Greenwood Cottage Community Hospital Ltd & 1 other v Medical Credit Fund & 1 other

of, auctioning, selling by public auction or otherwise interfering with the plaintiff’s movable properties contained in the proclamation notice dated 3rd February 2026 by M/s Regent Auctioneers. d. That this honorable court be pleased to issue an order compelling the defendants/respondents to provide a full and detailed statement of accounts on the loan facilities extended to the 1st plaintiff/applicant if any, including the exact outstanding balance, any penalties or interest charges, and a breakdown of all payments made by the 1st plaintiff/applicant to date. In the alternative e. That the attachment herein touching on the movable properties contained in the proclamation Notice M/S Regent Auctioneers be and is hereby raised pending the inter-partes hearing and determination of this application. f. That costs be provided for. 2. The application is grounded by the supporting affidavit sworn by the 2nd plaintiff/applicant on 11th February,2026. 3. It is contended that the 2nd plaintiff/applicant is the director/shareholder of the 1st plaintiff, having bought the said hospital from the 2nd defendant at a consideration of Kshs. 4,150,000/=, the effect of which all movable properties owned by the 2nd defendant in the 1st plaintiff were transferred to the 2nd plaintiff. 4. The applicants contend that the interested party acting on the instructions of the 1st defendant has issued a proclamation notice dated 3rd February 2026 whose effect is to sell the plaintiffs/applicants’ movable properties via public auction seven days from the date of the proclamation. That on enquiry from the 2nd Defendant, the 2nd Plaintiff was casually informed that the 2nd defendant had taken a loan facility from the 1st Defendant and that he had defaulted in its repayment obligations which prompted instructions to the Interested Party to issue Proclamation Notice in respect of the 1st Plaintiffs’ properties to recover the alleged outstanding debt which stood at Kshs. 31,098,919.13. That the 2nd Defendant on his part alleged that he had faithfully serviced the alleged the loan facility in accordance with the agreed terms and conditions and was not aware of the loan balance. 5. She further averred that if the there was a debt of that magnitude, the same ought to have been listed as an encumbrance registered against the company with the Registrar of Companies which is not the case. That at the time of purchase, the 2nd Plaintiff had no actual or constructive knowledge of the alleged loan or any registered encumbrances on the Company and was not informed of the same by the 2nd Defendant who is the former shareholder. That the 2nd Defendant, on enquiry, has informed the 2nd Plaintiff that he disputes the outstanding balances claimed by the 1st Respondent, and there are discrepancies in the accounts that need clarification which the 1st Defendant /respondent being the lending institution has failed to avail despite request. 6. It is further averred that the movable properties in question are of substantial value and crucial to the Applicants’ business operations, and their loss would cause irreparable harm as it could lead to loss of life and multiple suits thereafter on grounds of medical negligence. 7. The applicant avers further that she is apprehensive that the Defendants could be colluding and attempting to grab and illegally take away movable properties in the hospital owned by the 2nd Plaintiff and which consists of critical, lifesaving, and diagnostic equipment. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13153/eng@2026-08-18 2

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8. The applicant further depones that she bought the Hospital with all the equipment therein and has greatly improved and bought others to enhance service delivery to the public and is in danger of being sold. That the alleged loan was taken by the 2nd Defendant and not the 2nd Plaintiff as can be deciphered from the Proclamation Notice. That the sale of the properties if not injuncted by this Honourable Court would result in loss of life, business, loss of livelihood, and reputational damage, which cannot be adequately compensated by way of damages. 9. In her supplementary affidavit dated 28th May 2026 the 2nd applicant deponed that the 1st defendant/ respondent’s actions are extra-judicial and that realizing a security right is an active enforcement of rights which requires lawful locus standi. That the 1stdefendant/respondent being an unregistered foreign corporate lacks the legal capacity to deploy enforcement machinery in Kenya. 10. In conclusion, the applicants state that they approached this court for injunctive orders for the reason that no notice was served upon them and that the 2nd plaintiff bought the 1st plaintiff free from any encumbrances and/or liabilities and all requests for loan application forms and statements of accounts from the defendants have been fruitless. 11. The 2nd defendant filed a replying affidavit sworn on 28th May 2026. 12. He avers that he never authorized, nor did the Company’s Board of Directors lawfully pass a resolution authorizing, the purported borrowing of the subject facility or the charging/pledging of the attached properties as collateral. That the alleged facility agreement was done without any requisite corporate capacity and authority. That the 1st Respondent has not adduced documents, facility letters, or board minutes to support the loan's legality. 13. The 2nd defendant/respondent further avers that he had faithfully serviced the alleged loan facility in accordance with the agreed terms and conditions and was not aware of the Kshs. 31,098,919.13/=. That in any case, if at all a debt of that magnitude existed, the same ought to have been listed as an encumbrance registered against the company with the Registrar of Companies. 14. The 2nd defendant/respondent further contends that the 1st defendant/respondent has failed to provide a transparent, comprehensive and accurate statement of accounts, reconciling principal amounts, interest rates and unexplained bank charges. He further disputes the alleged outstanding balance claimed by the 1st defendant/respondent and that he believes that there exists discrepancies in the accounts which need clarification. 15. It is further deponed that at all material times, there existed no legal impediment, contractual restriction, statutory bar, or third-party encumbrance that prevented, restricted, or otherwise hindered the 2nd defendant/respondent from lawfully selling, transferring his shares in the 1st Plaintiff to the 2nd Plaintiff. That under the provisions of the Companies Act, and the company’s governing Articles of Association, the procurement of a loan facility and the subsequent charging of corporate assets mandatorily require a prior, validly executed formal Board Resolution passed by a properly constituted quorum of the Board of Directors. That no such Board Resolution was ever deliberated upon, approved, or executed, thereby rendering the purported loan facility illegal and unenforceable for want of critical statutory and corporate prerequisites. 16. It is further averred that the attached assets are not under his management now nor are they his properties but they belong to the Plaintiffs having been lawfully, transparently, and irreversibly transferred to a bona fide third-party purchaser, who is the 2nd Plaintiff for value without notice of any encumbrance prior to the expansion of this dispute. That the 2nd Respondent is legally barred from https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13153/eng@2026-08-18 3

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attachment, advertisement, or execution against the said assets, as doing so would severely prejudice the 2nd Plaintiff who is an innocent third party who holds clean, absolute ownership of the Company. 17. The 2nd respondent further depones that if the 1st Respondent maintains any valid financial claim or residual grievance arising from the underlying loan facility, its lawful and proper recourse lies exclusively in pursuing a personal claim for debt against him as the borrower/guarantor, rather than seeking the illegal and destructive sale of assets that have changed legal ownership. 18. The 1st defendant filed his replying affidavit sworn on the 30th March 2026 by one Kennedy Okong’o who states that he is a director of thereof. 19. He deponed that the 1st applicant took loan facilities from the 1st respondent adding up to Kshs. 28,290,000/- and broken down as follows; 20. a. Equipment loan of Kshs. 20,290,000/=. b. Expansion of new outpatient facility loan of Kshs. 8,000,000/=. It is further deponed that as security for the aforementioned facilities, the 1st applicant offered the following; a. First legal charge over all that property known as NYAKI/KITHOKA/2131 owned by Rogers Marangu Robert for Kshs. 2,800,000/= b. Specific debenture over the theatre equipment and ambulance for Kshs. 20,290,000/=. c. Fixed and floating all asset debenture covering existing and future assets of the 1st applicant for Kshs. 28,290,000/=. d. Joint registration of vehicles purchased with the facility and delivery of the vehicles signed transfer forms, logbooks and current insurance certificate to the 1st respondent. e. Personal guarantee by the 2nd respondent and Mr. Rogerson Marangu Robert. 21. It is averred that the 1st applicant fell into arrears and defaulted on its obligations to repay the loan. That consequently, the 1st respondent commenced the realization process and instructed the interested party who issued a proclamation. 22. Regarding the purported sale of the company to the 2nd applicant, it is deponed that Clause 12.3 of the loan facility agreement expressly prohibited the 2nd respondent from selling, transferring, or otherwise disposing of the 1st applicant without the prior written consent of the 1st respondent. That no such consent was obtained. That as such the purported sale is illegal and null and void ab initio, for undermining the rights of the 1st respondent as a secured lender. 23. It is further averred that contrary to his allegations, the 2nd respondent is indebted to the 1st respondent to the tune of Ksh. 21,305,828.74 as shown in the statement of account which was filed. That the 2nd respondent has not pointed out any alleged discrepancies and that in any event a dispute as to the amount owed cannot be a valid ground to restrain or injunct a lender from realizing its security. 24. On the question of locus standi, the 1st respondent depones that the 2nd respondent never raised it when he applied for the loan facility. That having benefitted from the said loan the 2nd respondent is estopped from disowning the loan agreement. 25. Parties filed their respective submissions. I will not rehash them but will refer to them where necessary. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13153/eng@2026-08-18 4

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26. 27. Being an application for interlocutory injunction, the applicants have to surmount the threshold set out in Giella vs Cassman Brown & Co. Limited (1973) EA 358. The 3 mandatory conditions are as follows; a. Prima Facie Case: The applicant must demonstrate that they have a legitimate claim with a probability of success, raising serious questions to be tried. b. Irreparable Injury: The applicant must prove that they will suffer harm or damage that cannot be adequately compensated by an award of financial damages. c. Balance of Convenience: If the court is in doubt about the first two conditions, it will weigh the potential inconvenience and harm that each party would suffer if the injunction is granted versus if it is denied. In the case of Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] KECA 175 (KLR) Court of appeal defined what would amount to a prima facie case. The court held as follows; “ A prima facie case in a civil application included but was not confined to a genuine and arguable case. It was a case which, on the material presented to the court, a tribunal properly directing itself would conclude that there existed a right which had apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.” 28. The applicants’ case is hinged first, on the averment that the 1st respondent, a foreign entity, is not registered to do business in Kenya. That its attempt to execute an extra-judicial asset on Kenyan soil is a nullity. 29. The applicant relied on Stichting Rabo Bank Foundation v Ava Chem Limited and Another [2024] KEHC 9931 (KLR) where the High Court ruled that a company lacking a Companies Act registration meant that the lender had no legal capacity (locus standi) to enforce the loan agreement or guarantees in Kenya, regardless of the merits of the debt. 30. Also cited was Root Capital Inc. v Tekangu Farmers Co-operative Society Ltd & Another [2016] KEHC 3735. 31. Whereas the finding of the High Court in Stichting Rabo Bank Foundation v Ava Chem Limited (supra) was that that a foreign company which had not registered under section 974 of the Companies lacked the requisite legal standing to institute proceedings in Kenya, that decision was recently overturned by the Court of Appeal. [see Stichting Rabobank Foundation v Mwangi & another [2026] KECA 1550 (KLR)]. 32. The Court of Appeal held that the High Court had adopted an overly restrictive interpretation of section 974 of the Companies Act. It held that the said section regulates the conduct of foreign companies that are carrying on business in Kenya but it does not extinguish their juridical personality or preclude them from enforcing legal rights before Kenyan courts. The Court emphasized that a foreign company does not lose its capacity to contract, sue or be sued merely because it has not registered under the Companies Act. 33. That decision is binding on this court. 34. Therefore, the first ground, on the right of the 1st respondent to enforce its right, is resolved in favour of the said respondent. 35. The applicants’ case is that the 2nd applicant had no notice of the loan facility. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13153/eng@2026-08-18 5

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36. Now, I have looked at the purported sale and, in my view, it appears to be a scheme hatched by the 2nd respondent and the 2nd applicant to outwit the 1st respondent. I will give my reasons. 37. First, the 2nd respondent has not attached any resolution of the company agreeing to sell its shares to the 2nd applicant. This is the same respondent who questioned the loan facility for not being accompanied by a board resolution. 38. Secondly, there is no evidence of actual consideration having been paid by the 2nd applicant. There are no receipts to confirm payment of any applicable statutory taxes. 39. Thirdly, the purported sale was clearly contrary so Clause 12.3 of the loan facility agreement that required the 2nd respondent to seek the 1st respondent’s prior consent to any sale transfer or alienation of any of the property covered by the debenture created under the loan facility. The 2nd respondent despite acknowledging the agreement, does not state that he obtained the consent from the 1st respondent. 40. Lastly, the 1st applicant is a body corporate, separate from the owners/shareholders. The fact that it changes shareholding or directorship does not make it exempt from payment of debts it has incurred prior to the change. If that was the case then companies would easily avoid debts by just changing ownership. 41. There is no evidence that the purported sale between the 2nd applicant and the 2nd respondent was ever authorized by the 1st respondent, a secured debenture holder. As such the purported sale was illegal and is void ab initio. The applicants cannot rely on an invalid agreement. Their recourse, if any, is against the 2nd respondent for a refund of any money paid. 42. Having looked at the material before me, and for the reasons adduced, I am of the view that there is really no prima facie case established by the applicants. 43. On the question of irreparable harm or injury, I am guided by the decision in Nguruman Ltd v Nielsen & 2 others (Civil Appeal 77 of 2012) [2014] KECA 606 (KLR) (4 April 2014) (Judgment) which defined such injury as follows; “ On the second factor, that the applicant must establish that he “might otherwise” suffer irreparable injury which cannot be adequately remedied by damages in the absence of an injunction, is a threshold requirement and the burden is on the applicant to demonstrate, prima face, the nature and extent of the injury. Speculative injury will not do; there must be more than an unfounded fear or apprehension on the part of the applicant. The equitable remedy of temporary injunction is issued solely to prevent grave and irreparable injury; that is injury that is actual, substantial and demonstrable; injury that cannot “adequately” be compensated by an award of damages. An injury is irreparable where there is no standard by which their amount can be measured with reasonable accuracy or the injury or harm is such a nature that monetary compensation, of whatever amount, will never be adequate remedy.” 44. The material before the court indicates that the loan facility created a debenture over the assets set out in the debenture documents duly executed by the 1st applicant and the 1st respondent. The reality is that there was default on the part of the 1st applicant, under the ownership and directorship of the 2nd respondent. The 1st respondent’s right as a debenture holder arose over the assets, which have a monetary value. 45. For this reason, this court finds that no irreparable injury is likely to be occasioned to the applicants if the order of temporary injunction is not granted. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13153/eng@2026-08-18 6

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46. Even on a balance of convenience, I still find that the orders sought cannot issue. The outstanding loan remains unpaid and the court cannot prevent the 1st respondent from realizing the very assets that secured its loan to the 1st applicant. 47. I hereby find that the application dated 11th February 2026 is lacking in merit and it is dismissed with costs. DATED, SIGNED AND DELIVERED AT MERU THIS 18TH DAY OF AUGUST 2026. H. M. NYAGA JUDGE https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13153/eng@2026-08-18 7

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