Kinuthia v Xplico Insurance Company Limited (Insolvency Petition E051 of 2022) [2023] KEHC 23704 (KLR) (Commercial and Tax) (19 October 2023) (Ruling)

Key Facts

Issues

• The court was required to determine whether the Petition should be struck out for the Petitioner's failure to serve a statutory demand on the Respondent, as the Petition was not accompanied by such a demand. The Respondent argued this was a mandatory procedural requirement under section 384(1) of the Insolvency Act and Regulation 77B, while the Petitioner contended it was unnecessary because the petition relied on the unsatisfied decree under section 384(1)(b), not indebtedness.
• The second issue was whether the Petitioner was obligated to serve the Commissioner of Insurance with the Petition and if this requirement was fulfilled. The Petitioner claimed service was completed as required under section 121 of the Insurance Act, while the Respondent raised no evidence to contradict this. The court concluded that failure to serve the Commissioner is not fatal if corrected before the hearing.

Holdings

• The court clarified that service of the Petition on the Commissioner of Insurance is not fatal if not done before the hearing. The Commissioner can be served later and is entitled to be heard at the appropriate stage.
• The court dismissed the Respondent's application to strike out the Petition, ruling that Regulation 77B of the Insolvency Regulations is ultra vires in requiring a statutory demand for petitions under section 384(1)(b). The Petition remains valid.
• The court held that a statutory demand is not mandatory when a liquidation petition is grounded on the failure to satisfy a court decree (under section 384(1)(b) of the Insolvency Act). The Petitioner's case falls under this provision, making the 21-day statutory demand unnecessary.

Remedies

Legal Principles

• The court employed the Purposive Approach to analyze the rationale behind the statutory demand requirement, concluding that its absence in subsection (b) cases was justified as court decrees inherently serve as unconditional demands, making additional notices unnecessary.
• The court determined that Regulation 77B of the Insolvency Regulations was ultra vires the principal statute (Insolvency Act) as it imposed a statutory demand requirement where the Act did not mandate one for petitions grounded on unsatisfied court decrees.
• The court applied the Literal Rule to interpret section 384(1) of the Insolvency Act, emphasizing that the use of 'or' between subsections (a), (b), and (c) rendered the grounds disjunctive, thus not requiring a statutory demand for subsection (b) cases involving unsatisfied court decrees.

Precedent Name

• Raila Amolo Odinga & Another v Independent Electoral and Boundaries Commission and 4 Others
• Re Sucasa at Mombasa Road Limited
• Universal Hardware Limited v African Safari Club Limited
• R vs Immigration Appeal Tribunal ex-parte Jeyeastation

Cited Statute

• Insolvency Regulations, 2016
• Insurance Act
• Insolvency Act, 2015
• Insolvency Act (Amendment) Regulations, 2018

Judge Name

Passage Text

• Regulation 77B is therefore ultra vires in so far as it requires the Petitioner to serve the statutory demand and file one to accompany the liquidation petition where a petitioner relies on section 384(1)(b) and (c) of the Act.
• The rationale for the absence of a requirement for a written demand in section 384(1)(b) of the Act is not difficult to see. A decree is an unconditional demand to the judgment debtor by the court to pay an adjudged debt hence it is unnecessary to issue a written demand when it remains unsatisfied after unsuccessful attempts have been made to execute it.
• 17. ... service must be effected at any time before hearing of the petition hence failure to serve the Commissioner is not fatal as the court may direct that the Commissioner be served prior to the hearing...