruling on that day and directed that Mr. Bett on behalf of the Attorney General do file his objection/response within 3 days and I reserved the ruling for 27/10/2023. As of that day, the National Treasury had filed no pleading. Once again in deference to the principal of fair hearing, I adjourned the ruling to 3/11/2023. As at the time of writing this ruling, nothing has been filed. The wheels of justice must roll over and will await no one.

9. This is an application by a secured creditor to be allowed to exercise its statutory power of sale over one of the assets of the company. In its ruling of 19/5/2022 this court observed: -“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.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.”

10. I reiterate the foregoing here and hold that, the Court will apply the same principles in determining the present application. The Court must ensure that the objects of the Insolvency Act will be achieved in whatever decision that is made. That neither the company nor the general body of the creditors is prejudiced by whatever decision is taken.

11. The CVA in respect of which the company is riding on was adopted by the Court on 1/7/2020. It has been in place for three plus years. The core proposal in the said CVA was inter alia that:-“The secured creditors would receive a portion of their old debt as an upfront payment subject to the completion of the disposal of non-core assets with the balance being paid over a period of 6 years and in other instances over a period of 5 years”.

12. In adopting and approving the CVA on 1/7/2020, the court directed, inter alia, that: -“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 (“old debt”) be paid in accordance with the CVA;……e)The CVA be subject to review after every six (6) months through a meeting of the creditors from the date the CVA is approved herein;3. That 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.……”

13. In its ruling of 10/1/2022, this Court observed as follows:-“18. The CVA is annexed as ‘DOA -5’ in the 1st respondent’s replying affidavit. It is clear that the applicant has thus far failed to implement the provisions of the CVA and the ruling dated 1/7/2020. None of the Creditors has received any form of payment and the Supervisor has failed to call the periodic six month’s creditors meeting. With such failure, the default clause in the CVA has kicked in.”

14. Even with such indictment of failure to call the periodic meetings, the Supervisor did not call any meeting shortly thereafter. He waited until 25/8/2023, a year and a half later to hold what he termed as a meeting of the Creditors. In that meeting, there was an attempt to vary and revise the original CVA and had a purported approval by the majority of the creditor’s present.

15. The Court observes that, having found that the Supervisor and the Company were in breach of the order of this Court of 1/7/2020, this Court allowed certain creditors, landlords, to exercise their default rights under that ruling vide its ruling of 19/5/2022. The Court further observes that the Supervisor and the Company did not call for any meeting of creditors until four months after the present application had been lodged. To this Court’s mind, the meeting and the revised CVA was but an afterthought meant to defeat the present application and further continue with a plan that is headed nowhere.

16. From the report annexed to the Supervisor’s replying affidavit, there is evidence that 3 years into the CVA, not a penny has been paid to any of the creditors. Nothing is said about the promise that non-core assets would be sold and the proceeds be applied towards paying the creditors. No mention of any collection of a penny or otherwise. Only beautiful promises that are made by the company (board). The Company needs to be told that creditors do not live on empty beautiful promises that turn to be nothing but a bluff! Businesses and the economy are run on cogent and pragmatic proposals that are not only realizable but are practicable and real!

17. In any event, there is no application that has been made for the Court to adopt and approve the so called revised CVA. That alleged CVA only remains in the records of the Company and the Supervisor. The same was purported to be relied on to oppose the present application.

18. I think I have said enough to show that the Company has not only run afoul of the original CVA but also the orders of this Court. That the applicants’ application is merited both on the ground of new evidence and on reasonable cause.

19. Having in mind that the company has been under the CVA since 2/3/2020, the realizable debt is as it stood as at that date. This applies across the board so that no interest would be applicable from that date henceforth.

20. What the application seeks to do is to enforce the order of Kasango J of 1/7/2020. I see no good reason or reason at all not to grant the same. It seeks to protect the rights of a secured creditor. In East Africa Cables PLc vs Ecobank Kenya Ltd & Anor [2020], eKLR, it was held that the exercise of the rights of a secured creditor are not to be interfered with unless in accordance with the law.

21. Accordingly, I find the application dated 29/3/2023 to be meritorious and I allow the same with costs as follows:-a.This Court reviews its ruling of 19/5/2022 and permits the applicant to exercise its statutory power of sale and enforce its security over the property known as LR No. 209/12593, Nairobi in accordance with the law.b.Since the company has been under a Court approved CVA since 2/3/2020, and in order not to prejudice the other creditors, the amount recoverable by the applicant shall be as the same stood as at 2/3/2020 and not otherwise.

It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF NOVEMBER, 2023. A. MABEYA, FCI ArbJUDGE