(NAIROBI, KENYA) – The High Court has rejected a petition to liquidate a solvent company after a couple failed to resolve a dispute over its management and assets, ruling that liquidation should not be the first remedy for a shareholder disagreement.
The court dismissed Joan Catherine Wangui’s petition against her partner Robert Gethenji, which sought liquidation of RAK Limited, a company they incorporated in 2012. The judge held that liquidation should not be the first remedy for a shareholder disagreement.
The dispute arose after the parties’ relationship broke down, making it difficult for them to continue running the company together. The court said the material placed before it shows primarily that the parties’ personal and domestic relationship has broken down. While that breakdown may have strained their interactions as directors and shareholders, it does not necessarily follow that the company has become incapable of functioning.
The petitioner moved to court in September last year, saying Mr Gethenji excluded her from managing the company from July 2024 by denying her access to information, assets and decision making. She said the standoff exposed her to possible penalties as a director. Ms Wangui added that efforts to wind up the company and dispose of its assets had failed, necessitating the filing of the case.
She asked the court to liquidate RAK Limited and appoint the Official Receiver, arguing that it was just and equitable to wind up the company, which has two issued shares, held equally by Ms Wangui and Mr Gethenji. RAK Limited has no liabilities.
Mr Gethenji opposed the petition, saying it improperly turned insolvency proceedings into a means of addressing personal grievances. He maintained that RAK Limited remains solvent and is a going concern.
He also disputed Ms Wangui’s beneficial interest in the company and its principal property, a residential house at Waridi Gardens in Kihingo Village, which he claimed is held beneficially through a family property arrangement. The respondent said the petitioner had been included as a shareholder solely to satisfy the former statutory requirement for at least two members of a private company. He said she contributed neither capital to RAK nor money towards acquiring the property.
Ms Wangui rejected that account, saying she is a genuine shareholder who subscribed for a fully paid share and has managed the company with Mr Gethenji. She added that he denied her access to the company property, withheld the company’s tax and statutory records, denied her access to company finances and prevented her involvement in securing tenants for RAK’s property.
She added that the respondent’s actions paralysed operations at the company, rendered effective management impossible and exposed her, as a director, to potential regulatory and statutory sanctions.
The court said the petition was not based on ordinary insolvency, noting that it is common ground that RAK Limited is solvent. The court accepted that a closely held company could, in appropriate circumstances, be liquidated where mutual trust and confidence have broken down. However, disagreements alone do not justify such an order.
The judge said the just and equitable jurisdiction is intended as a remedy of last resort and is not designed to provide shareholders with an exit mechanism whenever personal relationships deteriorate. He added that disputes over access to information, management participation and directors’ conduct can be addressed through company law remedies less drastic than liquidation. The court also separated RAK from the parties’ personal dispute.