National Hospital Insurance Fund v Heritage Bank Limited (In Liquidation) [2000] KECA 312 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that liquidators can pay some creditors before others when there's good reason, and refused to halt those payments.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the liquidator has power under the Companies Act to propose, and the court to sanction, payment of dividends otherwise than on a pro rata basis
- 2.Whether the intended appeal against the sanction of the liquidator's scheme of distribution is arguable
- 3.Whether the intended appeal, if successful, would be rendered nugatory in the absence of a stay
Key legal issues
#Scope of the liquidator's discretion in proposing payment of dividends in liquidation
The Companies Act gives the liquidator discretion, for good reason, to propose payment of dividends otherwise than on a pro rata basis, and the court has discretion to sanction such a scheme; the discretion must be exercised judiciously.
Although dividends in liquidation are normally paid pro rata, section 242 of the Companies Act permits the court to sanction a different scheme. The liquidator reasoned that paying the 115 small depositors and 28 former staff Shs.500,000 or less would leave only 21 depositors to be catered for in future dividends, minimising administration and winding-up expenses. Most creditors concurred; the Fund did not respond to his letter. The liquidator also considered the Fund's own conduct in depositing large sums in a small bank. The discretion, though wide, must be exercised judiciously.
Arguability of the intended appeal under Rule 5(2)(b) of the Court of Appeal Rules
The intended appeal was not arguable; on the material narrated to the learned Judge he did not prima facie exercise his discretion wrongly in sanctioning the non-pro-rata scheme.
Rule 5(2)(b) requires the applicant to show that the intended appeal is arguable and that it would be rendered nugatory if stay is refused. The Court cautioned that it was dealing with the application, not the appeal itself, and said little on arguability. The only complaint open to the applicant was that the Judge had exercised his discretion to sanction a non-pro-rata scheme; on the circumstances narrated to the Judge, the Court found he had not prima facie exercised that discretion wrongly, so no arguable point existed.
Whether the nugatory-ness inquiry was necessary
Having found no arguable point in the intended appeal, the Court saw no need to inquire into whether the appeal, if successful, would be rendered nugatory.
The twin limbs of the Rule 5(2)(b) test are ordinarily considered together, but where the first limb fails the second falls away. Having found no arguable point in the intended appeal, the Court expressly declined to inquire into whether the appeal, if successful, would be rendered nugatory, and proceeded straight to dismissal of the application with costs. The order sanctioning the scheme therefore remained operative and the first dividend could be distributed.
Legal principles established
#- A liquidator has discretion, for good reason, to propose payment of dividends otherwise than on a pro rata basis, and that discretion must be exercised judiciously.
- A court sanctioning a liquidation scheme has discretion to approve a scheme of payment of dividends other than on a pro rata basis.
- On an application under Rule 5(2)(b) of the Court of Appeal Rules, where the Court finds no arguable point in the intended appeal, it need not inquire whether the appeal, if successful, would be rendered nugatory.
Court orders
#- 1.The application for stay of execution is dismissed with costs.
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Miscellaneous Cause No. 404 of 2000
- Jurisdiction invoked
- Rule 5(2)(b) of the Court of Appeal Rules - application for stay of execution in an intended appeal
Relief refused
#Stay of execution of the ruling and order of Hewett, J dated 14th September 2000 sanctioning the liquidator's scheme of distribution, pending the intended appeal
The Court found no arguable point in the intended appeal and therefore did not inquire into whether the appeal, if successful, would be rendered nugatory.
Costs
This application is dismissed with costs.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
The Companies Act, however gives discretion to the liquidator, for good reason, to propose payments of dividends in a different manner. Such discretion of course must be exercised judiciously.
It can be seen that the powers of the liquidator, which though discretionary, are not limited to payments of dividends on pro rata basis only. It is also clear that the court has discretion to sanction a scheme of payment other than one on pro rata basis.
We do not therefore find any arguable point in the intended appeal.
This application is dismissed with costs.
Issues in the judgment
#Typographical error in the rule number as printed in the judgment ('Rule 5(2((b)')
Sentence appears incomplete/garbled in the judgment text ('confirmation of the as mandated')
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "National Hospital Insurance Fund v Heritage Bank Limited (In Liquidation) [2000] KECA 312 (KLR)", Case Analysis (2000). Civil Application No. NAI. 358 of 2000 (UR 176/2000). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2000/312/eng@2000-12-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.