Kenya’s Supreme Court has paved the way for an insolvency case against Kwale International Sugar Company Limited (KISCOL), signalling that a long-running corporate debt dispute will now head to a full trial.
The top court’s decision deals a significant blow to KISCOL’s bid to block bankruptcy proceedings over a Sh700 million debt owed to EPCO Builders Limited.
The court effectively dismissed the arguments suggesting that the case raised constitutional questions, thereby allowing lower courts to adjudicate the fate of the beleaguered sugar miller under standard insolvency law.
From contract to insolvency
The dispute traces back over a decade to April 2012, when KISCOL agreed to pay EPCO Builders roughly Sh 2.22 billion to construct a sugar factory in Kwale.
EPCO claims that despite completing its work, a balance of about Sh712 million remained unpaid as of May 2019, despite repeated reminders.
Unable to resolve the impasse, EPCO turned to the courts, filing a creditor’s insolvency petition in July 2019, asserting that Kwale Sugar was unable to settle its debts and should be wound up under Kenya’s Insolvency Act.
Other creditors, including Southern Engineering Company Limited and the Catholic Archdiocese of Mombasa, joined the push, reinforcing claims that KISCOL had defaulted on multiple obligations.
KISCOL’s fightback
KISCOL challenged the insolvency petition in court, arguing that there was a genuine dispute over how much, if anything, was actually owed to Epco.
KISCOL contended that the construction contract between the two parties contained a clause mandating that disputes be resolved through arbitration.
They argued that Epco had prematurely initiated insolvency proceedings, bypassing this agreed-upon process.
In addition, KISCOL sought orders requiring EPCO to retract notices that had been published in newspapers regarding the insolvency proceedings and to issue an apology. This action highlighted the importance of reputational damage and the survival of the business.
The company claimed that the High Court and Court of Appeal failed to properly evaluate these issues and that this failure violated its constitutional right to a fair hearing.
Commercial, not constitutional
But in its ruling, a bench led by Justice Philomena Mwilu and joined by four other judges – Njoki Ndung’u, Issac Lenaola, Mohamed Ibrahim and Willis Ouko – dismissed the constitutional angle.
The court said that although Kwale Sugar cast its appeal as a constitutional challenge, the underlying dispute was essentially commercial and centred on whether a valid debt existed under a construction contract not a fundamental constitutional question.
“In truth, the matter concerns the application of insolvency law, not the development of constitutional doctrine,” the judges said in their judgement.
The court also determined that the procedural issues raised by Kwale Sugar did not constitute rights violations that would justify intervention by the Supreme Court.
This simply means the lower courts, rather than the Supreme Court, must now consider whether KISCOL is indeed insolvent and what portion of the disputed debt might be owed.
Full trial in High Court
With the Supreme Court’s ruling, the insolvency petition will proceed to trial before the High Court, where both sides can present evidence on the debt’s validity, contractual obligations and any counterclaims Kwale Sugar may have.
EPCO maintains that it honoured its contract, submitted invoices as required, and even received acknowledgements from KISCOL that it owed part of the outstanding sum commitments that were never honoured.
KISCOL, for its part, insists there are genuine legal disputes over how much is owed including potential set-offs and irregularities in how performance was certified under the contract.
Its leadership has characterised the insolvency proceedings as malicious and damaging, alleging they were meant to tarnish the company’s reputation and cripple its business.
