Policyholders Compensation Fund v Insurance Regulatory Authority & another

assets immediately divested from the Policyholders Compensation Fund (PCF) (which had been acting as the Statutory Manager) and vested in the interim liquidator. 4. The disputed actions were that despite being served with the liquidation order on 2nd January 2024, the PCF refused to immediately surrender the company’s bank mandate. Instead, the PCF proceeded to transfer a total of Kshs.122,410,978 from Resolution Insurance’s NCBA Bank account to third parties. This included paying partial legal fees to the law rm Millimo, Muthomi & Company Advocates. 5. Following interventions, the PCF refunded Kshs.85,295,217.60 back into the company accounts but retained Kshs.36,074,952.40, claiming it was legally entitled to settle expenses incurred during its statutory management tenure. 6. The interim liquidator led the application at the High Court arguing that any disposition of company assets after a liquidation order is issued is completely void and unlawful (ultra vires) under Section 429(1) of the Insolvency Act. He asserted that the PCF acted in bad faith to prefer certain unsecured creditors over others, thereby threatening to deplete the pool of assets meant for all policyholders and valid claimants. 7. The High Court (A. Mabeya, J.) found the application dated 6th June 2024, meritorious, ruling that the PCF acted illegally and in utter contempt of the liquidation order by moving money after its statutory mandate had ceased. The High Court subsequently ordered the PCF to refund the remaining Kshs.36,074,952.40 to Resolution Insurance (In Liquidation). 8. The application is predicated on the grounds on its face and the supporting adavit of Noel Zuma dated 18th March 2025. It is deponed that on 5th April 2022, the Insurance Regulatory Authority/1st respondent ocially appointed the applicant as the Statutory Manager of Resolution Insurance Company Limited. That as per Section 67F of the Insurance Act, all expenses legally incurred by the Statutory Manager must be met by the subject insurance company. 9. He deposed, further, that upon takeover, PCF discovered numerous pending court cases against Resolution Insurance and its policyholders, requiring the appointment of Millimo, Muthomi & Company Advocates to provide legal defense. That by December 2023, the active cases totalled 163, with unpaid legal fees amounting to Kshs.57,445,576. That relying on Section 67F, PCF partially settled these valid legal fees by paying Kshs. 36,074,952.40 out of the company’s NCBA bank account in two transactions on 4th and 12th January 2024. 10. That on 21st December 2023, the High Court appointed Longet Kiprono Terer as the interim liquidator of Resolution Insurance and on 6th June 2024, the liquidator moved to the High Court to compel PCF to refund the Kshs. 36,074,952.40 and on 25th February 2025, A. Mabeya, J. allowed the liquidator’s application, declaring the legal fee payment illegal and ordering a full refund. 11. It is further deponed that the PCF has a highly arguable appeal because the High Court Judge erred in law by failing to nd that: The interim liquidator led the underlying application without seeking or obtaining the mandatory prior leave/approval of the court or a liquidation committee; that a liquidation order is not mechanical; the Statutory Manager remains contractually and statutorily bound to protect policyholders until a formal operational handover occurs; and that the funds paid out were contractually valid, non-disputed legal expenses incurred to protect the company, which do not fall under the denition of standard unsecured debt recovery. 12. The deponent went on to state that the applicant will suer irreparable harm as the 2nd respondent/ Resolution Insurance has already commenced aggressive execution proceedings by writing a demand https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1747/eng@2026-09-25 2

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letter on 14th March 2025 and is highly apprehensive that its public assets will be attached and sold, crippling its statutory operations. 13. Further, that if a stay is denied, the liquidator will spend the subject monies or distribute it to other unsecured creditors through the liquidation process. That because the 2nd respondent/ Resolution Insurance is broke and has no other assets, those public funds will be lost forever, rendering a successful appeal nugatory. And that no prejudice will be suered by the liquidator if execution is stayed because the PCF is a state-funded body with perpetual succession and will remain available to satisfy court orders if the appeal fails. 14. The application is opposed through the replying adavit of Long’et Terer, the Interim Liquidator of Resolution Insurance Company Limited (In Liquidation) (2nd respondent) sworn on 25th March 2025. Mr. Terer repeats the history and circumstances surrounding the matter, which we note are largely uncontested as set out above. 15. He deponed that in a ruling delivered on 25th February 2025, A. Mabeya, J. held that the withdrawal of funds after the commencement of liquidation was completely void under Section 429 of the Insolvency Act. The Judge noted that PCF acted illegally and in utter contempt of the liquidation order by fasttracking these payments to favor an unsecured creditor. 16. He maintains that once a liquidation order is issued, the powers of a Statutory Manager immediately cease, and all control of assets vests exclusively in the Liquidator. He reiterated that PCF’s reliance on the Insurance Act to pay pre-liquidation expenses directly from the bank accounts post-liquidation is legally awed. 17. He deposes that PCF has no arguable appeal. Furthermore, he states that PCF is in contempt of court and has no right of audience before the Court of Appeal until they purge the contempt by returning the remaining Kshs. 36,074,952.40. 18. The 2nd respondent, through Waithaka & Associates Advocates, led submissions dated 4th April 2025. The 2nd respondent relies on the adavit sworn by Mr. Terer and submits that a stay of execution cannot be granted because the application fails to meet the legal twin principles established under Rule 5(2)(b) of the Court of Appeal Rules. 19. It was submitted that the balance of convenience favors the 2nd respondent, who is under a statutory obligation to collect and preserve all assets to protect creditors, policyholders, and the general public interest. In any event, the nugatory aspect has not been demonstrated. 20. We are urged to dismiss the applicant’s Notice of Motion dated 18th March 2025, with costs to the 2nd respondent. 21. The application was heard virtually on 14th May 2025 with learned counsel, Mr. Njogu appearing for the applicant and Prof. Njaramba and Mr. Waithaka appearing for the 1st and 2nd respondents respectively. Professor Njaramba informed the Court that the 1st respondent was not participating in the application, hence they did not le any submissions. 22. In his oral highlights, Mr. Njogu maintained that they have an arguable appeal particularly on the issue on whether the applicant had the legal standing to pay or disburse any money after appointment of the liquidator. He also urged that the appeal will be rendered nugatory, absent stay, because the applicant’s properties could be attached and sold, and the 2nd respondent may not be in a position to refund the same if the appeal succeeds. https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1747/eng@2026-09-25 3

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23. On his part, Mr. Waithaka insisted that the applicant has no arguable appeal as it did not have authority whatsoever in law to disburse any funds after the liquidator was appointed. He stated that there being no arguable appeal, then the nugatory aspect does not arise, but if the Court is minded to grant stay orders, then the applicant should be ordered to deposit the decretal amount in a joint account to be opened in the names of both parties. 24. We have considered the Notice of Motion, the rival adavits, submissions by the parties and the relevant law. The principles governing the exercise of this Court’s discretion under Rule 5(2)(b) of the Court of Appeal Rules are well-settled and are distinctively twin-pronged. As stated by this Court in Trust Bank Limited & Another -vs- Investech Bank Limited & Others [2000] KECA 38 (KLR), the applicant must establish: First, that the intended appeal is arguable, meaning it is not frivolous and raises a bona de issue deserving of the Court’s consideration and second, that if the stay is not granted, the success of the intended appeal will be rendered entirely nugatory. 25. In examining the rst limb, we reiterate that an arguable appeal is not one that must necessarily succeed; it is sucient if it raises a single triable issue (see Keigi -vs- Mwaura [2022] KECA 1348 (KLR)). From the record, the tension between the Statutory Manager’s expense settlement powers under the Insurance Act and the absolute divestment of asset control under the Insolvency Act presents a novel legal conict. The questions raised regarding the liquidator’s legal capacity under Section 464 also deserve substantive appellate scrutiny. We are satised that the rst limb has been satised. 26. Regarding the nugatory aspect, we take judicial notice that the 2nd respondent is a corporate entity in liquidation. If the decretal amount of Kshs.36,074,952.40 is paid directly to the Interim Liquidator, it will be placed into the general pool for immediate distribution to wind up claims. Should the applicant’s appeal succeed thereafter, the funds will have vanished into the liquidation process, making asset recovery dicult. 27. The Court’s interest at this point is to ensure that the subject matter of the appeal is preserved pending the hearing and determination of the appeal to secure the interests of the successful party in the appeal. The applicant’s apprehension and worry is that if the money is paid out to the liquidator, it may be impossible to get it back in the event the appeal succeeds as the funds will be used to pay other creditors. How then does the Court secure these funds? 28. In balancing these competing interests, it is the standard practice of this Court to grant conditional stay of execution by directing that the disputed decretal sums be secured in a neutral, interest- bearing escrow repository. As demonstrated in Nakuru Canners Limited & another -vs- Nyamweya & 5 others [2026] KEELC 2426 and aligned with our reasoning in SBM Bank Kenya Limited -vs- UBA & 2 others [2025] KECA 70, ordering a conditional security deposit guarantees that the funds remain safe, traceable, and ready for immediate release to whichever party triumphs on appeal. 29. Consequently, the applicant’s Notice of Motion dated 18th March 2025 is hereby allowed on the following terms: i. An order of stay of execution of the ruling and orders of the High Court delivered on 25th February 2025 is hereby granted pending the hearing and determination of the applicant’s intended appeal. ii. The stay granted in (1) above is strictly conditional upon the applicant depositing the entire decretal sum of Kshs.36,074,952.40 into a joint, interestearning bank account opened in the names of the Advocates for both the https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1747/eng@2026-09-25 4

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applicant (James Njogu, Advocate) and the 2nd respondent (Waithaka & Associates Advocates) within sixty (60) days from the date of this Ruling. iii. In default of compliance with the condition set out in condition (2), the stay of execution order shall automatically lapse and stand dismissed, leaving the 2nd respondent at liberty to execute the decree and orders of the High Court. iv. The costs of this application shall abide the outcome of the intended appeal. DATED AND DELIVERED AT NAIROBI THIS 25TH DAY OF SEPTEMBER 2026. W. KARANJA ……………………………… JUDGE OF APPEAL K. M’INOTI ……………………………… JUDGE OF APPEAL K. ACHODE ……………………………… JUDGE OF APPEAL I certify that this is a true copy of the original. Signed DEPUTY REGISTRAR. https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1747/eng@2026-09-25 5

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