Nakumatt attempt to liquidate insurer over Sh181m debt flops

The Commercial Court in Nairobi has blocked a Kenindia Assurance Company liquidation bid by defunct Nakumatt Holdings in a Sh181 million row.

Nakumatt, which is under administration, had sent a liquidation notice to the insurer, claiming that it owed it an unpaid premium.

However, Justice Rhoda Rutto said the Nakumatt administrator cannot legally run Kenindia when the amount is in dispute.

She said the liquidation process would not be appropriate as Kenindia had stated that it was solvent to the tune of Sh3 billion.

“Courts generally restrain liquidation proceedings where the alleged debt is disputed on substantial grounds, especially where the debtor is demonstrably solvent. In this case, the debt is contested, the administrator’s continued authority is legally questionable, and the plaintiff’s financial standing is robust. The balance of convenience, therefore, favours the plaintiff who has met the threshold for the grant of injunctive relief to restrain liquidation proceedings arising from the impugned statutory demand,” said Justice Rutto.

The insurer moved to court in 2018, seeking to block Nakumatt from initiating the liquidation process.

At the same time, it requested that the court find there was no debt or money owed to the defunct retailer.

Kenindia stated that it had three distinct relationships with Nakumatt. In its first deal, the court heard that it insured Nakumatt and had outstanding premiums.

It further stated that Nakumatt was a tenant in its building in Eldoret, for which rent was in arrears.

It also argued that Nakumatt had borrowed money issued under a commercial paper.

The court heard that the supermarket informed Kenindia that it had appointed an administrator on February 12, 2018.

According to the firm, Nakumatt claimed that it owed Sh87.8 million outstanding premiums, Sh165.6 million in respect of commercial paper and Sh19.2 million for rent.

It opposed the demand, arguing Nakumatt was the one in debt instead.

Kenindia asserted that it was worth Sh3.6 billion, adding that it would suffer if the liquidation process commenced.

At the same time, the insurance firm said Nakumatt administrator’s tenure was in question as he had been "given an open cheque" to run the retailer.

According to Kenindia, indefinite extensions of administration are not allowed by the law. The insurer said there is no way Peter Kahi could pursue it over an alleged debt owed to Nakumatt.

“The law does not permit indefinite extensions of administration, and that any extension granted without strict compliance with the statutory requirements is null and void ab initio and of no legal effect,” argued Kenindia.

The firm said it is the largest pension fund holder in Kenya, managing 243 pension schemes, and ranks among the top ten largest insurance companies in the country, with 15,781 general business policies and 33,000 life insurance policies.

It maintained that it is not insolvent and urged the court to block Nakumatt from initiating liquidation proceedings against it.

Nakumatt, on the other hand, said it became aware that on November 8, 2017, its then managing director, Atul Shah, had authorised Kenindia to settle claims against insurance premiums for the 2017-2018 financial year.

However, it claimed that instead of complying, it acted unilaterally and illegally. Nakumatt told the court that on January 15, 2018, Kenindia adjusted the interest due on the commercial paper by Sh21 million, which reduced the principal to Sh128 million.

Nakumatt said Teeve Insurance Brokers, which was acting as its agent, wrote to the Insurance Regulatory Authority (IRA) claiming that Kenindia had failed to settle claims.

According to the retailer, the reason for failing to pay the premiums was due to 'extraneous issues."

It stated that despite an order from the regulator and meetings, the insurer did not yield to its stand.

Nakumatt said there is a separate case where the amount it is demanding was part of the court record.

Kenindia's Chief Operating Officer told the court that the insurer had withheld the payments owing to the outstanding commercial paper and rent arrears. She also said that IRA did not issue any directive, as she had not seen any correspondence.

On the other hand, Nakumatt’s administrator, Kahi, told the court that the adjustments by the insurer were illegal as the issues raised were unrelated debts.

He told the court that he interpreted the IRA letter to be a request for the insurer to honour its end of the bargain.

Kahi, however, admitted that he did not attend the meeting with IRA. He asserted that Kenindia never heeded the regulator's directive and did not report back to IRA as had been directed.

He also said that he was not aware of any direct payments made under the Work Injury Benefits Act (WIBA) to any beneficiaries or family members, as Kenindia had been directed.

Nakumatt also called Teeve’s general manager Vinod Shukla, as its witness.

Shukla said his company was tasked with pursuing the settlement of claims that Kenindia was to pay on behalf of Nakumatt.

He maintained that Kenindia did not comply with the IRA directives.