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ELRCPartially AllowedNot stated in the judgment· [2022] KEELRC 919 (KLR)

George K. Kangethe v Ziwa Garments and Apparels Limited [2022] KEELRC 919 (KLR)

Employment and Labour Relations Court
1 February 2022
MOMAUREEN ONYANGO
1,975 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenyan courts can summon company directors to reveal a company's assets and finances after a judgment, though this alone doesn't make directors personally pay the debt.

What this practically means

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Executive summary

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The Decree Holder, George K. Kangethe, applied by notice of motion dated 1st December 2020 for summons to compel Michael Oddenyo and Ambrose Anguka, directors of the judgment debtor company, to attend court for oral examination as to the company's means and assets, to produce books of accounts and documents, and, in default, to be held personally liable for the decretal sum of Kshs.382,524, with the veil of incorporation lifted. The judgment had been entered on 5th June 2020 for Kshs.258,667 with taxed costs of Kshs.123,857. The Respondent filed grounds of opposition, arguing that the legal threshold for summoning directors had not been met, that bare allegations of fraud cannot justify piercing the corporate veil, that cross-examination of directors is not automatic, and that directors are not vicariously liable for a separate legal entity. Only the Applicant filed submissions, relying on Ramaben Ramnikal Patani v Garden Chambers Limited. Maureen Onyango J framed a single issue: whether the Applicant merited the orders sought. Anchoring the application on Order 22 Rule 35 of the Civil Procedure Rules, the court observed that it was not denied that the named persons were directors, nor that the company had closed operations and relocated to an unknown address. Following Ultimate Laboratories v Tasha Bioservice Limited, the court held that a person in a position to provide discovery as to the judgment debtor's debts, property and means may be summoned, and that the rule imposes no high and onerous standard. The court ordered the two directors to attend court on 24th February 2022 for oral examination and to produce books of accounts and financial documents, with costs of the application borne by the judgment debtor. The application was thus allowed in terms of examination and production, though the court did not at this stage impose personal liability on the directors.

Key legal issues

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01

Whether the Decree Holder satisfied the threshold under Order 22 Rule 35 for examination of the company's directors and production of documents

Holding

Yes. It was not denied that the named persons are directors and that the judgment debtor has closed operations and relocated, so the court summoned them for examination and production of books.

Reasoning

The court noted the application is anchored on Order 22 Rule 35, which permits examination of an officer of a corporate judgment-debtor as to debts owing to it and its property or means of satisfying the decree. The Respondent's grounds of opposition did not deny the directorship of Michael Oddenyo and Ambrose Anguka, nor that the company had relocated from its registered address. Relying on Ultimate Laboratories v Tasha Bioservice Limited, the court held a low threshold applies - the applicant need only show the person can provide information in the nature of discovery.

p. 3
02

Whether an evidential foundation of fraud is required before summoning directors for examination

Holding

Not at the examination stage; the court adopted the approach that the rule places no high and onerous standard on the decree-holder.

Reasoning

The Respondent argued that mere allegation of fraud is insufficient to lift the corporate veil and that cross-examination of directors is not automatic. The court, however, followed Ramaben Ramnikal Patani and Ultimate Laboratories, holding that as long as the applicant shows the person examined is in a position to provide discovery as to the judgment-debtor's debts, property and means, the summons should issue. Definite prior information of assets is not required, as the examination is itself the discovery mechanism aiding execution.

p. 2

Legal principles established

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  • Where a decree is for payment of money, the court may order oral examination of any officer of a corporate judgment-debtor and production of books or documents under Order 22 Rule 35.

Court orders

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  1. 1.Michael Oddenyo and Ambrose Anguka to attend Court on 24th February 2022 to be orally examined as to the judgment debtor's means and assets in satisfying the decretal sum and costs of Kshs.382,524/-
  2. 2.The directors to produce any books of accounts, documents and other documentary evidence relating to the judgment debtor's finances or accounts
  3. 3.Costs of the application to be borne by the judgment debtor

Authorities

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Legislation

  • Civil Procedure RulesOrder 22 Rule 35
  • Civil Procedure RulesOrder 21 Rule 1
  • Civil Procedure ActSection 1B
  • Constitution of KenyaArticle 159(2)(d)
  • Constitution of KenyaArticle 48

Cases cited (3)

  • Ramaben Ramnikal Patani & 2 others v Garden Chambers Limited
    [2019] eKLR
  • Jones and Another v Lipman & Another
    [1962] IWLR 833
  • Ultimate Laboratories v Tasha Bioservice Limited (Nairobi HCCC 1287 of 2000)
    unreported
Jurisdiction invoked
Order 22 Rule 35 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, "George K. Kangethe v Ziwa Garments and Apparels Limited [2022] KEELRC 919 (KLR)", Case Analysis (2022). Not stated in the judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2022/919/eng@2022-02-01

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