QUEENSWAY TRUSTEES LIMITED vs OFFICIAL RECEIVER & LIQUIDATOR OF TANNERIES OF KENYA LIMITED) [1983] KECA 119 (KLR)
The bottom line
#Kenya's Court of Appeal refused to protect a lender whose charge was registered late, after winding-up began and a receiver had already taken control.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the appointment of a Receiver and Manager under the Debenture Trust Deed divested the directors of power to register the charge after his appointment
- 2.Whether the delay in registering the charge was adequately explained and whether the judge erred in suspecting it was partly deliberate to protect the company's credit
- 3.Whether the learned judge properly exercised his discretion under Section 224 of the Companies Act in declining to validate the disposition
- 4.Whether the Court of Appeal should interfere with the trial judge's exercise of discretion
Key legal issues
#Effect of appointment of a receiver and manager on the directors' powers
The directors could not validly register the charge on July 10, 1978, because a receiver had been appointed over the charged assets on July 5, 1978 and, upon the winding up order, their powers ceased
Upon a winding up by the court the directors are dismissed and their powers cease on the making of the order. Where a receiver is appointed out of court under a debenture, management and control of the company's assets pass out of the directors' hands; the property in question was charged under the Trust Deed, so the directors could not deal with it or register the charge. The first two grounds of appeal therefore fail.
Effect of non-registration of the charge in the Registry of Titles
Until the charge was registered in the appropriate Land Registry no interest passed in the land, and unsecured creditors searching the title would have found it unencumbered
Under Sections 20 and 32 of the Registration of Titles Act no interest passed until registration on July 10, 1978, after the commencement of the winding up. Registration of the Trust Deed in the Companies Registry did not disclose that the Athi River land was affected, since a further search of the Registry of Titles would not have revealed the charge before registration. The fifth and sixth grounds of appeal fail.
Exercise of the Section 224 discretion and appellate interference
The judge was entitled to find the delay in registration partly deliberate and to refuse validation; an appellate court interferes only where the discretion was wrongly exercised or the result is clearly unjust
The lapse of about four and a half months after the stockholders agreed to pay the rent was never explained, the company was insolvent and heavily loss-making, and a winding-up petition was pending. The judge rightly suspected the delay was in part deliberate to protect the company's credit. Applying the Mbogo v Shah principle, the appellant failed to show the discretion was wrongly exercised.
Legal principles established
#- Where a receiver is appointed out of court under a debenture, management and control of the charged assets are taken out of the directors' hands, and they cannot validly register a charge over the secured property
- A 'disposition' under Section 224 of the Companies Act includes a legal charge and mortgage and should receive a liberal construction
- The discretion under Section 224 to validate a post-commencement disposition is guided by the good faith and honest intention of the persons concerned and what is just and fair in each case
- An appellate court will not interfere with a trial judge's exercise of discretion unless the judge misdirected himself or the result is clearly wrong and unjust
Court orders
#- 1.Appeal dismissed with costs
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Bankruptcy and Winding-up Cause 9 of 1978
- Jurisdiction invoked
- First appeal to the Court of Appeal from the High Court in a bankruptcy and winding-up cause (Companies Act, Cap 486)
Relief refused
#Order under Section 224 of the Companies Act that the legal charge over LR No 337/613 be treated as valid security for Kshs 1,600,000 and interest
It would not be just and fair to the unsecured creditors to treat the charge as valid; the directors had no power to register it after the appointment of the receiver and the delay in registration was partly deliberate
Order adding the appellant's taxed costs to the amount secured by the Debenture Trust Deed and Legal Charge
Follows from the refusal to validate the charge
Costs
Appeal dismissed with costs
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
In Winding up by the court, any disposition of the property of the Company including things in action, and any transfer of shares or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.
The Directors could not as a matter of law validly register the charge on July 10, 1978.
Each case must be dealt with on its own facts and particular circumstances (special regard being had to the question of good faith and honest intention of the persons concerned), and that the court is free to act according to the judge’s opinion of what would be just and fair in such case.
Accordingly, I am of the view that the appeal should be dismissed with costs.
Issues in the judgment
#The Memorandum of Appeal as reproduced contains duplicated/erroneous ground numbering (grounds numbered '1.' twice and '3.' twice), and the body refers to a receiver appointment in July 1978 in one place and 'July 5, 1970' in another, an apparent typographical error
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "QUEENSWAY TRUSTEES LIMITED vs OFFICIAL RECEIVER & LIQUIDATOR OF TANNERIES OF KENYA LIMITED) [1983] KECA 119 (KLR)", Case Analysis (1983). Civil Appeal 20 of 1981. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1983/119/eng@1983-04-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.