Giant road construction firm Put Sarajevo General Engineering Company Limited, which flourished under the regime of the late President Daniel Moi, has been given a reprieve after the High Court temporarily halted plans to liquidate the company over a Sh800 million debt owed to three creditors.
Justice Francis Gikonyo stopped the firm's liquidation after it applied for a review of a ruling made in January.
“In my considered opinion, the lower risk of injustice lies in granting a stay of the liquidation order to give the applicant an opportunity to be heard on its application for review,” Justice Gikonyo said.
Justice Gikonyo said the court may, upon proper reason, stop liquidation proceedings either permanently or for a specified period. He noted that the construction firm had not paid its debts.
However, the judge said there was a need to balance the interests of the parties since the overall objective of the insolvency law had deliberately shifted from the practice of liquidation, which was akin to the ‘kiss of death’, to a culture of rescuing viable businesses as a way of guaranteeing repayment of the debt and sustenance of the company as a going concern.
Liquidation is the process of winding down a company, selling off its assets and settling its creditors and shareholders before ceasing operations. Companies liquidate when they cannot meet their obligations as they come due, leading to bankruptcy.
In Kenya, the law provides for three types of liquidation - members’ voluntary liquidation, creditors’ voluntary liquidation, and court liquidation.
Liquidation by the court is a compulsory procedure and is often initiated by a creditor when the insolvent company fails to pay its debts.
The court has the power to wind up a company in certain circumstances, such as if the shareholders decide by a special resolution that the court liquidate the company, or if the firm has not commenced active business for a year after its incorporation, or has suspended active business for one year.
The court may also liquidate a company if it considers that justice would be served by liquidating the company.
Put Sarajevo handled many big-ticket contracts in the 1980s and 1990s, making it one of the largest contractors at the time.
HHM moved to court in 2020, claiming that the construction company was unable to pay a debt of Sh5.8 million arising from legal services it provided to Put Sarajevo.
The law firm said it issued a demand to the former client on March 17, 2020, asking the construction company to pay the amount.
While the case was pending determination, Arrow Cars Limited applied to join the petition as a creditor. The company said it supplied tyres to Put Sarajevo on a credit basis and that the construction firm had failed to clear a balance of Sh2.98 million.
The court was informed that a suit was determined against the company.
As of January 30, 2023, the supplier said the debt stood at Sh4.8 million.
The National Bank of Kenya also joined the case, saying it had extended credit facilities to the construction firm, comprising overdrafts, asset finance, bonds and guarantees for the purpose of working capital requirements as the firm undertook various civil construction projects with the Kenya Rural Roads Authority and the Kenya National Highways Authority.
The lender said as of March 12, 2019, the claim stood at Sh876 million.
