A law that would have saved Uchumi from being shut down by its creditors came 24 hours late.
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 hinged on the 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 implemented.
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San Giorgio Ltd, while relying on Section 220 of the Companies Act Cap 486, now repealed, issued a statutory demand to Uchumi, dated November 5, 2015, stating that unless it is paid the outstanding sum of Sh53,106,754 within three weeks, it will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.
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. “The 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She said the effect was that at the time the notice was issued, the Companies Act Cap 486, had not, on that day, been repealed.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 in 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.