Muraya v Spire Bank Limited (Insolvency Cause E007 of 2018) [2023] KEHC 21540 (KLR) (Commercial and Tax) (27 June 2023) (Ruling)
Neutral citation:
[2023] KEHC 21540 (KLR)
Republic of Kenya
Insolvency Cause E007 of 2018
DO Chepkwony, J
June 27, 2023
IN THE MATTER OF INSOLVENCY ACT, 2015
Between
Re Peter Kiarie Muraya
Debtor
and
Spire Bank Limited
Creditor
Ruling
1.The Creditor issued a 21 days’ statutory demand dated May 23, 2019 to the Debtor over a debt of Kshs 204,774,989.30. In response, the Debtor filed an Application dated May 10, 2019 seeking:-a.Spent;b.stay of proceedings including the intended advertisement;c.set aside the statutory demand dated April 23, 2019 and addressed to Peter Kiarie Muraya;d.Costs of the application.
2.This Ruling is in respect to the said Application dated May 10, 2019 which is supported by the Affidavit of Peter Kiarie Muraya, the Debtor sworn on the same day and the grounds on the face of the application.
3.The Debtor holds that the debt in question arose from a loan facility by the Creditor given to Tiara Villas Limited which secured by legal charge over property Number LR No 3734/531. The debtor holds that the Creditor sought to exercise its statutory power of sale to which it filed Nairobi HCCC No 299 of 2019, Tiara Villas Limited v Spire Bank Ltd & Joseph M Gikonyo t/a Garam Auctioneers and case Nairobi HCCC No 336 of 2018, Luka Njeru & Others v Tiara Villas Ltd, Spire Bank Ltd & Garam Auctioneers to challenge the sale.
4.The Debtor contends that the court in that suit issued conditional injunctive orders in HCCC No 336 of 2018 preserving the charged property and that the matter is almost ready for hearing. The debtor argues that in this petition, the creditor’s advocates are the same ones in those suits and therefore they are aware of the injunctive orders in place.
5.The Debtor also contends that it has made several settlement proposals to the Creditor and does not understand why the Creditor opted to file this parallel process. According to the Debtor, he is a Director of other Companies, thus the Insolvency proceedings will adversely affect the financial positions of the companies and he will suffer irreparable harm. The Debtor holds that it has sufficient assets to settle the debts due. The Debtor further argues that the Creditor ought to have lodged the proceedings against its principal debtor, Tiara Villas Ltd.
6.The Debtor urges that the issuance of a statutory demand was in bad faith, an abuse of the court process and should therefore be set aside.
7.In response, the Creditor filed Replying Affidavit sworn by John Wageche on August 19, 2019 opposing the application. It holds that through the letter of offer dated April 27, 2015 it advanced Tiara Villas Limited a facility of Kshs 175,000,000.00 which was guaranteed by its Directors. It contends that Tiara Villas Ltd defaulted in payments and it issued issues Notice of Intention to Sale.
8.According to the Creditors, some of the purchasers of the project filed suit No HCCC No 336 of 2018 and the court issued injunctive orders on March 12, 2019 stopping the sale. The Creditor holds that the outstanding debt is Kshs 218,755,539.80 which continues to accrue interest and default penalty charges on a daily basis.
9.The Creditor then contends that it was justified to issue the statutory demand since the Debtor is a guarantor of Tiara Villas Ltd and was to be held liable for the repayment of the debt once the principal borrower defaults. Therefore, since the creditor has multiple remedies for debt recovery, it has opted for bankruptcy proceedings owing to the purported purchasers ’interest in the property. It then holds that the Debtor has not satisfactorily shown why the statutory demand should be set aside and therefore the application should be dismissed with costs.
10.On June 20, 2019, the parties were directed to canvass the application by way of written submissions and on November 15, 2022, only the Creditor’s counsel had filed their submissions. As at the time of writing this Ruling, only the Creditor had filed its submissions dated September 22, 2022.
Analysis and Determination
11.In determining the application, I have read through the affidavits in support and in rebuttal thereof, alongside the Creditor’s submission and find the issue for determination being whether the application is merited or not.
12.It is trite that a statutory demand is ordinarily issued where a company has been unable to pay its debts. Section 384(1) of the Act outlines the circumstances in which a company is unable to pay its debts as follows:-
13.The Grounds for setting aside a statutory demand and the procedure to be followed once it has been issued are laid out under regulation 16 and 17 of the Insolvency Regulations, 2010 which states,Regulation 17 (6) on Hearing of application to set aside statutory demand states,
14.In this case the Debtor raised an issue that there are injunctive orders in place in respect to the property in question and that the Principal borrower of the debt owed is Tiara Villas Limited and not the Debtor himself. This court finds these being substantial issues which would warrant a consideration to establish whether or not the demand should be set aside.
15.The court is in agreement with the Creditor, that although the Debtor claims that the debt has been overstated and is exorbitantly high, the Debtor ought to have complied with the demand pursuant to Section 17(7) of the Act by either paying the Creditor the correct amount plus costs and taking those steps of payment within the time period specified in the demand.
16.However as it has been stated by the Creditor, the loan facility was granted to the Company and not the Debtor in person although he was one of the guarantors by virtue of being a Director of the Company. It would therefore be unfair to condemn the Debtor for the actions of the Company when they are different legal persons for all intents.
17.The court also finds that it is a draconian for the Creditor to institute these proceedings against the Debtor personally for the actions of the Company being Tiara Villas Limited which would amount to piercing the corporate veil without sufficient cause. The court in the case of Kolaba Enterprises Ltd –v- Shamsudin Hussein Varvani & Another (2014) e KLR held that:-
18.It is trite that the purpose of liquidation of companies is to show that a company is unable to pay its debts as and when they are due. The purpose is not to exert pressure upon companies to pay their debts as this would amount to abuse of the court process. In this regard, the Court of Appeal in the case of Matic General Contractors Limited Vs Kenya Power and Lighting Company Limited (2001) eKLR 3493 had this to state:-
19.In the case of Peter Munga Vs African Seed Investment Fund LLC [2017] Eklr the court outlined the grounds for setting aside the statutory demand as follows:-
20.In this court’s opinion, since there are injunctive orders over the property and that the Tiara Villas Limited being a separate entity from the Debtor, it would be unjust for the court to allow the statutory demand to give rise to the insolvency proceedings against the Debtor only.
21.For those reasons, the application dated May 10, 2019 is found to have merit and allowed in the following terms:-a.The statutory demand dated April 23, 2019 issued and addressed to Sue Wacheke Muraya be and is hereby set aside.b.Costs are hereby awarded to the Debtor.It is so ordered.
RULING DELIVERED VIRTUALLY, DATED AND SIGNED AT KIAMBU THIS 27TH DAY OF JUNE, 2023.D. O. CHEPKWONYJUDGEIn the presence of:M/S Mululu holding brief for Mrs. Karanu for CreditorNo appearance for and by Debtor.Court Assistant - Martin