Kenya’s oldest supermarket chain is now
set to wind up over its debts, after it lost
the first round of a court battle, whose
success was hinged on the said law.
The new legislation, the Insolvency Act
No. 18 of 2015, which would have
effectively stopped the creditors from
proceeding with a winding up case
against the retailer, is yet to be fully
operationalised.
The new Companies Act cannot be used
to wind up a company until Parliament
passes procedures to shut down a firm
under the Insolvency Act of 2015.
The procedural rules are the ones that
would enable, or invoke the court’s
jurisdiction to hear and determine such
disputes.
Parliament is required to enact the
procedural rules and guidelines required
under the Insolvency Act No. 18 of 2015
for liquidation of companies.
Until that happens, creditors today have
been placed in limbo by the lawmakers
as far as filing winding up cases is
concerned.
Uchumi was banking on a precedent set
by the winding up petition for Blue Bird
Aviation Ltd. In the case, High Court
judge Eric Ogola ruled that the old
Companies Act cannot be used to wind
up a company until Parliament passes
procedures to shut down firms under the
Insolvency Act of 2015.
However, High Court judge Farah Amin
has found that the retailer cannot rely
on that precedent because the creditor,
who has sought to wind it up for its
failure to pay debts, had actually
commenced the process a day before the
law changed.
San Giorgio Ltd, while relying on Section
220 of the Companies Act Cap 486, now
repealed, issued a statutory demand to
Uchumi, dated November 5, 2015, stating
that unless it is paid the outstanding sum
of Sh53,106,754 within three weeks, it
will petition the High Court for a
winding up order without further notice.
“The creditor was entitled to rely on the
law then applicable. Uchumi had due
notice of the outcome and the procedure
that would be applied. Payment was not
made and the subsequent steps
followed,” said Justice Amin.
FIGHT FOR SURVIVAL
The judge said the right to file a winding
up petition arose on November 5, 2015,
just one day before the new companies
law came into force.
company was deemed by the
operation of the law to be unable to pay
its debt on November 5, 2015. On
November 6, to use a layman’s words,
the law changed,” said Justice Amin.
She said the effect was that at the time
the notice was issued, the Companies Act
Cap 486, had not, on that day, been
repealed.
“Therefore, the law applicable to the
question of whether or not Uchumi is
unable to pay its debts was and is the
now repealed Act.”
Last Friday, the retailer was told it
would have to defend its desire to
remain open after the suit to wind it up
was allowed to proceed.
The court explained that for the new law
to apply to Uchumi, such retrospective
application, to be fair, must be expressly
and clearly provided for in the said law,
but this is not the case.
“If the court were to take the approach
of retrospective application of the law,
the creditors may justifiably argue that
their legitimate expectations on serving
a notice of demand and filing a petition
had been thwarted,” said Justice Amin.
Uchumi owes suppliers Sh3.6 billion
with another Sh2.5 billion debt held by
banks with charged assets against a total
asset base of Sh6.1 billion, which puts
the retailer in the red.
The company is, however, calling for
bankruptcy protection.
Imports and supply firm San Giorgio Ltd
initiated the case that has seen several
other creditors with a combined debt of
Sh300 million join the suit to close down
the retailer.
Uchumi had sought to have the new
Insolvency Act, which also rescues
institutions in distress, to be applied to
the case.
Justice Amin has also stated that the
court is fully aware of the public interest
in the matter and the impact on the
economy in terms of jobs or an
opportunity for suppliers to market their
produce.
The case will be mentioned on July 22.
Source: Daily Nation
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