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Court of AppealDismissedCivil Application No. 218 of 2006· [2007] KECA 165 (KLR)

S.K. MACHARIA & another v SAMUEL NJOROGE MUCHIRI & 2 others [2007] KECA 165 (KLR)

Court of Appeal of Kenya
9 February 2007
EOE.O. O'KubasuPWP.N. WakiJOJ.W. Onyango Otieno
3,077 words in judgment
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The bottom line

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Kenya's Court of Appeal refused to pause the winding-up of Madhupaper, confirming both stay tests must be met and company records prove shareholding.

What this practically means

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Executive summary

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The applicants, S.K. Macharia and Madhupaper International Ltd, moved the Court of Appeal under rule 5(2)(b) seeking a stay of a winding-up order made on 6th March 2006 by Kasango J in Winding Up Cause No. 12 of 1995, and a stay of further proceedings, pending an intended appeal. The respondents, minority shareholders holding roughly 6% of the company, had petitioned for winding up on the just and equitable ground under section 219(f) of the Companies Act, alleging oppression - the majority shareholder had not called annual general meetings since 1985 and kept them in the dark about the company's affairs. The High Court found the respondents were duly registered shareholders and that it was just and equitable to wind up the company. Before the Court of Appeal, counsel for the applicants argued that the respondents were at most 'conditional members' lacking locus standi, and that the Judge had taken a narrow view of the just and equitable discretion, ignoring equitable considerations and the company's struggles since receivership in 1985. The Court applied the settled twin test that an applicant must show an arguable appeal and that the appeal would be rendered nugatory absent a stay. It held the membership finding was sound, since the register of members, share certificates and the 1st applicant's own contradictory statements supported the respondents' status, and 'conditional membership' was untenable. It further held the Judge had properly exercised her wide discretion, found oppression, and that an appellate court does not substitute its discretion absent compelling reason. Failing the first limb, the application was dismissed with costs on 9th February 2007.

Key legal issues

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01

Whether the applicants demonstrated an arguable intended appeal

Holding

No. The finding that the respondents were shareholders, based on the register of members, share certificates and the 1st applicant's own contradictory statements, was sound in law and fact, and the concept of 'conditional membership' was untenable.

Reasoning

The court examined the affidavit evidence: the company's resolution allotting shares to staff, the register of members reflecting the respondents' names, share certificates, and the 1st applicant's 1991 letter acknowledging shareholders. The 1st applicant never annexed the register to disprove membership and contradicted himself in his submissions. 'Conditional membership' could not displace prima facie evidence in the register. On the winding-up discretion, the Judge had correctly stated and applied the law, made findings borne out by the evidence, and found oppression; an appellate court does not lightly substitute its discretion.

p. 3
02

Whether the intended appeal would be rendered nugatory if stay is refused

Holding

The court declined to reach this limb substantively, noting only that if it had found for the applicants it would have accepted that the appeal would be rendered nugatory, but the failure on the first test disposed of the application.

Reasoning

Both limbs of the rule 5(2)(b) test are cumulative; having failed on arguability, the applicants could not obtain a stay even though the nugatory limb might favour them, since winding up is irreversible and would pre-empt the appeal.

p. 5

Legal principles established

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  • To obtain a stay under rule 5(2)(b) pending an intended appeal, an applicant must demonstrate both that the appeal is arguable and that it would be rendered nugatory if the order is not granted; failure on either limb is fatal.
  • An appellate court will not substitute its own discretion for that of the trial court unless there is a compelling reason to do so.
  • The register of members is prima facie evidence of membership of a company, and a party disputing membership must do more than merely deny it.

Court orders

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  1. 1.The application for stay of the winding-up order and stay of further proceedings is dismissed
  2. 2.Costs of the application awarded to the respondents

Authorities

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Legislation

  • Companies Act, Cap 486section 219(f)
  • Companies Act, Cap 486section 211
  • Companies Act, Cap 486section 224
  • Companies Act, Cap 486section 120
  • Court of Appeal Rulesrule 5(2)(b)

Cases cited (6)

  • Githunguri v Jimba Credit Corporation Ltd (No.2)
    [1988] KLR 838
  • Re: Garnets Mining Co. Ltd
    (1978) KLR 224
  • In Re: Westbourne Galleries Ltd
    (1973) AC 360
  • Salomon v Salomon & Co
    [1897] A.C. 22
  • In Re H.R. Harmer Ltd
    [1959] 1 W.L.R. 62
  • In the Estate of Kahawa Sukari Ltd, H.C. W/U Cause No. 23 of 2002
On appeal from
High Court of Kenya at Nairobi (Milimani)
H.C. Winding Up Cause No. 12 of 1995
Jurisdiction invoked
Rule 5(2)(b) of the Court of Appeal Rules (application for stay pending intended appeal)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "S.K. MACHARIA & another v SAMUEL NJOROGE MUCHIRI & 2 others [2007] KECA 165 (KLR)", Case Analysis (2007). Civil Application No. 218 of 2006. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2007/165/eng@2007-02-09

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.