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Court of AppealDismissedMotion dated 22.10.2018 (notice of motion under Sections 522, 563, 568, 593, 594, 604 of the Insolvency Act)· [2019] KECA 18 (KLR)

In re Kemusalt Parkers Productions Limited (In Receivership) [2019] KECA 18 (KLR)

High Court of Kenya
20 September 2019
3,103 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~12 min to read original · ~4 min brief

The bottom line

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Kenya's High Court dismissed a company's attempt to block its receiver-managers, confirming that receivers owe their loyalty to lenders, not the struggling company.

What this practically means

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Executive summary

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Kemu Salt Parkers Ltd moved the High Court at Malindi by notice of motion dated 22 October 2018, invoking Sections 1A, 1B and 3A of the Civil Procedure Act and provisions of the Insolvency Act, seeking a mandatory injunction restraining the respondents from acting as receivers, administrators and managers of the company, a prohibitory injunction against interference with its property, and directions that the respondents account for records and fees received since 7 September 2017. The respondents, appointed receiver-managers by the debenture holders under a deed of appointment of 6 September 2016 following loans from Dubai Bank Ltd (under receivership), opposed the motion, contending it was an abuse of process amounting to forum shopping given multiple pending suits (HCCC Nos. 265 of 2016, 28 of 2016 and 529 of 2009), and relying on an earlier order of Chitembwe J and Korir J. The court, R. Nyakundi J, applied the Giella v Cassman Brown principles and the higher threshold for mandatory interlocutory injunctions drawn from Kenya Breweries v Okeya and Nation Media Group v Mwau, and the Privy Council's guidance in NCB v Olinit. It held that no prima facie case with special circumstances had ripened, that the applicant bore the burden of proving dissipation under Section 107(1) of the Evidence Act, and that a receiver-manager's primary duty is to the debenture holders, not the company. The court dismissed the motion with costs to the respondents on 20 September 2019. Note: this is a first-instance High Court decision, not an appellate judgment, so it does not bind lower courts as precedent from a superior appellate tribunal.

Key legal issues

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01

Whether the applicant established grounds for an interlocutory mandatory injunction

Holding

The application failed; no prima facie case with special circumstances was shown and the balance of hardship did not favour the applicant

Reasoning

Applying the Giella v Cassman Brown tripartite test and the higher threshold for mandatory injunctions from Kenya Breweries v Okeya and Nation Media Group v Mwau, the court found the applicant had not demonstrated special circumstances or a clear case. The applicant bore the burden of proof under Section 107(1) of the Evidence Act and failed to show it would suffer greater hardship if the injunction were refused, particularly given the pending suit HCCC No. 28 of 2016 and the multiplicity of related suits.

p. 4
02

Whether granting the injunction would prejudice the respondents' rights as receiver-managers under the debenture

Holding

The discretion weighed in favour of protecting the respondents' rights, since the appointment of a receiver creates a right against the defaulting party rather than against the applicant's property

Reasoning

The receivers were appointed by the lenders (Dubai Bank Ltd under receivership) pursuant to the debenture and Section 690(4) of the Insolvency Act. Following the principles in Smiths Ltd v Middleton and Re B Frenson & Co, the receiver's primary duty is to the debenture holders, not the company. Interfering with their exercise of powers by interlocutory injunction would not be just or convenient, and the existence of a bonafide dispute with the debenture holders raised complex issues unsuitable for interlocutory resolution.

p. 4
03

Whether the motion was an abuse of process given pending suits

Holding

The court noted the respondent's submission that the same questions were already litigated in courts of concurrent jurisdiction, and that a pending suit (HCCC No. 28 of 2016) remained to be determined

Reasoning

The court took cognizance of multiple subsisting suits (HCCC Nos. 265 of 2016, 28 of 2016 and 529 of 2009) and ELC No. 172 of 2014 touching on the same debt, debenture and parties. The respondent argued forum shopping and relied on the order of Korir J that the pending suit would most likely occasion a mistrial. The existence of the pending suit was one of two elements the court weighed against exercising its discretion in the applicant's favour.

p. 3

Legal principles established

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  • A mandatory injunction ought not to be granted on an interlocutory application absent special circumstances, and only in clear cases, the court feeling a higher degree of assurance than for a prohibitory injunction
  • The receiver-manager's primary duty is to the debenture holders and not to the company under receivership
  • At the interlocutory stage the court takes whichever course is likely to cause the least irremediable prejudice, whether the injunction sought is mandatory or prohibitory

Court orders

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  1. 1.The notice of motion dated 22.10.2018 is dismissed for want of merit
  2. 2.Costs of the application awarded to the respondents

Authorities

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Legislation

  • Civil Procedure ActSections 1A, 1B, 3A
  • Insolvency ActSections 522, 563, 568, 593, 594, 604, 690(4)
  • Insolvency Regulations 2016Regulation 10
  • Civil Procedure RulesOrder 40, Order 40 Rule 2
  • Evidence ActSection 107(1)

Cases cited (10)

  • NCB v Olinit
    {2009} UKPC
  • American Cynamid Co. v Ethicon
    {1975} A.C. 396
  • Shephard Homes Ltd v Sandham
    {1971} Ch 340
  • Giella v Cassmann Brown
    {1973} EA
  • Kenya Breweries Ltd & Another v Washington O. Okeya
    {2002} eKLR
  • Nation Media Group & 2 Others v John Harun Mwau
    {2014} eKLR
  • Suryanath Singh v Khedu Singh
    {1994} SCC 561
  • Smiths Ltd v Middleton
    {1979} 3 ALL ER 842
  • RE B Frenson & Co. (Builders Ltd)
    1955 2 ALL ER
  • Nisairh Yongendra Patel v Pascale Mirandile
    {2017} eKLR
Jurisdiction invoked
Sections 1A, 1B, 3A of the Civil Procedure Act; Sections 522, 563, 568, 593, 594 and 604 of the Insolvency Act; Regulation 10 of the Insolvency Regulations 2016; Order 40 of the Civil Procedure Rules

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, "In re Kemusalt Parkers Productions Limited (In Receivership) [2019] KECA 18 (KLR)", Case Analysis (2019). Motion dated 22.10.2018 (notice of motion under Sections 522, 563, 568, 593, 594, 604 of the Insolvency Act). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/18/eng@2019-09-20

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