In re Kemusalt Parkers Productions Limited (In Receivership) [2019] KECA 18 (KLR)
The bottom line
#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
#Executive summary
#Key legal issues
#Whether the applicant established grounds for an interlocutory mandatory injunction
The application failed; no prima facie case with special circumstances was shown and the balance of hardship did not favour the applicant
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.
Whether granting the injunction would prejudice the respondents' rights as receiver-managers under the debenture
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
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.
Whether the motion was an abuse of process given pending suits
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
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.
Legal principles established
#- 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
#- 1.The notice of motion dated 22.10.2018 is dismissed for want of merit
- 2.Costs of the application awarded to the respondents
- 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
#Practical implications
#Frequently asked questions
#Cite this brief
#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.