Synon Capital Limited v Joseph Kamau Mwaura

5. He averred that the debt has only remained unpaid for a few days and in respect of the repayment period, the debtor/applicant has not been given adequate time, opportunity and indulgence. 6. He also averred that the statutory demand notice is premature as there is no execution issued by a Court of competent jurisdiction against the applicant that has been returned unsatisfied. 7. The applicant deposed that the respondent’s step of issuing the impugned statutory demand is a grave transgression against the provisions of Section 17(3)(b) of the Insolvency Act which contemplates bankruptcy proceedings in a scenario only where a decree issued against a proposed bankrupt is returned unexecuted and unsatisfied, wholly or in part. 8. The applicant contended that the respondent has resorted to using this Honourable Court as a debt collector instead of following due process of debt collection. 9. Mr. Khabure stated that the debt was advanced at an interest rate of 3% per month over a period of 365 days hence the interest rate is not only unfair but also unconscionable and oppressive. He opined that the respondent was merely intent in embarrassing the applicant through the statutory demand and ultimate bankruptcy petition. 10. He deposed that no prejudice would be suffered by the respondent if the orders being sought herein are granted since he will still be at liberty to institute the appropriate debt recovery proceedings against the applicant. 11. In opposition to the application the respondent filed a replying affidavit through Mr. Joseph Kamau Mwaura, sworn on 4th August 2025. He stated that he gave a loan amounting to Kshs.3,500,000/= to the applicant pursuant to a loan note agreement dated 24th July 2024. 12. He further stated that the statutory demand relates to a debt of Kshs.3,873,388.71 including interest, arising from a loan agreement between himself and the applicant dated 24th July 2024, which remains unpaid to date. 13. He contended that the application to set aside the statutory demand is without merits and is merely intended to delay legitimate insolvency proceedings, as the applicant merely alleges that the said proceedings are meant to cause it embarrassment as a ground for setting aside the statutory demand, a reason not contemplated under the Insolvency Act & Regulations. 14. He contended that the reasons advanced by the applicant are bereft of any sound legal principle and are not supported by law as the debt is a legitimate debt, and the statutory demand has met all the hallmarks of a valid notice as provided under the Regulations. 15. He averred that the applicant has not provided any proof of payment of the debt or a consent which would have had the effect of varying the lawful legal agreement entered into between the company and himself regarding the debt. 16. He stated that the statutory demand was properly issued and served on the debtor in accordance with Regulation 17 of the Insolvency Regulations, 2016, and it cannot be termed as invalid. 17. Mr. Kamau averred that there is a valid agreement signed by the parties, there was valuable consideration provided and the agreement was duly executed and attested to, as provided by law, and the applicant is legally obligated to perform its obligations under the agreement. A copy of the said agreement was exhibited as an annexure to the affidavit. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 2

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18. He outlined various instances where he wrote to the applicant to settle the principal amount and interest at 3% per month as per the agreement but the applicant in its response sought additional time to recapitalize and engage debt collectors to recover sums lent out in order to repay the loan plus interest. 19. He stated that pursuant to the said response, he instructed his Advocates to issue a statutory demand under Sections 384(1), 423 and 424 of the Insolvency Act, which statutory demand was lodged in Court on 3rd July 2025. He contended that the threshold to set aside a statutory demand under the Insolvency Act has not been met by the debtor. 20. The application herein proceeded for hearing by way of written submissions. The applicant’s submissions were filed by the firm of Walton Omwa & Co. Advocates.The respondent’s submissions were filed by the firm of Brian Asin & Co. Advocates. 21. Mr. Omwa, learned Counsel for the applicant stated that the grounds for setting aside a statutory demand are set out in Regulation 17 of the Insolvency Regulations, 2016. He submitted that by virtue of Clause 2 of the loan agreement, repayment was only due after 365 days, unless the lender issued notice at least 60 days before the loan note period to terminate the loan agreement, Counsel contended that the contractual obligation to repay the principal amount, and for the debt to be repayable has not yet arisen, unless and until the lender gives that notice. He stated that no notice had been given and the 365 - day period had not yet lapsed at the time when these proceedings were instituted. He asserted that the respondent’s statutory demand is premature, as the debt is not yet due or payable in terms of the loan agreement. 22. Mr. Omwa submitted that Regulation 17(6)(b) of the Insolvency Regulations, 2016, allows the setting aside of a statutory demand where there is a substantial dispute. He added that a dispute about whether the debt has become due because of a contractual term is precisely such a dispute, as it is not about the amount only, but the existence and timing of liability. 23. He stated that in making a statutory demand, it is necessary to show that the dispute is bona fide not spurious or frivolous. He relied on the case of Flower City Limited v Polytanks & Containers Limited (Insolvency Cause 033 of 2020) [2021] KEHC 34 (KLR). He also relied on the case of Universal Hardware Limited v African Safari Club Limited, on factors that a Court when faced with an application for setting aside a statutory demand should look into, to ascertain that the debt claimed in the statutory demand is bona fide, genuine, not spurious or vexations. 24. In making reference to the loan agreement dated 24th July 2024, Mr. Omwa stated that it provides specific verifiable contractual terms particularly Clauses 2 & 3 that show the date due is fixed at the end of the year, and that a Notice is required for earlier termination, which gives the dispute sufficient substance and particularity. 25. Counsel contended that using the statutory demand before the due date can be seen as an abuse of process, or putting unjustified pressure on the debtor. He stated that Courts have recognized that statutory demands should not be used to coerce payment of disputed claims or claims not yet enforceable. He relied on the cases of Flower City Limited v Polytanks & containers Kenya Limited (supra) and Triple Nine Associates Ltd v Nextgen Office Suites Ltd [2021] KEHIC 13350, where Courts stated that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. 26. Counsel urged this Court to find that the applicant has disputed the debt on substantial grounds and that the respondent’s sole objective is to arm-twist the applicant to pay a debt that had not fallen due at the time of filing of the statutory demand hence it is an abuse of the Court process. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 3

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27. Mr. Omwa submitted that there is a triable issue over whether the debt is due or the sum claimed. He urged for the statutory demand to be set aside so that the parties may ventilate their disputes at trial, especially, so where the dispute turns on contractual interpretation and complex accountancy of interest matters which are ill suited to summary dismissal by the insolvency process. He cited the case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR, which addressed the issue of an unconscionable contract. 28. Counsel stated that the 3% interest in the loan agreement is contested as unconscionable, punitive and encourages unjust enrichment on the part of respondent. He submitted that the respondent’s statutory demand, which rests in part on that interest, should not be allowed to operate as an immediate route to insolvency, while this critical question remains undecided. 29. He prayed that the parties herein be allowed to ventilate the dispute in ordinary civil proceedings. He relied on the case of Dhiman v Shah (Civil Appeal E380 of 2023) [2025] KECA 1264 (KLR) (11 July 2025) Judgment, on Kenyan Courts safeguarding the doctrine of unconscionability. Counsel stated that in the above case, the Court of Appeal invalidated the Agreement charging 36% annually (compounded) deeming it unconscionable and ordered restitution of a fair rate of 12%, aligning it with justice and preventing unjust enrichment. 30. Mr. Omwa stated that the reasoning in the above case is directly applicable in the instant case. He contended that charging 3% interest per month on the debtor’s loan, particularly during the short period involved is punitive and contrary to the laws of equity. 31. He stated that in the instant case, enforcing a 36% per annum interest rate would have precisely the same effects as in the case of Dhiman v Shah (supra), as it amounts to punitive or extortionate financial consequences on the applicant. 32. Counsel contended that the statutory demand implicitly demands payment of the principal amount and interest on that grossly inflated basis, and ultimately threatens liquidation on that account, which would be manifestly unfair. He stated that it is only just and fair for such a punitive and predatory interest rate not to be enforced. 33. Mr. Omwa expressed the applicant’s willingness to engage in negotiations on a reasonable repayment plan if the same is feasible. He contended that the insolvency relief in this particular case is inappropriate and should be deferred while negotiations continue. 34. Counsel stated that the applicant herein attempted to engage and discuss payment modalities but the respondent adopted a hardline approach by threat of publication and statutory demand instead of sensible negotiation, with the goal of coercing payment and embarrassing the applicant. He stated that the respondent did not act reasonably in invoking the insolvency machinery as a first resort. 35. Mr. Omwa stated that the respondent advanced the loan recently, and it is in the unusual position of immediately turning to statutory demand rather than ordinary collection. He stated that such conduct smacks of ulterior motive. 36. He relied on the case of Stephen Nyaega Mose [2018] eKLR, to assert that insolvency proceedings should not be used by unscrupulous creditors as tools of harassment. 37. Counsel termed the statutory demand and the threat to immediate insolvency of the applicant as an abuse of the Court process and an affront to equity. He prayed for the instant application to be allowed. 38. On his part, Mr. Opondo, learned Counsel for the respondent stated that the parties entered into an agreement by way of a loan note for financing in the sum of Kshs.3,500,000/= whose purpose was to https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 4

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enable the borrower finance its SME customers. He further stated that the funds were disbursed to the applicant and that the loan note agreement provided for events of default in the agreement which the applicant has failed to comply with, resulting in the statutory demand against it. 39. He also stated that the applicant admitted to the debt via a letter to the respondent dated 12th June 2025 by Mr. Oliver Khabure, a Director of the company, in which he requested for a payment plan while the company revitalized its revenue generating activities thereby ensuring their resumption of timely interest payments, including the settlement of the creditor’s interest payout. 40. Counsel stated that arising from the application and documents, it is not disputed that the applicant is indebted to the respondent to the tune of Kshs.3,873,388.71, which sum continues to accrue interest, and that the debt remains unpaid despite the statutory demand being issued. 41. Counsel stated that the debtor had failed to pay or compound the debt within 21 days. He cited the case of BN Kotecha & sons Ltd v Shah [2024] KEHC 8601 (KLR), where the Court emphasized that a statutory demand should only be set aside where the debt is disputed on bona fide and substantial grounds, as mere assertions are insufficient. 42. Mr. Opondo contended that the applicant has not demonstrated cause for setting aside the statutory demand but has merely stipulated that the respondent was intent on embarrassing the debtor through the statutory demand and ultimate liquidation petition. Counsel cited the case of Peter Munga v African Seed Investment Fund LLC [2017] eKLR, where the Court stated that when asked to set aside a demand on any other ground other than the grounds stated under paragraphs (a), (b) and (c), the question then becomes whether the applicant can show a substantial reason akin to the preceding three paragraphs. 43. Counsel stated that in this case, the applicant has failed to provide substantial reasons as to why the statutory demand should be set aside. He also stated that the statutory demand was properly issued and served on the applicant in accordance with Regulation 17 of the Insolvency Regulations, 2016, and it cannot be termed to be invalid. To assert the validity of the statutory demand issued, he relied on the case of Re Kipsigis Stores Limited (supra). 44. He asserted that according to Section 424(1)(c) of the Insolvency Act, inability to pay debts by a company is a ground for liquidation of the company by Court. 45. Mr. Opondo submitted that the use of a statutory demand to seek payment of a legitimate, undisputed debt is proper and within the available statutory framework and practice. He cited the case of Prideinn Hotels and Investment Limited v Tropicana Hotels Limited [2018] eKLR, where the Court of Appeal held that liquidation is one of the options under the Insolvency Act, which a creditor could pursue and secure payment of a debt. 46. Counsel contended that the applicant’s position that the statutory demand is premature and an abuse of the Court process because the creditor is obliged to exhaust other recovery mechanisms available to it before bringing up an application for insolvency, is bereft of any sound legal principle and is not supported by law, as the respondent is allowed by law and specifically, the Insolvency Act to make an application to the Court for liquidation of the company due to the fact that the applicant has been unable to repay its debt. Analysis And Determination. 47. I have considered the application and the affidavit in support thereof. I have also considered the replying affidavit as well as the written submissions filed by the parties’ Advocates. The issue for determination is if the statutory demand dated 2nd July 2025 should be set aside. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 5

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48. The statutory demand served upon the applicant herein was issued pursuant to the provisions of Sections 384(1)(b) and (c), Sections 423 and 424 (e) of the Insolvency Act, Chapter 53 Laws of Kenya. 49. Regulation 16 of the Insolvency Regulations, 2016, provides that1. 50. The debtor may, apply to the Court for an order to set aside the statutory demanda. Within twenty-one days from the date of service on the debtor of the statutory demand;- or b. If the demand has been advertised in a Newspaper, from the date of the advertisement’s appearance, whichever is earlier. 2. Subject to any order of the Court under Regulation 17(7), time limited for compliance with the statutory demand shall cease to run from the date on which the application is lodged with Court. 3. The debtor’s application shall be in Form 7 set out in the First Schedule and shall be supported by an affidavit which shall be in Form 8 set out in the First Schedule. 4. The affidavit referred to under paragraph (3) shalla. Specify the date on which the statutory demand came into the debtor’s possession. b. State the grounds on which the debtor claims that it should be set aside. c. Annex a copy of the statutory demand. Regulation 17 of the said Regulations provides as follows1. On receipt of an application under Regulation (6) the Court may, if satisfied that no sufficient cause is shown for granting the statutory demand, dismiss the application without giving notice to the creditor. 2. The time limited for compliance with the statutory demand shall commence from the date from which the application is dismissed. 3. If the application is not dismissed under paragraph (1), the court shall fix a date and venue for it to be heard and shall give at least seven days notice to – a. the debtor or, if the debtor’s application was made by an advocate acting for him, to the advocate; b. the creditor; and c. any other person who is named in the statutory demand as the person whom the debtor may enter into communication with in reference to the statutory demand or, if more than one person is named, the first person to be named. 4. Where the creditor responds to the application, the creditor shall serve the response upon the debtor and the Court at least three days before the date of hearing of the application. 5. On the hearing of the application, the Court shall consider the evidence before it, and may either summarily determine the application or adjourn it, and shall give such directions as it considers appropriate. 6. The Court may grant the application if - https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 6

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7. a. The debtor appears to have a counterclaim, set off or cross-demand which equals or exceeds the amount of debt or debts specified in the statutory demand; b. The debt is disputed on grounds which appear to the Court to be substantial; c. If it appears that the creditor holds some security in respect of the debt claimed by the demand, and either paragraph (6) is not complied with in respect of the demand or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt; or d. The Court is satisfied, on other grounds that the demand ought to be set aside. …………………………………………………………………… 51. In this instance, the applicant’s main contention is that the statutory demand was issued prematurely as the contract was for a period of 365 days, which had not elapsed by 4th July 2025 when it was served with the said statutory demand. Both parties are in agreement that the contract was executed on 24th July 2024 for an amount of Kshs.3,500,000/=. 52. The applicant in its further affidavit sworn on 9th September 2025 asserted that the principal amount was payable at the end of 12 months, but these proceedings were instituted prematurely even before the lapse of the 1 year period referred to in Clause 2.3 and the Addendum of the loan agreement dated 24th July 2025. 53. In order to determine if the repayment of the debt had accrued as at the time the statutory demand was served to the applicant on 4th July 2025, it is important to refer to the terms of the loan agreement as well as to the correspondence between the parties herein, preceding the issuance of the statutory demand. 54. Clause 2.1 of the loan agreement was to the effect that the respondent had agreed to lend the applicant on 24th July 2024 (the closing date) the principal sum of Kshs.3,500,000/=. 55. According to Clause 2.2., the loan note period was for 365 days from the said date automatically renew (sic) until such time the respondent would issue a notice to the borrower of at least sixty (60) days prior to the end of the loan note period to terminate the loan agreement. 56. Clause 2.3 provides that“ the loan shall bear interest on the principal at a flat rate of three percent (3%) per month. This interest shall be applied over a period of three hundred sixty five (365) days from the date hereof (the interest period) and is payable monthly less any applicable taxes, by way of cheque issued by the borrower. The principal amount is payable at the end of the twelve (12) months period.” 57. Annexed to the respondent’s affidavit there are several emails. There is one dated 28th May 2025 from the respondent addressed to the applicant, it only reads, “what is going on?” Prior to that email, the respondent had sent an email on 23rd May 2025, the contents of the said email were however not exhibited. After going through the emails exhibited, it is evident that the applicant was not paying interest to the respondent on a timely basis, and it was so acknowledged by the applicant. 58. From the documents exhibited by the respondent, there is however no document to show that it issued the applicant with a 60 days’ notice of termination of the loan agreement as provided for in Clause 2.2 thereof. I therefore agree with the applicant that the statutory demand dated 3rd July 2025 was issued prematurely by the respondent. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 7

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59. I say so because the statutory demand could only be issued if the principal amount and interest was not paid by the applicant either after issuance of the 60 days’ notice of termination by the respondent, or after the term period of 365 days of the loan agreement had elapsed. If the latter condition was to apply, it means that the 365 days would have elapsed on 23rd July 2025. The statutory demand was however served on the applicant on 4th July 2025 during the term of the contract. Noting that the respondent had not complied with Clause 2.2. of the loan agreement, the statutory demand issued was therefore invalid. 60. In the case cited by the applicant of Flower City Limited v Polytanks & Containers Kenya Limited (supra), Mativo J (as he then was) held as follows“ A reading of the above provision leaves no doubt that the existence of a genuine dispute regarding the debt is a sufficient ground for the Court to set aside a statutory demand. The policy underlying this provision is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. Put differently, the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. The Court must be satisfied that there is a claim that may have some substance. Talking about a claim that has substance, it is important to mention that it is often possible to discern the spurious, and to identify mere bluster or assertion. A dispute that has substance should have a sufficient objective and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. When a Debtor claims to have a counter-claim within the meaning the above regulation, the Court will normally set aside the Stationary Demand if, in its opinion, on the evidence there is a genuine triable issue. The function of the bankruptcy Court, on the hearing of an application brought under Regulation 17(6) is not to conduct a full hearing of the putative claim. Rather, it is simply to determine whether the claim in question, after having regard to “all the circumstances,” raised a ‘genuine triable issue.’ (Emphasis added). 61. In this application although the debt is not disputed, the application for setting aside the statutory demand falls squarely on the provisions of Regulation 17(6)(c) of the Insolvency Regulations, 2016, that the Court is satisfied, on other grounds that the demand ought to be set aside. 62. I decline to be drawn to the issue of whether the interest of 36% interest p.a., is unconscionable as that is a matter which should be determined in a trial. The appellant in its affidavit expressed the wish to negotiate settlement. That is encouraged. 63. For the reasons stated hereinbefore, it is my finding that the statutory demand is invalid. The instant application is hereby allowed with the effect that the statutory demand dated 2nd July 2025 and lodged in Court on 3rd July 2025 is hereby struck out. Each party shall bear its own costs. It is so ordered. DELIVERED, DATED AND SIGNED AT NAIROBI ON THIS 23RD DAY OF JANUARY 2026. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM. NJOKI MWANGI JUDGE In the presence of:Ms Adera h/b for Mr. Omwa for the applicant https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 8

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Mr. Opondo for the respondent Ms B. Wokabi – Court Assistant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1049/eng@2026-01-23 9

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