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Companies in winding up cases face hitch over new law

The Insolvency Act gives companies going through financial turmoil an opportunity to put their act together.  FILE PHOTO | NMG
The Insolvency Act gives companies going through financial turmoil an opportunity to put their act together. FILE PHOTO | NMG 

Directors, entities and companies, which started winding up cases after January 2016 while relying on the old Companies Act, could hit a dead end in their bid because of a technicality in the law.

This is after the 2015 Insolvency Act, came into operation on January 18, 2016 to replace the Companies Act. Winding up petitions should therefore be filed under the new law, even if the firms were incorporated under the old law.

The terms “Winding Up” under the repealed Companies Act have been replaced with “Liquidation” under the new law.

The Insolvency Act gives companies going through financial turmoil an opportunity to put their act together. Its net effect is to give struggling firms another chance so that they can be able to settle their debts as they continue to operate instead of the earlier practice of abruptly killing them.

The Court of Appeal, in a decision on a request by a director to have a company incorporated on May 29, 1992 wound up, said the request could not be granted because the firm had initiated the case after the new law came into force and cannot, therefore, rely on the old law to wind it up.

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Mr Yussuf Abdi Adan, the director of Bluebird Aviation Ltd with a 25 per cent shareholding, had filed a winding up petition at the High Court on March 9, 2016.

He cited among other grounds, that since the incorporation of the company it had not held any general meeting, that he had been excluded from the management of the company and that he had never received any dividend as a shareholder.

He lost the case in the High Court and filed an appeal stating that the judge erred in law by striking out his case after holding that the applicable law to a winding up cause of a company registered under the repealed Companies Act is the new law.

Court of Appeal judges Roselyn Nambuye, Daniel Musinga and Patrick Kiage, while upholding the High Court’s decision, said the law was properly applied.

The appellate judges, nevertheless, said Mr Abdi is not without a recourse in law since he can file an appropriate petition if he still intends to pursue the company and his co-directors.

The co-directors had argued that Mr Abdi should have relied on the new law.

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