Spares & Industries Limited v Fina Bank Limited

High Court, at Nairobi January 25, 2000

Mulwa J

Civil Case No 2106 of 1999

Company Law – receivership – appointment of receivers – under a debenture – when the Court will interfere with the appointment of a receiver.

On or about February 1997 the plaintiff applied for and later on was granted a credit facility of Kshs 75,000,000. As security the plaintiff charged several of its properties. In a debenture dated July 3, 1999, the plaintiff charged all its business undertaking to the defendant. The directors of the plaintiff further provided personal guarantees for the repayment of the advanced monies. On November 2, 1999, the defendant wrote to the plaintiff demanding the payment of all the outstanding amounts failure to which the defendant would appoint receivers under the terms of the debenture. On the same day, the defendant appointed receivers. The plaintiff filed suit and an application asking for orders restraining the defendant and its receiver and manager from interfering with the business pending hearing and determination of the suit and a mandatory injunction to compel the appointed receivers to leave the premises. The plaintiff’s application was grounded on the claims that; the power contained in the debenture to appoint receivers had not become exercisable; the appointment of receivers would occasion the plaintiff irreparable damages; no true copies of the accounts were supplied to the plaintiff and, the appointment of the receivers was not made in good faith.

Held:

1. Where the debenture gives the power to the bank to charge interest at such rates as it may think fit, the debenture forms a contractual document between the parties. In the absence of any proof that the contractual relationship should be rescinded, the provision for the interest remains valid.

2. Whereas the Court would normally not interfere with the appointment of a receiver under the terms of a debenture holder, nevertheless the Court will interfere where such appointment is not for the benefit of the debenture holder.

3. Where a party has a statutory right of action the Court will not usually prevent that right being exercised except that the Court may interfere if there was no basis on which the right could be exercised or it was being exercised oppressively.

Application allowed.

Cases

1. Re Masklyne British Typewriters Ltd [1598] 1 Ch 133

2. Nyaga, Godfrey v Housing Finance Company of Kenya (HFCK) Ltd Civil Appeal No 134 of 1987

Texts

Simmonds, V, et al (Eds) (1952-64) Halsbury’s Laws of England London:

Butterworths 3rd Edn Vol VI para 699

Statutes

Civil Procedure Act (cap 21) section 3A

Advocate

Mr Fraser for the defendant