Queensway Trustees Ltd v Official Receiver & Liquidator Tanneries of Kenya Ltd
Court of Appeal, at Nairobi
April 21, 1983
Madan, Potter & Kneller JJA
Civil Appeal No 20 of 1981
Company law - winding up - when winding up takes effect - whether it takes effect upon presentation of petition or upon making of the winding up order - effect of winding up order - effect on the powers of the directors - disposition of company property after presentation of winding up petition - meaning of disposition - registration and execution of charge after winding up order and petition - effect of - validity of such a charge - purpose of registration of charges.
Mortgages and charges - registration of charge s - over company property - validity of a charge signed after presentation of winding up petition and order.
Tanneries of Kenya Ltd was, upon a creditor’s petition presented to the High Court on June 20, 1978, ordered to be wound up on July 18, 1978 and the official receiver was appointed its liquidator. An investigation into the company’s affairs revealed a legal charge registered on July 6, 1978, by which the company purported to charge a certain 14.86 Ha of land. A trust deed dated and registered on July 21, 1976 between the company and its debenture-holders appointed the appellant as the trustee for the debenture-holders and was issued to secure a sum of Kshs. 1,600,000 lent by the appellant to the company. The trust deed provided, inter alia,that the company would execute a legal mortgage or charge over its immovable property in favour of the trustee.
After the charge was prepared, it was engrossed and executed in 1977 but it was not registered until July 10, 1978, about two years after the registration of the trust deed. By July 5, 1978, however, the company had become insolvent and a receiver and manager was appointed by the appellant over all the property and assets charged by the trust deed. The liquidator agreed to the sale of the land to a third party and a conveyance to that effect was executed.
The appellant, who attributed the delay in registering the charge to the company’s delay in paying rent to the government on respect of the charge property, applied to the High Court under the Companies Act section 224 for an order that the charge should be treated as a valid security for the sum of Kshs. 1,600,000.
A question arose before the trial judge as to whether a charge over land was a “disposition” as contemplated under section 224 of the Companies Act. Holding that it was, the judge also held that the directors of the respondent company had no power to execute the charge when they purported to do so. He suspected that the delay to register the charge was meant to mislead the creditors of the company. The judge refused to exercise his discretion in favour of the appellants for lack of good faith and the appellant appealed.
1. A winding up by the court dates from the date of presentation of the petition, and the directors are dismissed from then on, and have no powers to act on behalf of the company. Any charge executed and registered by the directors afterwards is void ab initio.
2. When a receiver manager is appointed out of court, the management and control of the company’s assets are taken out of the hands of the directors. At this stage the corporate structure may remain for purposes of; discharging the usual statutory duties; to deal with assets not covered by the security under which the receiver is appointed and property held by the company in trust for third parties.
3. The appellate court cannot interfere with the exercise of discretion by trial court unless it is satisfied that there was a misdirection and the decision is clearly wrong resulting in injustice (Mbogo v Shah  EA 93, 96 G H (CA-K)).
4. The term “disposition” although not defined in section 224 of the Companies Act (cap 486) includes a charge in the Trust Lands Act (cap 290) and a conveyance of rights under the Registered Land Act (cap 300).
5. (Obiter Kneller JA) The purpose of the registration of charges is to give notice to creditors of the company’s creditworthiness. The failure to register the charge could be misleading to prospective creditors.
1. Re Steane’s (Bournemouth) Ltd  1 All ER 21 (Ch D)
2. Fowler v Broad’s Patent Night Light Co  1 Ch 724, 730 (Ch D)
3. Gosling v Gaskell  AC 575, 591, 595
4. Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd  2 All ER 552
5. Mbogo v Shah  EA 93, 96
1. Schmitthoff, C.M., Thompson, J.H. (Eds) (1968), Palmer’s Company Law, 21st Edn London:Sweet & Maxwell, p 749
2. Walton R. (1978), Kerr on the Law and Practice as to Receivers, 15th Edn London: Sweet & Maxwell, p 33
1. Companies Act (cap 486) sections 224, 226(2), 230, 274, 312
2. Trust Lands Act (cap 290)
3. Registered Land Act (cap 300)
4. Companies (Winding up) Rules (cap 486 Sub Leg) rules 5(2), 7(2)
5. Registration of Titles Act (cap 281) sections 20, 32
6. Interpretation and General Provisions Act (cap 2)
RO Kwach for Appellant
S Gautama for Respondent