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Court of AppealDismissedCivil Appeal No. E758 of 2021 (lead file) consolidated with Civil Appeal No. E788 of 2021

I&M Bank Kenya Limited & another v Synergy Industrial Credit Limited & 2 others (Civil Appeal E758 & E788 of 2021 (Consolidated)) [2024] KECA 855 (KLR)

Court of Appeal of Kenya
12 July 2024
16,328 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~65 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal ruled that putting a company into administration cannot shield it from a lawful debt, especially when the security claimed over the property was created in bad faith.

What this practically means

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Executive summary

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This consolidated appeal by Cape Holdings (Under Administration) and I & M Bank challenged a High Court ruling of 10th December 2021 (Mabeya, J.) granting Synergy Industrial Credit leave under section 560 of the Insolvency Act to continue execution against the suit property, L.R. 209/19436, in satisfaction of a decree of about Kshs 4.5 billion arising from an arbitral award repeatedly affirmed up the judicial hierarchy. Synergy raised a preliminary objection that the appeals were moot because execution had been completed by registration of a prohibitory order against the title on 14th January 2022, and the Bank and Cape applied to strike out Synergy's preliminary objection and supplementary record of appeal. The Court (Kiage, JA; Achode and Gachoka, JJ.A concurring) held that the Rules confer no power to strike out a respondent's supplementary record of appeal, Rule 94(1) granting respondents unfettered discretion in that regard. On mootness, it held that under Order 22 Rule 48 of the Civil Procedure Rules attachment of immovable property is complete upon registration of the prohibitory order against the title, so contrary case law requiring sale is per incuriam; the appeals were therefore moot, though the Court nonetheless addressed the merits. On the merits, the Court found the Bank never created any legal charge over the suit property, which was subject to a caveat and a court prohibition order; the debenture of 15th December 2020 was a sham created in collusion and bad faith to defeat a lawful decree; the administration was a cynical statutory stratagem against a solvent, non-defaulting company; and the learned judge properly exercised his discretion in granting leave. The Court affirmed the decision below, dismissed both appeals and the striking-out motions, and awarded costs to Synergy.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the applications to strike out Synergy's preliminary objection and supplementary record of appeal should be allowed
  2. 2.Whether the consolidated appeals are moot by virtue of the completed execution of the decree
  3. 3.Whether the Bank established a legal interest in the suit property by virtue of the debenture dated 15th December 2020
  4. 4.Whether Synergy met the threshold to warrant the grant of leave to continue with the execution proceedings under section 560 of the Insolvency Act
  5. 5.Whether Synergy's interest ranks in priority over the Bank's secured interest

Key legal issues

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01

Mootness of the consolidated appeals

Holding

The appeals are moot because execution of the decree was completed by registration of the prohibitory order against the title on 14th January 2022.

Reasoning

Order 22 Rule 48 of the Civil Procedure Rules expressly provides that attachment of immovable property is complete upon registration of the prohibitory order or inhibition against the title. Contrary case law holding that execution is complete only upon sale of the attached property is per incuriam. Since the attachment was registered against the title, the appeals questioning the leave to execute present no live controversy, though the Court still pronounced on the merits for its didactic role.

p. 20
02

Whether the Bank established a legal interest in the suit property

Holding

No. The debenture did not list the suit property in its schedule, and no legal charge over the suit property was ever created by the Bank.

Reasoning

The First Schedule to the debenture did not cover the suit property L.R. 209/19436; the Bank's charge related to a different property. The suit property was encumbered by a caveat registered on 7th September 2011 pursuant to a court order and a published caveat emptor, so no valid security could be created over it. The administration was activated with suspicious timing, immediately after Cape Holdings exhausted all legal avenues, against a company that was solvent and not in default.

p. 22
03

Whether Synergy met the threshold for leave to proceed under section 560 of the Insolvency Act

Holding

Yes. The learned judge properly exercised his discretion and did not err in granting leave.

Reasoning

Section 560(1) is disjunctive: a party may seek either the administrator's consent or the court's approval. The judge considered the statutory purpose of administration, the absence of evidence of distress or default, the timing of the administration immediately after the Supreme Court's decision, the rental income being diverted, the caveat and prohibition order on the title, and the bad faith and collusion between the Bank and Cape Holdings. These were all relevant considerations; the Court of Appeal would not interfere with a discretionary decision so grounded.

p. 26
04

Whether Synergy's interest ranks in priority over the Bank's secured interest

Holding

Yes. The debenture, being a sham created in collusion and bad faith over property subject to a caveat and prohibition order, could not create priority over the judgment creditor.

Reasoning

No valid legal interest could be created over property while Synergy's caveat subsisted and while a court prohibition order dated 1st September 2011 remained registered against the title. A debenture conceived in collusion and registered in contempt of an extant court order is fraudulent and null and void and cannot defeat the rights of the decree holder. The argument about prejudicing the general body of creditors was academic since no other creditors were shown to exist.

p. 27
05

Striking out of the preliminary objection and supplementary record of appeal

Holding

Both motions dismissed. There is no general power to strike out a notice of preliminary objection or a respondent's supplementary record of appeal under the Court of Appeal Rules.

Reasoning

Striking out is provided for only in specific rules, principally Rule 86 relating to notices and records of appeal, and is a draconian power to be sparingly exercised. Rule 94(1) grants a respondent wide, unfettered discretion to lodge a supplementary record of appeal containing further documents the respondent considers necessary; the question is one of relevance and weight, not admissibility. Rule 31 additional-evidence procedure applies ordinarily to appellants, not respondents.

p. 17

Legal principles established

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  • For immovable property, attachment in execution is complete and effective upon registration of the prohibitory order against the title, not upon sale of the property
  • Judicial pronouncements suggesting attachment of immovable property is complete at any event other than registration of the prohibitory order are per incuriam
  • A respondent to an appeal enjoys wide, unfettered discretion under Rule 94(1) of the Court of Appeal Rules to lodge a supplementary record of appeal containing documents needed for the proper determination of the appeal, without leave; there is no power to strike out such a supplementary record
  • A party invoking section 560(1) of the Insolvency Act has a right to choose whether to seek the administrator's consent or the court's approval; consent of the administrator is not a precondition to applying to court
  • A debenture created in collusion and bad faith, over property subject to a subsisting caveat and a court prohibition order, is incapable of creating priority rights over a judgment creditor

Court orders

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  1. 1.Civil Appeal No. E758 of 2021 and Civil Appeal No. 788 of 2021 be and are hereby dismissed with costs to the 1st respondent
  2. 2.The motions dated 6th June 2022 in Civil Appeal No. E758 of 2021 and 6th June 2024 in Civil Appeal No. 788 of 2021 be and are hereby dismissed with costs to the 1st respondent

The bench

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One judgment of the whole court — no separate or dissenting opinions.

majority

Wrote the judgment

Authored the leading judgment dismissing the consolidated appeals and the motions to strike out Synergy's preliminary objection and supplementary record of appeal.

Being of that mind, I would dismiss the consolidated appeals in their entirety.p. 27
majority
majority
On appeal from
High Court of Kenya (Insolvency Cause No. E049 of 2021)
Insolvency Cause No. E049 of 2021
Jurisdiction invoked
First appellate jurisdiction under the Court of Appeal Act and the Insolvency Act, following leave and certification framework under Article 163(4) and (5) of the Constitution and section 35 of the Arbitration Act
Consolidated with
Civil Appeal No. E788 of 2021

Relief refused

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Setting aside of the ruling of Mabeya, J. granting Synergy leave to proceed with execution

The learned judge properly exercised his judicial discretion under section 560 of the Insolvency Act; the administration was created in bad faith to defeat a lawful decree

p. 23

The Bank's claim to priority over the suit property under the debenture

The debenture was created in collusion and bad faith, did not cover the suit property, and could not prevail over the registered caveat and prohibitory order

p. 27

Costs

The consolidated appeals dismissed with costs to the 1st respondent (Synergy); the motions dated 6th June 2022 and 6th June 2024 dismissed with costs to the 1st respondent

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

Civil Appeal No. E758 of 2021 and Civil Appeal No. 788 of 2021 be and are hereby dismissed with costs to the 1st respondent.
p. 27Final orders - dismissal of the consolidated appeals
The motions dated 6th June 2022 in Civil Appeal No. E758 of 221 and 6th June 2024 in Civil Appeal No. 788 of 2021 be and are hereby dismissed with costs to the 1st respondent.
p. 27Final orders - dismissal of the motions to strike out
the attachment shall be completed and efiective upon registration of a copy of the prohibitory order or inhibitor against the title of the property.
p. 20Completion of attachment of immovable property in execution
The Court of Appeal will not interfere with a discretionary decision of the judge appealed from simply on the ground that its members, if sitting at first instance, would or might have given difierent weight to that given by the judge to the various factors in the case.
p. 25Appellate deference to discretionary decisions
It appears to me to be a rather ingenuous and cynical exploitation of a statute to perpetuate an injustice against a decree holder.
p. 23Abuse of the administration regime to defeat execution
our Rules make no provision for, and indeed do not anticipate, a striking out of a supplementary record of appeal, especially one filed by a respondent.
p. 17No power to strike out a respondent's supplementary record of appeal
A party has the right to choose whether he should seek the consent of the administrator or the approval of the court under section 560(1)(d) of the Act.
p. 24Section 560(1) Insolvency Act - consent or court approval

Issues in the judgment

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minor

The judgment inconsistently dates the registration of the debenture, stating it was registered on 8th January 2022 in one passage and on 8th January 2021 in others

minor

The judgment inconsistently states the date of service of the garnishee order nisi as 7th April 2021, 9th April 2021 and 12th April 2021

minor

The judgment inconsistently records the amount owed by Cape Holdings to the Bank as USD 25,075,404.29 and USD 15,075,404.29

minor

The judgment inconsistently dates the registration of the prohibitory order against the title, stating in the notice of preliminary objection and the disposition of the mootness holding that registration was on 14th January 2022, but stating elsewhere that the prohibitory order was registered against the title on 5th January 2022

minor

The dispositive orders misstate the motion dates, referring to a motion of 6th June 2024 in Civil Appeal No. 788 of 2021 although the motion pleaded was dated 3rd June 2022 and a Bank motion of 6th June 2022

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (4)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "I&M Bank Kenya Limited & another v Synergy Industrial Credit Limited & 2 others (Civil Appeal E758 & E788 of 2021 (Consolidated)) [2024] KECA 855 (KLR)", Case Analysis (2024). Civil Appeal No. E758 of 2021 (lead file) consolidated with Civil Appeal No. E788 of 2021. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2024/855/eng@2024-07-12

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.