Cruisair Ltd (Formerly anown as Kenya Airways Ltd and Kenya Air Charters Ltd) v CMC Aviation Ltd (Civil Appeal 31 of 1977) [1978] KECA 32 (KLR)

2. The appellant is a company now known as Cruisair Ltd but at the material time had the name Kenya Airways Ltd. It carried on air charter business. I will refer to it as “the Company”. The respondent is also a company known as CMC Aviation Ltd and I shall refer to it as “the petitioner”. On 26th May 1976 the petitioner presented a petition for the winding-up of the Company for a debt of Shs 206,825/50 (it was ultimately reduced by Shs 10,000) for goods sold and delivered and for work and labour supplied to the Company by the petitioner. 3. By chamber summons dated 7th June 1976 the Company sought ex parte an order: 4. a. That CMC Aviation Ltd the petitioner named in the petition herein which was preferred to this Court on 25th May 1976 be restrained form taking any further proceedings on the petition whether by advertising the same or otherwise; b. That the petition be removed from the file of proceedings ... In his afidavit of the same day Kirpal Singh Sihra, the Managing Director of the Company, deponed: 2. That on 4th June 1976 my attention was drawn to an advertisement in The Standard of that date of a winding-up petition having been preferred by the petitioner in the above cause on the 25th May 1976. 3. That the petitioner, however, has not so far served the petition upon the Company. 4. That on 8th April 1976 my company had already instituted proceedings in the High Court of Kenya at Nairobi being High Court Civil Case 842 of 1976 against the petitioner claiming a sum of Shs 1,368,105 which claim far exceeds the petitioner 's claim of Shs 205,966/55, the subject of the petition. 5. That on 10th May 1976 the petitioner filed a defence merely denying the company's claim but not setting up a counterclaim for its claim against the company ... 7. That Messrs East African Acceptances Ltd have a debenture over the assets of the company, and unless the petitioners are restrained from taking any further proceedings on the petition herein, they intend to appoint a receiver under the said debenture which will cause irreparable loss and damage to the Company. 5. The order prayed for was issued on 11th June 1976. 6. By his afidavit dated 30th June 1976, counsel for the petitioner stated that the petition was advertised in the Kenya Gazette and The Standard newspaper of 4th June 1976 and went on: 4. At about 12.30 pm on Tuesday 29th June 1976 I attended at the registered ofice of Kenya Airways Ltd on the second fioor of College House, University Way, Nairobi. I was informed by Mr Vora, an employee of City Registrars, that City Registrars had just resigned as secretaries of Kenya Airways Ltd but that so far as he was aware the ofice of City Registrars was still the registered ofice of Kenya Airways Ltd. 5. I served a copy of the petition and the supporting afidavit thereto by leaving a copy at the registered ofice of Kenya Airways Ltd. The said Mr Vora refused to sign the additional copy of the petition I had taken with me but he stated that he would send the copy of the petition and the supporting afidavit I had left with him to the one remaining director of Kenya Airways Ltd, Mr KS Sihra, forthwith ... https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 2

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7. The petition was supported by two afidavits by Mr Charles Henry Bramich, secretary of the petitioner. In his afidavit dated 21st June 1976 Mr Bramich deponed: 3. I have read a copy of the pleadings in High Court Civil Case 842 of 1976 in which Kenya Airways Ltd ... has sued the petitioner for Shs 1,368,105. 4. I have further investigated the facts of that case as far as they are not already within my knowledge. In bare outline of the petitioner collected a crashed aircraft belonging to the Company and after insurance assessment by an assessor handed the aircraft over to the purchaser of the wreck, Mr G Forno, on the written authority of the said insurance company. I am informed by the Kenya National Assurance Co Ltd and I verily believe that the Company was paid out virtually the full insured value of the said aircraft and the only argument outstanding is the ownership of certain additional equipment alleged which does not concern the petitioner as it lies between the company and its insurers. 5. I have instructed Mr Hewett of Daly & Figgis, advocates acting for the petitioner in the said case, to make an application to join the Kenya National Assurance Co Ltd as a third party therein. 6. I say that the claim by the Company against the petitioner in High Court Civil Case 842 of 1976 is not a genuine claim against the petitioner and that any claim there may be is likely to be against the company 's insurers. 7. I am informed by Mr T Aikman of Deloite & Co and I verily believe that he and Mr John Hallowes were appointed receivers of the Company on 11th June 1976 by East African Acceptances Ltd the debenture-holders 8. Mr Bramich refers in paragraph 9 to claims by the Company against the petitioner amounting to Shs 2,743,800/55 received since the winding-up was threatened, which he says he investigated and found not to be genuine claims. 9. The Company opposed the petition. Mr Bramich and one of the receivers, Mr Thompson Smith Aikman, gave evidence for the petitioner. 10. It would appear from the afidavits filed and the evidence given that the debt specified in the petition is not seriously disputed, the only issue before Hancox J being whether the Company had a cross-claim in excess of the debt. Indeed the judge so found. He said: If the action against [the petitioner] has any validity then it would show that the Company is owed a total of Shs 1,368,105 many times the debt which is the subject of the petition. It will therefore be incumbent on this Court to examine carefully the nature of this claim, the defence to it, and the evidence ... in respect of it ... The judge also said: The petitioner chose to call Mr Aikman and I must clearly consider the circumstances relating to the receivership in assessing the overall position of the Company in the matter which I now have to decide: namely should I exercise my discretion in ordering under section 222 of the Companies Act that the Company be wound up or not? https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 3

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Resulting from the appointment of the receivers, the judge found that: ... it is obvious that there would be very considerable dificulties from a practical point of view in pursuing an action when the Company is, so to speak, hamstrung by the receivers having taken possession (as they are entitled to do) of all the Company's assets and having ousted Mr Sihra from his ofices. Thus the Company is prevented from carrying on business while the receivers are in. The dificulty I am in is deciding which should come first, the winding-up civil action 842 of 1976, or should the receivership be pursued to the bitter end before a decision is reached? 11. The judge then dealt with the nature of the claim in Civil Case 842 of 1976 in relation to the aircraft 5Y-ASH. He referred to the pleadings and to paragraph 4 of Mr Bramich's afidavit of 21st June, which has already been reproduced in this judgment, and said: Well, of course, that is the very thing that Simpson J ordered to be decided in Civil Case 842 of 1976 since he has ordered the insurers to be joined. Mr Bramich may also be correct when he said that the aircraft 5Y- ASH became the property of the insurers; but that is something which will not doubt fall to be decided. 12. Hancox J considered a number of authorities and concluded: For my part I may say candidly that I have had to weigh two confiicting aspects of this case. On the one hand, I have felt rather in the position of a Court deciding on a claim for summary judgment where the judge cannot say for certain that there are no triable issues, but suspects the defendant's good faith, and would like to protect the plaintifi, and accordingly decides to impose 1976 in which Kenya Airways Ltd ... has sued the petitioner for Shs prepared to give judgment for the plaintifi'), because I feel there are certain suspicious features about the timing of the civil action and the rapidity with which it was filed ... Having had regard to all the circumstances of the case and although I have my suspicions as to the bona fides of the company, I feel it would be unjust and unequitable to order its winding-up as of now. On the other hand I am not satisfied that I should dismiss the petition. This is, after all, an equitable jurisdiction, and, in the circumstances and bearing in mind, as Cotton LJ said, that the wishes of the debenture-holders are not to be disregarded, I propose to stand over the petition for three months in order to give [the Company] time to pay this debt. 13. The judge then made the order – the subject-matter of this appeal. 14. There are thirteen grounds of appeal, the first of which – perhaps the main ground – reads as follows: “The judge erred in holding that the petition was founded on a substantially undisputed debt”. Mr Hunger for the Company submitted, in efiect, that although the judge properly directed his mind to the law applicable in this case, he did not make a specific finding as to whether there was a substantially undisputed debt, in view of the cross-claim by the Company against the petitioner in Civil Case 842 of 1976 which, as the judge had found, by far exceeds the debt claimed by the petitioner. He submitted that the evidence indicates a genuine crossclaim filed before the petition to which a defence was filed without any counterclaim. There is no suggestion that the cross-claim was frivolous. There is no application to strike out the pleadings, instead there was an application to join another party which by itself indicates triable issues. The managing director of the Company was not https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 4

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cross-examined, his credibility could not be determined and there is therefore no basis for doubting the bona fides of the Company. Counsel relied on Re LHF Wools Ltd [1969] 3 All ER 882, Mann v Goldstein [1968] 2 All ER 769 and Re Lympne Investments Ltd [1972] 1 WLR 523 which dealt with cross-claims, disputed debts and entitlement of a petitioner to bring winding-up proceedings. Counsel referred also to other claims by the company against the petitioner amounting to about Shs 2,000,000 which, he said, the judge did not take into account in his judgment. As I understand him, he submitted that the insolvency of the Company was precipitated by the filing of the petition which triggered ofi the appointment of the receivers. This fact should not in equity be relied upon. The overall picture shows the petitioners as the debtor of the company and, accordingly, unqualified to bring the petition. Mr Hewett for the petitioner conceded that the judge did not make a specific finding as to whether there was a substantially undisputed debt, but submitted that from the judge's expressed suspicions as to the bona fides of the Company and the order he made giving the Company time to pay the debt, he must have been satisfied that a substantially undisputed debt had been established. In other words, he had by implication rejected the cross-claim. The debt which is the subjectmatter of the petition is not disputed. The onus was therefore on the Company to show that it had a cross-claim which exceeded the debt and disqualified the petitioner from bringing the petition. This the Company had failed to do. I accept Mr Hewett's argument on this point to the extent that the judge was conscious that he had to deal with the cross-claim and must have rejected it. However, there are certain findings of fact made by the judge which, in my view, are inconsistent with his conclusion. As regards the cross-claim it was the case for the Company that the petitioner was holding the plane 5Y-ASH which crashed together with certain equipment which it had refused to hand over to the Company. The petitioner claims the plane was written ofi and the Company was paid the insurance moneys in respect thereof. This is denied by the Company. The question is, did the insurance company discharge its liability to the company under the insurance contract by any payment, which apparently was made to the debentureholders? What about the other equipment? The judge had in respect of this matter said, in efiect, that the insurers will have to show that the Company was paid and that the insurers owned the aircraft after the alleged payment so as to be in a position to authorise its sale. Secondly, it would appear that the judge thought that Civil Case 842 of 1976 would also resolve the issue whether the company was entitled to claim the sum of over Shs 1,000,000 in respect of this aircraft. The learned judge said later in his judgment: I have been in some dificulty as to whether the proper course would not be for me to adjourn the hearing of the petition, or make some interim order until the receivership is concluded, or until the action is over. 15. Thirdly, the judge said that he felt rather in the position of a Court deciding on a claim for summary judgment, where the judge cannot say for certain that there are not triable issues, but suspects the defendant's good faith ... 16. I am inclined to the view, with respect, that the judge having held those views must have gone on to resolve the very issues which he said were fit for trial, by making the order which presupposes that a https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 5

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substantially undisputed debt had been established for which he gave time to pay. In Re LHF Wools Ltd there was an appeal against a winding-up order. Harman LJ said [1969] 3 All ER 882, 885: It [ie the Company] appeals on the ground that, according to modern practice, if there is a genuine cross-claim it is just as if there were a disputed debt; and, as is well known, a disputed debt is never good subject-matter for a petition. The main support for that proposition is Re Portman Provincial Cinemas Ltd (1964) 108 SJ 581 ... Everybody seems to have agreed on what the law was, and Lord Denning MR stated it like this: ‘As I understand the law on the matter, it is this: If there is a genuine crossclaim with substance in it, then let it be tried out in the Queen's Bench Division: this petition must be rejected. But if there is no substance in the cross-claim, then let the Court do justice to the petitioners in this case and not give heed to so insubstantial a cross-claim'. I used much the same language myself, and so did Russell LJ. The majority decided that shadowy as the cross-claim was and improbable as the event said to support it seemed to be, there was just enough to make the principle work, namely that it was right to have the matter tried out before the axe fell. 17. In the instant case it is pretty clear to me that although Hancox J suspected the bona fides of the company he nevertheless did not treat the crossclaim as without substance. It may have been shadowy or, at the highest, the event said to support it may seem improbable, but he did not and could not on the evidence have said that it was not genuine as it was defended and third parties had been ordered to be joined by a difierent Court. It is common ground that the making of the order was a matter for the judge's discretion and that this Court would not normally interfere with the exercise of a discretion unless some wrong principle is shown to have been applied. I think that this is the position in the present case, and I would, on this ground alone, allow the appeal. 18. Mr Hunter also complained that in making the order the judge said that the wishes of the debentureholders were not to be disregarded. The judge quoted Cotton LJ in Re St Thomas Dock Co (1876) 2 Ch D 121. As counsel pointed out, the circumstances in that case were difierent. The respondents there asked for time to pay as they expected to be in funds if they carried on business. The petitioner had proved a debt representing a very small interest as compared to other creditors. The Company did not have money and had no assets excepts the dock and it was doubtful whether sale of the dock would have produced any surplus beyond the amount of the debentures. The debenture-holders opposed the petition for winding-up. In the case before us the debenture-holders are not even parties to the petition. One of the receivers was called only as a witness for the petitioner. I would agree that, in this case, there was no question of considering the wishes of the debenture-holders because they were not parties to the proceedings. 19. The only other ground of appeal I would like to consider is ground 6 which is that “the judge erred in holding that the case was appropriate for the making of a ‘St Thomas Docks Co order””. It is common ground that neither party requested that such an order be made. Mr Hewett says that it is what judge decided and, he is prepared to live with it. He regrets the inconvenience of having to return to court to pursue his winding-up proceedings after the expiry of the three months. On the other hand Mr Hunter pointed out, in efiect, that the Company was in the hands of receivers and it was doubtful whether it would benefit from the three months period of grace. The circumstances of this case are difierent from those of the St Thomas case and, in my view, either the petitioner was entitled to a windingup order, or he was not. I would respectfully adopt the words of Megarry J in Re Lympne https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 6

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Investments Ltd [1972] WLR 523, 527, that “The Companies court must not be used as a debt-collecting agency ...”. 20. For the reasons I have given I would allow this appeal with costs, set aside the order appealed for and substitute therefor an order dismissing the petition with costs. I find it unnecessary to go into all the points raised in the memorandum of appeal and the very interesting and able arguments of counsel on both sides. 21. Before taking leave of this case, however, I want to mention one more point. There have been accusations on both sides of bad faith. On the part of the petitioner, it was contended that the debt, the subject-matter of the petition, was as a result of an account running from March 1975. The last payment by the company being in May 1975. There was a cheque for Shs 100,000 in December 1975 issued by the Company in respect of this debt but it was presented twice and on both occasions returned marked “R/D”. The last such occasion was in December, 1975. The winding-up of the Company was first threatened on 2nd March 1975 and up to that time the account had not been disputed by the Company except for “general remarks”. The Company's action in filing the crossclaim on 8th April was intended to avoid the winding-up proceedings and in efiect was a cover-up of the Company's inability to pay the debt which had been outstanding for over a year. On the other hand for the Company, reference was made to a letter dated 1st March 1976 which shows that the petitioner's legal advisers were aware of the dispute concerning the crashed aircraft and the matter apparently was still being investigated. This being so, the Company could not understand the statutory notice issued under section 220 of the Companies Act by the same legal advisers on the next day. This, coupled with the fact that the petition was advertised before it was served on the Company, clearly demonstrates that the petitioner's intention was to avoid the cross-claim filed against it and to ruin the Company. It was claimed that the petitioner knew of the debentures and must have known that a petition would precipitate the appointment of receivers. This did irreparable damage. The Company was in no position to restrain the petitioner from advertising and although an injunction was obtained later to restrain further proceedings, the harm had already been done. I do not think that I need say which party acted in bad faith, but there can be no doubt that the advertisement of a petition for winding-up a company is capable of doing much damage to the Company as a going concern. Rules 23 and 24 respectively of the Companies (Winding-up) Rules require advertisement and services of the petition of the Company. The Rules are silent as to which should come first. It is my considered view that bearing in mind the possible damaging efiects of the advertisement of petition for the windingup of a company, it is most undesirable for such a petition to be advertised before it is served on the Company. There should be a reasonable time between service of the petition on a company and publication thereof to enable the Company, if necessary, to exercise any rights it may have to restrain any further proceedings on the petition. Judgement of Madan Ja 1. I agree that this appeal should be allowed. I would comment upon a few features of the case. 2. I wish expressly to reinforce Wambuzi JA's remarks relating to service and advertisement of the winding-up petition in this case after it had been presented in the Companies jurisdiction of the High Court. The steps to be taken for service of process after presentation of a winding-up petition are set out in the Companies (Winding-Up) Rules. Rule 17(1) provides that it shall be the duty of the Registrar to serve such orders, summonses, petitions and notices as the Court may require him to serve and to execute warrants and other process. Rule 18 provides that all notices, summonses and other documents, other than those of which personal service is required, may be served by post. Under rule 24(1) every petition shall, unless presented by the Company, be served upon the Company at its https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 7

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registered ofice if any and, if there is no registered ofice, at the principal or last-known principal place of business thereof, etc.; under rule 24(2), an afidavit of service of such petition shall be sworn and filed by the oficer executing service. 3. Rule 23 lays down that very petition shall be advertised for at least seven days before the hearing as provided in this rule. 4. Counsel for the Company has voiced, with justification it seems to me, strong criticism of what transpired in this case. The petition was advertised both in the Kenya Gazette and a local newspaper on 4th June 1976, twenty- five days before it was served on the Company personally by the petitioning creditor 's advocate on 29th June 1976. No attempt seems to have been made to have the petition served by the Registrar. 5. If a petition is advertised before service, the Company is faced with a fait accompli, and it is left without an opportunity to apply to the Court to restrain advertisement. In fact, in this case, the Company successfully applied on 7th June 1976 for an injunction restraining the petitioning creditor from taking any further proceedings on the petition whether by advertising or otherwise. It was too late then; the petition had already been advertised on 4th June. 6. The advertisement of a winding-up petition before it is served upon the Company so that it has no opportunity to apply to restrain the advertisement can lead to incalculable damage being caused to the Company, as indeed would appear to have happened in this case. As a direct result of the advertisement of the petition the debenture-holder appointed a receiver and manager of the Company which brought its business to a standstill and aircraft, the property of the Company which were the mainstay of its business, were sold to realise funds to pay ofi the loan moneys secured under the debenture. Hancox J said in his judgment that the Company's aircraft were systematically sold (by the receiver) which presented a golden opportunity, if anyone was so minded, to step in and purchase such of the aircraft as they wanted. All the circumstances indicate that the petition was advertised before service without any apparent good reason. 7. The Company was incorporated in Kenya with the substantial nominal capital of Shs 1,000,000 the whole of it being paid up or credited as paid up. The petitioner served a demand upon the Company under section 220(a) of the Companies Act, to pay to it the sum of Shs 205,966/55 within three weeks, failing which winding-up proceedings would be taken. The Company not having paid this sum within three weeks, the respondent presented a winding-up petition against it on 25th May 1976, stating in paragraph 7 thereof that the company was insolvent and unable to pay its debts, and (paragraph 8) that in the circumstances it was just and equitable that the company should be wound-up. 8. The Company had earlier on 8th April 1976 instituted a plaint against the petitioner (High Court Civil Case 842 of 1976) claiming the return of Chieftain Aircraft 5Y-ASH, or its value (Shs 900,000) and also the return of certain equipment, or its value (Shs 468,105/00), making a total of Shs 1,368,105/00, plus damages for detention or conversion as stated in the plaint. 9. The averments in the plaint were that, at all material times, the Company was and is the owner of Chieftain Aircraft 5Y-ASH including all uninsured additional equipment in or attached thereto, which aircraft crashed at Loitokitok on 28th December 1974. On 20th December, the Company instructed the petitioner to recover the crashed aircraft, including all uninsured additional equipment, and to store the same at the petitioner's hangar at Wilson Airport, which the petitioner did. In February 1975, the Company orally demanded the return of the aircraft and equipment but the petitioner refused to deliver it and thereby converted it to its own use and wrongfully deprived the Company of the same. https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 8

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10. In its defence, the petitioner admitted that it was instructed by the Company to collect the wreck and to store it at its hangar at Wilson Airport which it did; that the Company did not orally demand the return of the aircraft and equipment and the petitioner denied having refused to deliver up the wreck, or converting it to it its own use or depriving the Company of the same. The petitioner was informed by the insurers of the wreck by letter dated 13th May 1975 that it had been sold to one Mr G Forno. The petitioner laid no claim to the aircraft or the equipment except for storage charges and the costs of this suit and any expenses incurred in repairing the wreck or any of the equipment but was concerned to hand the wreck to the lawful and rightful owner. 11. The Company also had nine other claims totalling a considerable sum, many times more than the petitioner's debt which it had communicated to the petitioner with a warning that the necessary legal proceedings would be instituted for recovery. 12. The judge appreciated that he had to weigh two confiicting aspects of the case. On the one hand, he said that he felt rather in the position of a Court deciding on a claim for summary judgment, where the judge cannot say for certain that there are not triable issues, but suspects the defendant 's good faith, and would like to protect the plaintifi, and accordingly decides to impose conditions on giving leave to defend, because he felt that there were certain suspicious features about the timing of the civil action and the rapidity with which it was filed. At the same time, as already stated, he said that he had in mind the hardship caused to the Company by having its aircraft systematically sold (by the receiver). The judge said: Having had regard to all the circumstances of the case, and although I have my suspicions as to the bona fide of the company, I feel it would be unjust and inequitable to order the winding-up of the Company as of now. On the other hand, I am not satisfied that I should dismiss the petition. This is, after all, an equitable jurisdiction, and in the circumstances and bearing in mind, as Cotton LJ said [in Re Chapel House Colliery Co (1883) 24 Ch D 259, 268], that the wishes of the debenture-holders are not to be disregarded, I propose to stand over the petition for three months in order to give [the Company] time to pay this debt. The suspension will be subject to exactly the same conditions as in Re St Thomas' Dock Co (1876) 2 Ch D 121, namely (1) that the Company do not consent to any other winding-up order, (2) to give notice to the petitioner of the presentation of any other petition, and (3) to consent that on the presentation of any other petition this application shall be renewed forthwith. 13. Earlier the judge quoted a passage from the judgment of Ungoed-Thomas J in Mann v Goldstein [1968] 2 All ER 769, 775, of which the following is an extract which I would respectfully adopt: ... the winding-up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds) since, unless a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court ... The legitimate purpose of such a process is to wind up a company on a ground specified in the Companies Act 1948 which, so far as material to this case, is the ground that it is unable to pay its debts. It is not its legitimate purpose to decide whether a petitioner claiming to be a creditor is a creditor, because section 224 makes it a prerequisite that he should be a creditor before he is even entitled to present a petition at all and before any consideration of the Company's insolvency can become relevant. So, in my view, when a petitioning creditor's debt is disputed on such substantial ground this court should restrain the prosecution of the petition as an abuse of the process of the Court even though it should appear to the Court that the Company is insolvent. 14. The following passage appears in Buckley on the Companies Acts (11th Edn) pages 356, 357: A winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the Company. A petition presented ostensibly for a winding-up order but really to https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 9

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exercise pressure will be dismissed and under circumstances may be stigmatised as a scandalous abuse of the process of the court. 15. The winding-up Court is not to be used for debt-collecting purposes, nor is it to be used for the purpose of deciding a disputed debt. If a debt which forms the basis of a winding-up petition is disputed on substantial grounds the Court has to decide on the evidence before it whether to exercise its discretion to wind up the Company. 16. I am of the opinion that when a debt is disputed the onus of establishing its genuineness lies principally on the Company though difierently than in an ordinary case which is that he who challenges proves. The Court must look at all the circumstances. In the case of a winding-up petition there are two facets to this issue; the Court must grasp a feeling of the whole situation including both sides and decide not only that the debt is disputed on substantial grounds but also that the petitioning creditor's debt is owing, after taking into account the challenge directed to it, without which the petitioning creditor would have no locus standi to present the petition. It is a decision which ought to be based upon the balance of the net weight of the evidence before the Court provided the credit balance on the winning side carries the force of probability and is not merely of slight weight, for it is a serious matter to order a trading company to be wound up. 17. In the present case the Company had instituted proceedings against the petitioner about six weeks before the date of presentation of the petition for the recovery of a sum which was more than six times the amount of the petitioner's claim. If the value of the aircraft 5Y-ASH is disregarded because the defence in Civil Case 842 of 1976 seems to suggest a dispute about its ownership, an issue which is quite irrelevant in so far as the petitioner is concerned, the value of the uninsured equipment was more than twice the amount of the petitioner's claim (to say nothing about the Company's other claims against the petitioner which I have mentioned and of which it had given notice to the petitioner). In my opinion the judge erred in not holding that the debt was disputed on substantial grounds. He also erred when he said that: here one cannot say that the debt on which the petition is founded is substantially disputed, it is another debt in a cross-claim which had been presented which is disputed. 18. The petitioner's debt was disputed by the Company on the ground that the petitioner was indebted to it in a much larger sum which would leave the Company a creditor of the petitioner. It may be a contra account, but it would wipe out completely the debt claimed to be owing by the Company, leaving nothing upon which a winding-up petition could be presented by the petitioner for it would not be a creditor. 19. Speaking for myself, I cannot see any suspicious features about the timing of the civil action, or that it was filled with rapidity. As I have pointed out, it was filed about six weeks before the presentation of the winding-up petition, not immediately after it. 20. The aircraft was certainly the property of the Company and had come into the possession of the petitioner only as a direct result of the instructions given to it by the Company to recover the wreck. Whatever the dispute between the insurers and the Company, it did not concern the petitioner who seemed, for some reason, to want to help to establish that Mr Forno had become the owner of the aircraft. When advised by the insurance company that it had sold the aircraft to Mr Forno, the only honest reply which the petitioner should have given was to say that it was holding the aircraft on behalf of its owner, the Company, with whom the matter should be sorted out. 21. With respect, the judge made a nugatory order based upon what happened in Re St Thomas Dock Co (1876) 2 Ch D 121. In that case the winding-up order was suspended because the Company was https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 10

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still trading and had prospects of paying ofi the debt. In the present case, to begin with, the judge did not have before him the wishes of the debenture-holder as the debenture-holder was not a party to the proceedings. The receiver and manager having been appointed, the Company was not in a position to carry on trading, neither admittedly was the receiver and manager inclined to do so. The receiver and manager adopted the line of least resistance and sold the Company's aircraft to realise moneys for the debenture-holder, in addition to relying upon the collateral security of a building known as Nanak House. The Company therefore had no money and was not likely to have money to pay ofi the debt in three months' time, all its assets having been seized by the receiver and manager. With respect, the efiect of the judge's order is exactly what he had warned himself against in the situation of a summary judgment claim. 22. His order is tantamount to entering judgment with a stay of execution for three months instead of giving leave to defend conditionally. And what was to happen at the expiry of three months, if the debt was not paid? The judge did not say. When I look at the picture as a whole, the winding-up was an abuse of the process of the court. 23. For these reasons, I concur in the order proposed by Wambuzi JA, and Law JA concurring, the appeal is allowed on the terms stated. Judgement of Law Ja. 1. I have had the advantage of reading in draft the judgment prepared by Wambuzi JA. I agree with him that the appeal should be allowed, and I concur in the order proposed by him. Out of respect for Hancox J, from whose decisions we are difiering, I briefiy state my reasons. 2. The appellant company has cross-claims against the respondent petitioning creditor greatly in excess of the debt upon which the petition was based. If the cross-claims are good, there is no net debt and the petitioner has no status. The judge said: ... although I have my suspicions as to the bona fides of the Company, I feel it would be unjust and inequitable to order its winding-up as of now. 3. He accordingly stood over the petition for three months to give the company time to pay the debt, and he made an order of suspension similar to that in Re St Thomas Dock Co (1876) 2 Ch D 116. The order in that case was made so as to allow the debtor company to continue to trade, as it had prospects of profitable trade, but no present assets, and could probably pay ofi the debt if given a short time in which to do so. The instant case is very difierent. The Company is under receivership and so cannot trade and has no access to its assets which are being sold by the receivers. No period of suspension could enable the appellant company to earn money and pay ofi the debt. 4. In my view the judge should either have made the winding-up order prayed for, or refused to make it. This was not a case for making a suspended order. The judge felt that it would be unjust and inequitable to order winding-up “as of now”. Clearly he would have dismissed the petition for winding-up had he not ordered a suspension, which incidentally neither party had asked for. 5. For these reasons I would allow this appeal. Appeal allowed. JUDGEMENT DATED AND DELIVERED THIS 11TH DAY OF 1 JULY 1978 MADAN JUDGE OF APPEAL https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 11

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………… WAMBUZI JUDGE OF APPEAL ………… LAW JUDGE OF APPEAL https://new.kenyalaw.org/akn/ke/judgment/keca/1978/32/eng@1978-07-11 12

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