A judge has blocked a Nairobi-based real estate company from winding up its business after creditors, including four banks and a cement manufacturer who are owed a combined debt of Sh415 million, resisted the move.
Justice Aleem Visram dismissed the petition filed by the company, Telegan Investments Limited, saying there was no evidence that the firm was no longer commercially viable as claimed by its directors.
It had applied for an order for voluntary liquidation. It has been in the property development business for 15 years.
The petition was rejected because the company failed to provide financial statements and records showing that its liabilities had exceeded the value of its assets.
“I find that the petitioner has not demonstrated credible evidence of insolvency. I reiterate that no statement of affairs or financial statements were provided to show that liabilities exceeded assets. In my view, bare assertions are insufficient to invoke liquidation, a drastic remedy in circumstances that may prejudice creditors or be used to defeat the rights of creditors,” said Justice Visram.
The company, which was incorporated on December 9, 2008, is based at Telagen Gardens, Lavington, Nairobi, with its directors being David Karanja Karau, Joshua Ng’ang’a Njeri, and Lucy Wairimu Mbuthia.
Court papers show that the company has a subsidiary housing development firm known as Kings Pride Properties Limited, which was placed under liquidation by a court last May due to financial obligations tied to homebuyers.
Kings Pride, whose chief executive was David Karanja Karau, was placed under liquidation by Justice Peter Mulwa over failure to allocate homebuyers their houses at Glenwood Apartments, in Kimbaa/Ruaka, Kiambu County, despite collecting money from them.
While asking the court to allow the voluntary liquidation of Telegan Investments, the directors contended that Telegan’s financial position had deteriorated due to increased interest rates and penalties on bank loans, a lack of purchasers for its apartments and properties, and the adverse effects of the global Covid-19 pandemic.
The court heard that the company was indebted to the tune of Sh415 million as of September 2022, comprising loans, salaries, and other payables.
It stated that it had exceeded the insolvency threshold and was unable to pay its debts, and that its directors had resolved to voluntarily wind up the company. They asked for orders to liquidate the company and appoint the official receiver as liquidator.
The creditors, including Standard Chartered Bank, Kenya Commercial Bank, Family Bank, Ecobank, and ARM Cement PLC, opposed the petition and asked the court to dismiss it.
Family Bank said it was owed Sh10.9 million, Ecobank Sh141 million, while Standard Chartered, KCB, and ARM Cement PLC (in liquidation) did not disclose their actual amount of credits to the company.
The creditors said their plans had been secured by various charges offered by the company.
ARM argued that the petition was a bad-faith tactic to delay repayment of the loans and pointed out an unfulfilled offer by the petitioner to settle part of its debts via its subsidiary, Kings Pride Properties. ARM said this demonstrated the availability of alternative remedies to liquidation.
For Standard Chartered and KCB Bank, it was argued that they had enforceable security interests over several properties of the company and that voluntary liquidation could not be used to frustrate secured creditors' statutory power of sale.
In the ruling, the court found that, besides the lack of documentary evidence showing that the company was financially constrained, the petition also failed to meet the legal threshold for liquidation under the Insolvency Act.
The court said the petitioner failed to comply with the legal steps stipulated in section 424 of the Act, which include an inquiry by the company directors and the making of a statutory declaration on the state of affairs.
The statutory declaration must also be made at least five weeks before the passing of the resolution and must be accompanied by a statement of the company’s assets and liabilities. In the present case, this was not done.
Additionally, the court found that the company did not give a notice in the Kenya Gazette, local newspapers, or on its website announcing the proposed resolution.
"In the absence of compliance with the above provisions, the application for liquidation ceases to be voluntary; and a liquidation order may only be issued based on the provisions governing liquidation by the High Court, which are set out in Section 424 of the Insolvency Act 2015," said Justice Visram.
