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ELCDismissedNotice of Motion dated 4th February 2019 (within pending suit)· [2020] KEELC 3273 (KLR)

Suleiman Enterprises Limited v Kensalt Limited & 3 others [2020] KEELC 3273 (KLR)

Environment and Land Court
13 March 2020
2,311 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court ruled that directors of a company in receivership cannot instruct lawyers or control company assets, and only the High Court handles insolvency matters.

What this practically means

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Executive summary

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This judgment determines a Notice of Motion dated 4th February 2019 filed by Rachier & Amollo LLP as Intended Advocates for the 2nd Defendant, Kemu Salt Packers Production Ltd (In Receivership). The firm sought to come on record for the 2nd Defendant, to have a Replying Affidavit sworn by its director, Hussein Saleh Mohamed Ishmael, deemed duly filed, and to review, vary or set aside orders made on 4th February 2019 allowing the 1st Defendant's application. The motion was precipitated by an appearance on 4th February 2019 when two advocates purported to represent the 2nd Defendant, leading the court to rule that Rachier & Amollo LLP did not act for any party. The application was premised on the argument that the receivership/administration, fixed at 12 months under Section 593 of the Insolvency Act 2015, expired without extension under Section 594, restoring control to the directors. The 1st Defendant and the Joint-Receivers opposed, questioning locus standi and the court's jurisdiction. The court held that Section 2(1) of the Insolvency Act vests jurisdiction over such matters exclusively in the High Court, and that two substantially similar applications were already pending there. Relying on authority that a receiver's appointment crystallises floating charges and strips directors of control over the charged assets, the court found the instructing party was not the 2nd Defendant sued. The motion was dismissed with costs.

Key legal issues

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01

Jurisdiction of the court over matters under the Insolvency Act 2015

Holding

The court lacks jurisdiction; Section 2(1) of the Insolvency Act vests jurisdiction over insolvency matters in the High Court

Reasoning

The application was expressed to be brought under Sections 520, 521, 593 and 594 of the Insolvency Act 2015. That Act defines 'Court' as the High Court or its insolvency division. The presiding court is not the High Court, and jurisdiction cannot be arrogated by craft of interpretation. The applicant had already filed two similar applications in the High Court, which remain the proper forum.

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02

Locus standi of directors of a company in receivership

Holding

Directors of a company in receivership cannot make decisions on behalf of the company regarding assets under receivership nor instruct advocates to act for the company

Reasoning

The 2nd Defendant is described as being in receivership. Upon appointment of a receiver, floating charges crystallise and directors lose control of the assets covered by the charge. Until matters pending in the High Court are determined, the directors are not a proper party to make the application or participate through an agent.

p. 3
03

Expiry of receivership by effluxion of time under Section 593 of the Insolvency Act

Holding

Not determined; the court declined to delve into the question, leaving it to the pending High Court matters

Reasoning

The applicant argued that the receivers' 12-month term expired without extension under Section 594. The court found the same subject matter was pending in Malindi HCCC No. 28 of 2016 and Mombasa High Court Miscellaneous Cause No. 226 of 2018, both properly before the High Court, and declined to determine the issue.

p. 3

Legal principles established

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  • Where a court has no jurisdiction, it must down its tools and decline to take any further steps in the matter
  • Appointment of a receiver over floating charges crystallises them and removes control of the company's assets from the directors

Court orders

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  1. 1.The Notice of Motion dated 4th February 2019 is dismissed
  2. 2.Costs of the application awarded to the opposing parties (dismissed with costs)

Authorities

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Legislation

  • Companies Act Cap 486 (now repealed)
  • Insolvency ActSection 2(1)
  • Insolvency ActSection 520
  • Insolvency ActSection 521(c)
  • Insolvency ActSection 593
  • Insolvency ActSection 594

Cases cited (3)

  • Karisa Chengo & 2 Others –vs- Republic
    Criminal Appeal Nos. 44, 45 and 76 of 2014 (2015) eKLR
  • Republic –vs- Kenya Revenue Authority ex-parte KSC International Ltd (In Receivership)
    (2016) eKLR
  • Flagship Carriers Ltd –vs- Imperial Bank Ltd & 2 Others
    Nairobi (Milimani) HCCC No. 1643 of 1999
Jurisdiction invoked
Sections 520, 521, 593 and 594 of the Insolvency Act 2015 invoked by Applicant; court held Section 2(1) confines insolvency matters to the High Court

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, "Suleiman Enterprises Limited v Kensalt Limited & 3 others [2020] KEELC 3273 (KLR)", Case Analysis (2020). Notice of Motion dated 4th February 2019 (within pending suit). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2020/3273/eng@2020-03-13

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