[2022] KEHC 14878 (KLR)

Wambulwa v Pius (Insolvency Cause E001 of 2021) [2022] KEHC 14878 (KLR) (4 November 2022) (Ruling)

Neutral citation: [2022] KEHC 14878 (KLR)

Republic of Kenya

In the High Court at Kakamega

Insolvency Cause E001 of 2021

WM Musyoka, J

November 4, 2022

Between

Godfrey Barasa Wambulwa

Creditor

and

Barlex Samuel Juma Pius

Debtor

Ruling

1. What is for determination are preliminary objections, dated December 20, 2021 and January 24, 2022.

2. The proceedings herein were commenced by the creditor, Godfrey Barasa Wambulwa, vide a petition dated March 12, 2021, against the debtor, Barlex Samuel Juma Pius, with respect to party to party costs taxed in Kakamega High Court Election Petition Appeal No. 4 of 2018, amounting to Kshs. 3, 442, 971. 00, less Kshs. 50, 000. 00 received, against the debtor and which are alleged to have remained unpaid. Copies of the ruling on the taxation, dated February 19, 2020; the decree in Kakamega Petition Appeal No. 4 of 2018, dated October 15, 2018; certificate of costs, dated February 25, 2019 and October 6, 2020; and a statutory demand dated January 19, 2021, are attached. The petition was filed together with a proof of debt, dated March 12, 2021.

3. The petition was placed before me, on June 21, 2021, for directions. There was proof that the debtor had been served, and he had not filed a response. I allowed the petition as unopposed.

4. It was the order of June 21, 2021 that provoked the filing of the application, dated September 22, 2021, by the debtor, which in turn provoked the raising of the 2 objections, the subject of this ruling. That application seeks stay of the bankruptcy order of June 21, 2021, the setting aside of the statutory demand dated January 19, 2020, the setting aside of the bankruptcy order and the production of David Imo, who served the statutory demand, for cross-examination. The debtor alleges that he was never served with the statutory notice, and that he only came to be aware of the bankruptcy order after the official receiver sent an email to him on it. He concedes to the taxation of the costs, but challenges the amount owed, on the basis that some payments had been made.

5. There are 2 replies to the application by the creditor and the process server, David Imo. The creditor avers that the debtor was served but refused to accept service, and after the bankruptcy order was made, he did not apply for stay within the 30 days allowed in law. He avers that the debtor only paid Kshs. 50,000. 00. The process server largely dwells on how the served the statutory demand on the debtor, and the contents of this reply rhyme with what he averred in his affidavit of January 26, 2022. He asserts that he served the debtor, who accepted service, but declined to acknowledge receipt of the same.

6. The creditor then filed the preliminary objection dated January 24, 2022, arguing that the application dated September 22, 2021 offended section 9(1) of the Bankruptcy Act, Cap 53 Laws of Kenya, on the basis that the debtor had no capacity to institute the application having been adjudged bankrupt. The second objection, dated December 20, 2021, is by the Official Receiver, on the basis that the court lacks jurisdiction to hear and determine the application dated September 22, 2021, as it became functus officio once it made the bankruptcy order of June 21, 2021, and hence the debtor lacked locus to appoint an Advocate nor to prosecute any matter as his property vested in the Official Receiver.

7. Directions were given on January 26, 2022, for disposal of the preliminary objections by way of written submissions. Both sides have filed written submissions. I have seen the written submissions filed by the creditor, the debtor and the Official Receiver. I have read through them and noted the arguments made.

8. I will start with the first objection, dated January 24, 2022, on capacity of the debtor to file the application, by virtue of section 9(1) of the Bankruptcy Act. That provision states as follows:“9(1)On the making of a receiving order the official receiver shall be thereby the constituted receiver of the property of the debtor, and thereafter , except as directed by this Act, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the debtor in respect of the debt, or shall commence any action or other proceedings except with the leave of the court and on such terms as the court may impose.(2)....”

9. I have read and re-read section 9(1) of the Bankruptcy Act, and my understanding of it is that, it is the filing of other actions or initiation of other legal proceedings, that is targeted by the provision. That is to say initiation of other suits against the debtor over any other debt, it does not prevent interlocutory applications being filed in the cause where the bankruptcy order is made. Secondly, section 9(1) applies only to creditors. It only talks about creditors commencing action against the debtor or other legal proceedings. It does not target debtors. The decisions cited in support of this objection are not relevant, except for that in Surjit Singh Hunjan & another vs. The Deposit Protection Fund Board (sued as the liquidator of the Prudential Building Society [2012] eKLR (Mabeya, J), where the court stated that section 9(1) only barred creditors and not debtors from continuing or commencing actions after the making of a receiving order.

10. More importantly, that provision, that is to say section 9(1) of the Bankruptcy Act, is of no use to the instant proceedings, as the Bankruptcy Act is no longer operational, having been repealed by the Insolvency Act, No. 18 of 2015, vide its section 732.

11. Its equivalent is section 48(1) of the Insolvency Act, which states as follows:“What happens or is to happen on and after bankruptcy commences(1)When a bankruptcy order commences—(a)all proceedings to recover the bankrupt's debts are stayed; and(b)the property of the bankrupt (whether in or outside Kenya), and the powers that the bankrupt could have exercised in respect of that property for the bankrupt's own benefit, vest in the Official Receiver.”

12. The wording of section 48(1) of the Insolvency Act, in my view, does not restrain the debtor from moving the court in the same cause to challenge the process of the making of the order, for it merely stays all proceedings by other creditors to recover debts of the debtor, and vests the property of the debtor in the Official Receiver.

13. The other provision is section 46 of the Insolvency Act, which states as follows:“Bankruptcy order to be binding on all personsA bankruptcy order becomes binding on the bankrupt and all other persons—(a)on the expiry of the time within which an appeal may be lodged against the order; or(b)if an appeal is lodged in respect of the order within that period and the Court later confirms the order or the appeal is later withdrawn—on the confirmation of the order or the withdrawal of the appeal, and the order can no longer be questioned on the ground that it was invalid or that a prerequisite for making it did not exist.”

14. The provision bars any challenge to a bankruptcy order once made, and no appeal is brought against it. The filing of an appeal presupposes that the debtor would have been aware of the proceedings preceding the making of the order or even of the making of the order. The case by the debtor at this stage is that he was not served with the process that preceded the making of the bankruptcy order. If he was not aware of that process he could not have lodged any appeal. Indeed, the wording of section 48(4) of the Insolvency Act appears to suggest that apart from appealing there is room to apply for annulment of the bankruptcy order. It would appear that section 46 would only bar a challenge to the bankruptcy order in cases where it is shown that the debtor was involved in the process from inception. It would offend the rules of natural justice and fair hearing, as enshrined in the Constitution, to suggest that a person could be declared bankrupt without due process, inclusive of the relevant demands and notices being issued or served.

15. Section 48(4) says:“(4)If the bankrupt has appealed against the order or has applied for its annulment, the Court may order the Official Receiver not to advertise the bankruptcy order, but only if it is satisfied that there are compelling reasons for doing so.”

16. The second objection is the court being functus officio after making the bankruptcy order. I have looked very closely at the provisions of the Insolvency Act cited, and other provisions of the said statute, and I have not come across any that declares the court functus officio, once it makes a bankruptcy order nor any which bars the court from entertaining interlocutory applications by the debtor to challenge an order made in the cause against him. Similarly, I have closely looked at all the judicial precedents cited on the principles of functus officio, and I have not come across any that supports the proposition made in the objection dated December 20, 2021. None of them were made in bankruptcy or insolvency proceedings. Surely, it would be unjust to shut the door in the face of a debtor who alleges that the bankruptcy order was not made through due process.

17. In view of what I have stated above, it is my conclusion that the preliminary objections, dated December 20, 2021 and January 24, 2022 are without merit, and I hereby decline to uphold them. They are accordingly dismissed. The application dated September 22, 2021 shall be heard on its merits. It shall be canvassed orally, and the process server, David Imo, shall be availed for cross-examination. The date for hearing shall be given at the delivery of this ruling.

DELIVERED, DATED AND SIGNED IN OPEN COURT AT KAKAMEGA ON THISthDAY OF November,2022. W M MUSYOKAJUDGEErick Zalo, Court Assistant.Mr. Khayumbi, instructed by JJ Khayumbi & Company, Advocates for the debtor.Mr. Ndalila, instructed by Ndalila & Company, Advocates for the creditor.Mr. Cyrus Njenga, instructed by the Official Receiver