REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND ADMIRALTY DIVISION

INSOLVENCY NO. E035 OF 2020

AGNES WANJIKU MUKIRI …………………..……………………..

…... DEBTOR/ APPLICANT

-VERSUS-

AFRICAN BANKING CORPORATION…………………………...

………. CREDITOR/ RESPONDENT

RULING

1. The subject of this Ruling is an application to set aside

statutory demand brought vide a notice of motion dated 19 th

December 2020 under sections 17(1)(d) and 17(3) of the

Insolvency Act 2015 and regulation 17 Insolvency

Regulations, 2016.

2. The said statutory demand is dated 30th November 2020 and

was issued and together with the Husband Peter Mukiri

Gateri acting as directors of their three companies. The

 alleged debt sum is Kenya Shillings One Hundred and

Thirty-Three Million, Eight Hundred and Eighty-One

thousand, one hundred and forty-one and eighty-five cents.

(133,881,141.85/=)

3. The Debtor through her application dated 19th December

2020 now prays for orders to set aside the said Statutory

Demand issued on 27th November 2020 together with costs

of the Application.

4. The Application is supported by various grounds

propounded through Affidavit evidence of the Debtor and

written submissions dated 30th August 2022. The

Respondent opposed the Application vide the Replying

affidavit of Louis Omukhulu sworn on 3 rd May 2022 and

their written submissions dated 4th November 2022.

Summary of the Applicant’s Case

5. The Statutory demand subject to this application is based on

a bank guarantee given by the Applicant herein and her

husband who are the sole shareholders and directors of

three private family companies. The Applicant claims that

the Respondent lured them into a scheme whereby they

 signed letters of offer and borrowing resolutions purporting

to have taken legal advice whilst they had not. Notably, the

debtors had previously dealt with other bankers from KCB,

Equity and HCFK. However, with the Respondent herein its

two agents would bring draft facility letters to the office and

would not give them time to acquire independent legal

advice before signing the same. As such the Applicant raises

issue that they were dealing with experienced banking

officers who knew the legal significance of the of the

documents having prepared them therefore there was an

inequality in the bargaining process.

6. On 13th August 2015, the creditor granted to Pemuga

Autospares the sum of Kshs. 20 million which was working

capital and a letter of credit of 25 million that went into

importation of spare parts. Additionally, the sum of Kshs.

43,560,00.00/= extended to Vision 2030 Homes went into

purchase of land at Thika which was charged to the bank,

namely Thika Municipality Block 13/523, 13/525, 14/981

and 14/973. The two latter plots are the subject of a suit in

the nature of disputed ownership at the Thika ELC Court

 whereby the Respondent/Creditor herein has filed a Defence

to defends their right in the securities.

7. On 15th June 2017 the Creditor issued upon the debtors a

Statutory Notice but thereafter decided to restructure the

loans into one. The final document for the restructuring was

also issued to the debtors for their signature without the

benefit of independent legal advice which the applicant

holds to be unfair and in fraudulent procedure as

previously resorted to by the bank in the former facilities

obtained.

8. For the foregoing reasons, the Applicant urges this Court to

find that the Respondent acted unconscionably by

knowingly taking advantage of the debtors due to the

inequality of the bargaining powers between the parties.

9. The second arm of the Applicant’s argument is that the debt

herein is disputed. As such, it cannot be the foundation of

the statutory demand herein or the insolvency proceedings.

This position is supported by several cases including

Cruisar Ltd v CMC Aviation Limited (No. 2) [1978]

KLR 131. In sum, she alleges that there is a genuine

 dispute on the alleged amounts claimed which are also the

subject of pending litigation in COMM E509 of 2020.

Therefore, the process initiated by the creditor via the

statutory demand herein is an abuse of court process as it

runs parallel to the said pending suit.

Summary of the Respondent’s case

10. As per the Respondent, the facts are that the Applicant with

her husband run family businesses of which they act as

directors. Their three companies include; Pemuga

Autospares Limited, Vision Twenty Thirty Dream Homes

Limited and and Rajaa Stones Limited. On diverse dates

from the year 2014 to 2017, various credit facilities were

advanced by the Respondent in respect to two of the three

family businesses and the Applicant, her husband and their

third company gave bank guarantees for the loan facilities.

11. Sometimes in the year 2017, the two companies defaulted

and consequently the bank issued a Demand. However, the

bank resulted to restructuring all the loans in order to have

a single facility which was accepted by the debtors. As a

 result, on 28th September 2017 the applicant and her

husband executed Personal deeds of guarantee/indemnity in

favour of Pemuga Auto Spares Limited with a term loan

limit of Kshs. 79,970,304 at an interest rate of 14% p.a, with

a default rate interest at 2% per month.

12. By 21st May 2018, the default by the debtors had continued

and the outstanding loan amount was at Kshs.

85,404,690.73/= The creditor requested for additional

security to no avail and on 7th February 2020 it conducted

valuations on the securities it held. Subsequently, it could

not find any successful potential buyers for two of the

properties. The other two of the four secured properties

were the subject of a suit whereby ownership was being

disputed in Thika Environment and Land Court Case

Number No. 216 of 2018. The result was that security

could not be realized and the debt amount had now

skyrocketed to Kshs. 126,369,610.73/= as of 30 th June 2020.

In that light, the bank served a demand letter on 9 th October

2020 in the said sum.

ANALYSIS AND DETERMINATION:

13. The court has perused the arguments by both parties and

has come to various conclusions. The main issue is whether

the Statutory Demand issued upon the Applicant should be

set aside.

14. The law on setting aside is found in the Insolvency

Regulations 2016 regulation 17 which provides:

a. If the Debtor appears to have a counterclaim, set-

off, or cross-demand which equals or exceeds the

amount of debt or debts specified in the statutory

demand;

b. The debt is disputed on grounds that appear to be

substantial;

c. It appears that the creditor holds some security I

respect of the debt claimed by the demand, and

either paragraph (6) is not complied with in

respect of the demand, or the court is satisfied

that the value of the security equals or exceeds

the full amount of the debt; or

d. The court is satisfied, on other grounds that the

demand ought to be set aside

15. The Applicant’s case seems to hinge mainly on Regulation

17(b) that the debt is disputed and as such raises various

substantial grounds which can be summarized as follows;

a. That the personal guarantees given by the debtors

herein are unenforceable as the Creditor obtained

them under undue influence and fraudulent

misrepresentation by not advising the debtors to

obtain independent legal advice before executing

them.

b. That the Insolvency Proceedings by the Creditor herein

are an abuse of the Court Process as there is another

suit HCCC E509 of 2020 African Banking Corporation

Limited v Pemuga Autospares and Others whereby the

Creditor seeks similar reliefs.

16. On the first ground, the Court notes that the debtors were

directors of the companies and had previously dealt with

banks. The Court is also alive to the fact that it is seldom in

any negotiation that the bargaining power of the parties are

absolutely equal and therefore it is not enough to say that

such inequality exists but a party must show that the

 unconscionable use such power by the stronger party. In

the case of Kisii Safari Inns Limited and 2 others v

Deutsche Investitions-Und Enwicklungsgelischaft

(‘Deg’) & others [2011] eKLR it was held:

The doctrine of unconscionable bargains is also

an equitable doctrine. There are at least three

prerequisites to the application of the doctrine,

firstly, that the bargain must be oppressive to the

extent that the very terms of the bargain reveal

conduct which shocks the conscience of the

court. Secondly, that the victim must have been

suffering from certain types of bargaining

processes, and, thirdly, the stronger party must

have acted unconscionably in the sense of having

knowingly taken advantage of the victim to the

extent that behavior of the stronger party is

morally reprehensible.

17. The Applicant alleges that the unconscionable bargain was

as a result of failure of the Creditor to advise the debtors to

obtain independent legal advice. The case of Barclays

 Bank Plc v O’ Brien and Another [1993] All ER 417 is

relied on to allege fraudulent misrepresentation by the

Creditor. The facts of the said case are that the wife had

agreed to stand as surety to the husband. The wife went

ahead to sign the security documents at the risk that the

matrimonial home and herself were potentially liable for the

debts of the company. Accordingly, the bank had

constructive notice of the wrongful representation by the

husband to the wife and despite the fact failed to

recommend to the wife that she gets independent legal

advice.

18. It is clear from the facts that both debtors were acting in

the capacity of directors and shareholders of their

companies and had dealt with various creditors such as the

Respondent herein. The Applicants therefore had previous

knowledge having engaged in borrowing transactions such

as this. Further, through their affidavit evidence, the debtor

stated that “where it was necessary for an advocate to

witness a document we arrange the witnessing after

which we informed Mr. Muiru that they were ready for

 collection.” The Court therefore agrees with the

Respondent that indeed there was an allowance for the

Applicants to obtain legal advice accordingly. In the

circumstances, the facts herein do not paint a picture of

wrongful misrepresentation as alleged by the Applicant. The

Court therefore finds that the allegation that the two agents

of the Creditor had conducted themselves in a morally

unconscionably manner towards the borrowers has not been

proven on a balance of probabilities.

19. On the second ground, the Applicant invites this

Honourable Court to find that the proceedings herein are an

abuse of court process as there is another suit COMM

E509 of 2020 whereby the Respondent has sought similar

reliefs. This Court choses to proceed with caution by stating

that the threshold for a counterclaim as required in

Regulation 17 (supra) is that such counterclaim, set off or

cross-demand must be be equal or exceeding the sum of

money in the statutory demand. The Counterclaim and

Defence therein does regard ground one above as there is

 no mention of any amount of money counterclaimed or to

set off the demanded amount.

20. Notably, these are bankruptcy proceedings against natural

persons which have been instituted simultaneously with

COMM E507 of 2022 where similar reliefs have been

sought. The preference of use of multiple processes by the

creditor as in this case will be juxtaposed with where a

company is involved. The Court of Appeal in Pride Inn

Hotels & Investments Limited -vs- Tropicana Hotels

Limited (2018) eKLR held that:

“There is no requirement under the Insolvency

Act or the Companies Act which stipulates that

liquidation of a company should be as a last

result. Liquidation is one of the options under the

Insolvency Act which a creditor such as the

Respondent in the case, could pursue to secure

payment of a debt, especially a debt that remains

unpaid for several years and in respect of which

the appellant has been given adequate time,

opportunity and indulgence.”

21. Similarly, the Respondent is not limited in option by

Insolvency Act when it comes to bankruptcy proceedings

against natural persons. The court will be guided by the

case of Ecobank Kenya Limited vs Francis Tole

Mwakideli [2018] eKLR cited with the approval in

Rufus Ragui & Anor v Vivo Energy Kenya Limited

[2020] eKLR whereby it was stated:

“A creditor is free to choose from which debtor

and what method to use to recover debt. The

debtor has no luxury or right of choosing for the

creditor who amongst the debtors to pursue and

failure to pursue all the debtors at once is not

fatal to the creditor’s petition. In view of the

above, I find no merit in ground number (b) of

the objection. I find that the petition is not

premature, not an abuse of the court process as

the creditor is not obliged to exhaust other

recovery mechanism available to it before

bringing up an application for bankruptcy..”

22. Further, the Creditor by participating in Thika

Environment and Land Court ELC 216 of 2018 which

consists of two consolidated suits is acting in rightly to

defend its rights in the securities given by the applicants. In

the foregoing the Court finds that the proceedings herein

are not an abuse of court process. The grounds advanced by

the Applicant do not warrant the setting aside of the

Statutory Demand and as such the debt is not disputed on

substantial grounds.

pto

CONCLUSION

23. The Court therefore orders that:

a. The Applicated dated 19th December 2020 seeking to

set aside the Statutory Demand is hereby dismissed.

 b. The Court hereby authorizes the Respondent/Creditor

to present the bankruptcy petition (immediately)

c. Similar Orders to apply in Insolvency Petition

E034/2020

Dated, Signed and Delivered Virtually at Nairobi this …….…

day of ……….…… 2023

D.O CHEPKWONY

JUDGE