Stripes Aero Company Limited v Airworks Kenya Limited

premature as the creditor has not obtained judgment to enable it to commence insolvency proceedings as a mode of execution. He contended that the Statutory Demand was issued in bad faith and is meant to unlawfully intimidate the debtor. He prayed for the said Statutory Demand to be struck out for want of jurisdiction, form and basis. 4. In opposition, the creditor filed a replying affidavit sworn on 4th November, 2025 by Ms Elze Le Roux, an authorised representative of the creditor. She stated that in May 2020, the parties herein entered into two Aircraft Dry Lease Agreements, whereupon the debtor was required to pay monthly lease rentals, as well as maintain the reserves and aircrafts for the duration of the lease. She contended that the debtor breached the Agreements and so as to regularise the arrears, they executed a Debt Offset Agreement dated 1st January 2024, in which the debtor acknowledged a debt of USD 626,412.00. She contended that the debtor acknowledged that Solenta owed monthly payments of USD 40,893.00 and it was agreed that the payments would be made directly to the creditor, in order to reduce the debt, but the debtor still defaulted. 5. Ms Roux averred that the parties entered into further negotiations and executed the Debt Settlement Agreement and they agreed that the outstanding debt was USD 630,409.00, which even provided a structured repayment schedule and a clear clause that in default, it would accrue interest of 12% p.a., compounded monthly but the debtor breached the said Agreement. She contended that they exchanged written reminders and correspondence with the debtor and that Mr. Mutinda admitted the indebtedness on email, but claimed that delay was occasioned by the Company Secretary being away in South Sudan. 6. The creditor deposed that the debtor was misleading the Court by saying that there exists a dispute, a claim that is misleading and legally untenable because the Debt Offset Agreement and Debt Settlement Agreement superseded the original Lease Agreements making the arbitration clause irrelevant in the matter, since the debt is already admitted hence there is no dispute. 7. The creditor alluded that Mr. Mutinda in dishonesty, claimed to be unaware of the Debt Settlement Agreement which is inconsistent with the documentary evidence available, since he digitally signed it on behalf of the debtor. Ms Roux stated that various emails were exchanged where Mr. Mutinda admitted indebtedness and remitted some instalments. Ms Roux averred that under Regulation 17(6) of the Insolvency Regulations, 2016, a company may only apply to set aside a Statutory Demand if it demonstrates a substantial dispute, a valid counterclaim or existence of adequate security for the debt. She argued that the company has provided no evidence of solvency to show that it can settle the debt. 8. Ms Roux stated that the Statutory Demand was properly issued and served in accordance with Rule 77B(2)(a) and Form 32E of Insolvency Regulations, 2016. She maintained that the Statutory Demand was issued under Section 384(1)(a) of the Insolvency Act, which deems a company unable to pay its debts. She contended that the debtor’s conduct for over two (2) years shows inability to pay the debts and it had not provided any document to show solvency through audited financial statements. She further stated that the debtor admitted financial distress which was due to non-payment as a result of freezing of its bank accounts by KRA at the Tax Appeals Tribunal. She deposed that the debtor was in a landlord-tenant litigation in Airworks (K) Ltd v Kenya Aerospace Limited & another [2023] KEELC 927. 9. She asserted that the debtor is insolvent has prolonged default, lacks financial disclosure, and that its evasive conduct is an indicator of insolvency. She urged this Court to dismiss the application and set aside the Statutory Demand. 10. The instant application was canvassed by way of written submissions. The debtor’s submissions dated 26th November 2025 were filed by the law firm of Kakai Mugalo Advocates LLP and the creditor’s https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6145/eng@2026-04-17 2

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submissions dated 2nd December 2025 were filed by the law firm of Muthaura Mugambi Ayugi & Njonjo Associates. 11. Mr. Mugalo, learned Counsel for the debtor submitted that the Statutory Demand is defective and liable to be set aside as it is not in compliance with Section 17 of the Insolvency Act and Regulation 77 of the Insolvency Regulations which are couched in mandatory terms. He cited the case of DAC Aviation (EA) Limited v Stevenson Kibara Ndungu & others Insolvency Petition No. E006 of 2020 and Oldonyo Nairasha Estates (Narok) Ltd v OCP Kenya Ltd [2021 eKLR. 12. He contended that there is a bona fide dispute which is genuine and substantive hence insolvency cannot be used as a collection tool. He cited the case of Universal Hardware Ltd v African Safari Club [2013] eKLR and East Africa Cables Limited v SBM Bank Limited [2020] eKLR, and submitted that a creditor is defined under Section 2 of the Insolvency Act as a person entitled to enforce a final judgment or a final order and relied on the case of Mutungi & another v African Merchant Assurance Company Ltd [2022] KEHC 15438, to bolster his argument. 13. Counsel submitted that the amounts demanded by the creditor arise from the Aircraft Dry Lease Agreement which has an arbitration clause in Clause 13, a mandatory requirement. He contended that allowing the proceedings would undermine the party autonomy. He cited the cases of Kenya Oil Company Ltd V Kenya Pipeline Company Ltd [2014] and Nyutu Agrovet Ltd v Airtel Networks Kenya Ltd [2019] eKLR. In the end, he argued that the Statutory Demand is fatally defective since the debt is genuinely disputed and there exists an arbitration clause. He urged this Court to set aside the Statutory Demand. 14. Mr. Oloo, learned Counsel for the creditor, testified that under Section 384(1)(a) of the Insolvency Act, a company is deemed unable to pay debts if it fails to comply with a Statutory Demand for a sum exceeding Kshs.100,000/= within 21 days of service of the demand. He cited Regulation 17(6) of the Insolvency Regulations, which deals with an application to set aside the Statutory Demand. 15. He argued that the Statutory Demand served on the debtor, met all the requirements given that it clarified the debt owed, the nature of the debt, that payment ought to be made within 21 days, warned of possibility of instituting insolvency proceedings and the right of the debtor to apply to set it aside, which negates the position by the debtor that the said Demand was fatally defective. He cited the case of DAC Aviation (EA) Ltd V Stevenson Kibara Ndungu & others (supra). 16. Counsel submitted that the debt is acknowledged and admitted in the Debt Offset Agreement and Debt Settlement Agreement, and that despite the fact that the latter is undated, the debtor cannot avoid payment. He disputed that the debt is substantial and asserted that the debtor is applying a strategy to buy time. He cited the case of Kenya Hospital Association T/A Nairobi Hospital v Opticom (K) Limited [2025] KEHC 11069 (KLR), to support his submissions. 17. Mr. Oloo took the position that the debtor misinterpreted the law by stating that a creditor must first obtain Judgment before issuance of a Statutory Demand and maintained that the creditor has a recoverable debt which the debtor acknowledged and promised to pay. He submitted that there is no legitimate dispute to warrant arbitration proceedings, more so given the execution of the Debt Offset Agreement and Debt Settlement Agreement. He asserted that arbitration cannot shield a debtor from insolvency proceedings as was held in the case of Opticom (K) Limited v Nairobi Hospital (supra). Counsel cited the cases of Sian Participation Corp (In liquidation) v Halimedas International Ltd and Pride Drive Ltd v Adrian Kenya Ltd (Insolvency Petition No. E038 OF 2023. 18. Mr. Oloo stated that the debtor had claimed that the insolvency process herein was being used as a debt collection tool since a Statutory Demand is not meant primarily to punish a debtor or to enforce the https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6145/eng@2026-04-17 3

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debt, but to test the debtor’s willingness to pay. He submitted that from the conduct of the debtor, it entered into contracts, defaulted, admitted debt and defaulted again and now seeks arbitration which is meant to frustrate the creditor by avoiding payment, yet it is clear that it is in debt. Counsel urged this Court to find the Motion devoid of merits and dismiss it with costs. Analysis And Determination 19. I have considered the application filed herein, the grounds on the face of it and the affidavit filed in support thereof. I have also considered the replying affidavit and the written submissions filed by Counsel for the parties. The main issue for determination is whether the Statutory Demand should be set aside. 20. A Statutory Demand is ordinarily issued where a company has been unable to pay its debts. Section 384(1) of the Insolvency Act outlines the circumstances in which a company is deemed as being unable to pay its debts. It states as follows(1) 21. For the purposes of this Part, a company is unable to pay its debts: a. if a creditor (by assignment or otherwise) to whom the company is indebted for hundred thousand shillings or more has served on the company, by leaving it at the company’s registered office, a written demand requiring the company to pay the debt and the company has for twenty-one days afterwards failed to pay the debt or to secure or compound for it to the reasonable satisfaction of the creditor; b. if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or c. if it is proved to the satisfaction of the Court that the company is unable to pay its debts as they fall due. On this issue, the grounds for setting aside a Statutory Demand are provided for under Regulations 16 and 17 of the Insolvency Regulations, 2016, which state as follows(1) (2) 1) The debtor may, apply to the Court for an order to set aside the statutory demand: (a) within twenty-one days from the date of the 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 or its first appearance, whichever is the earlier. 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 the Court. Regulation 17 (6) on Hearing of application to set aside statutory demand states: (6) The Court may grant the application if— (a) the debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; (b) the debt is disputed on grounds which appear to the Court to be substantial; https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6145/eng@2026-04-17 4

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22. (c) 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.” The foregoing provisions were explained in the case of Flower City Limited v Polytanks & Containers Kenya Limited Insolvency Cause No. 033 of 2020, as follows: “ The rationale for applications of this nature is to enable the debtor to satisfy the court that he genuinely disputes the debt. Simply put, a debtor must demonstrate the existence of a genuine dispute. Though it may not be possible to provide a closed list of the elements of a genuine dispute, the applicant must: 12. i. Show a plausible contention requiring investigation; ii. Be bona fide, genuine and real; iii. Be in good faith and show a prima facie plausibility; iv. Truly exist in fact, and contain a serious question to be tried; v. Be something more than mere bluster or mere assertion; vi. Be a claim that may have some substance; vii. Have a sufficient degree of cogency to be arguable; viii. Have objective existence; and ix. Have sufficient factual particularity. A genuine dispute therefore should not: a. Be spurious, hypothetical, illusory or misconceived; b. Be plainly vexatious or frivolous; c. Be so devoid of substance that no further investigation is warranted; d. Be merely spurious claim, bluster or assertion; and e. Be merely fanciful or futile.” 23. This Court notes that in this case, one of the arguments raised by the debtor is that the debt herein is disputed. The Debt Settlement Agreement was contested for being undated. This Court has gone through the annextures both in the supporting affidavit and the replying affidavit, particularly the Deed of Offset Arrangement. In Clause 2.1.1, the debtor acknowledged the outstanding amount of USD 626,412.00, the said Deed was signed by both parties. The Debt Settlement Agreement is undated, it was however still noted in the said Agreement that the debtor was indebted to the creditor in the sum of USD 668,607.00. 24. This Court further notes the correspondence between the parties over the debt, such as the email of 29th April 2024, wherein the debtor expressed its inability to repay the debt due to funding constraints, but remained committed to settle the debt promptly. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6145/eng@2026-04-17 5

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25. It is clear from the Agreements on record, that there exists a debt which the debtor acknowledged through the Debt Offset Agreement and the Debt Settlement Agreement whose contents, in this Court’s view, qualify as an admission of debt as the terms therein are clear, plain and obvious. Admission was discussed in the Court of Appeal case of Choitram v Nazari [1984] KLR 327, as follows: “ Admissions have to be plain and obvious, as plain as a pikestaff and clearly readable because they may result in judgment being entered. They must be obvious on the face of them without requiring a magnifying glass to ascertain their meaning. Much depends upon the language used. The admissions must leave no room for doubt that the parties passed out of the stage of negotiations onto a definite contract. It matters not if the situation is arguable, even if there is a substantial argument, it is an ingredient of jurisprudence, provided that a plain and obvious case is established upon admissions by analysis. Indeed, there is no other way, and analysis is unavoidable to determine whether admission of fact has been made either on the pleadings or otherwise to give such judgment as upon such admissions any party may be entitled to without waiting for the determination of any other question between the parties.” 26. In this case, the admission of debt is clear and undisputed. It is inconsequential that the Deed Settlement Agreement is undated as the same was signed by the parties and the debtor ought to have raised the issue of the date at the point of execution. The debtor has not provided any concrete evidence as to why it disputes the debt save for the issue of the lack of the date, to prove that it has substantial grounds to dispute the debt. This Court relies on the Court of Appeal, in Universal Hardware Limited v African Safari Club Limited MSA CA Civil Appeal No. 209 of 2007 [2013] eKLR, where the Court held as follows“ The thread running through these authorities is that in entertaining a petition to wind up a company on account of non-payment of debts, the court must be satisfied that the debt is not disputed on substantial grounds and is bona fide. If it is, then the winding-up proceedings are not the proper remedy. The substantial dispute must be the kind of dispute that in an ordinary civil case will amount to a bonafide, proper or valid defence and not a mere semblance of a defence. It is not sufficient for a company to merely say for instance that we dispute the debt. The company must go further and demonstrate on reasonable grounds why it is disputing the debt.” 27. As to the issue of whether the dispute herein should be referred to arbitration given the arbitration clause in the Aircraft Dry Lease Agreement, this Court finds that the answer is in the negative. This is because if the debtor’s intention was to have the dispute resolved through arbitration, it ought to have filed an application seeking to have the matter referred to arbitration at the point of filing its Notice of Appointment of Advocates in the matter, and it should not have taken further procedural steps. This Court relies on the Court of Appeal decision in Mt. Kenya University v Step Up Holding (K) Ltd (Civil Appeal No. 186 of 2013) [2018] eKLR, where the Court held as follows: “ We have construed section 6 of the Arbitration Act on our own and considered it in light of the case law highlighted above... We reiterate that in order to succeed, the law obligated the appellant to file the application seeking reference to arbitration simultaneously with the entry of appearance and thereafter take no further procedural steps in the matter. The appellant herein entered appearance, and then responded to the respondent’s application for injunction before filing the application seeking an order for reference to arbitration. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6145/eng@2026-04-17 6

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Critically the appellant’s response to the respondent’s application for injunction amounted to the taking of a procedural step in the matter before the initiation of the reference process. We therefore find no error in the Judge’s findings. They are accordingly affirmed.” 28. This Court notes that since the debt is admitted, there is no genuine dispute to warrant arbitration proceedings to commence. It is my finding that the Statutory Demand was procedurally issued given that there exists a debt which has not been paid, despite the same being admitted. For that reason, this Court finds that the Notice of Motion dated 21st October, 2025 is devoid of merits. It is hereby dismissed with costs to the creditor/respondent. It is so ordered. DATED, SIGNED AND DELIVERED AT KIAMBU ON THIS 17TH DAY OF APRIL, 2026. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM. NJOKI MWANGI JUDGE In the presence of: No appearance for the debtor/applicant Mr. Okeyo h/b for Mr. Odhiambo for the creditor/respondent Ms Julia – Court Assistant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6145/eng@2026-04-17 7

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