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Post Reply: Supreme Court Clears Path for Kwale Sugar Bankruptcy Proceedings Over Sh405 Million Debt

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on May 30, 2025, 8:30 am</div><div id="pl-6159"  class="panel-layout" ><div id="pg-6159-0"  class="panel-grid panel-no-style" ><div id="pgc-6159-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-6159-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
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	<p dir="ltr" data-pm-slice="1 1 []">The Supreme Court has dismissed an application by Kwale International Sugar Company Ltd to halt insolvency proceedings initiated by EPCO Builders Ltd over an unpaid debt of Sh405 million. This decision marks a significant setback for the sugar miller, paving the way for bankruptcy proceedings that could lead to liquidation, threatening the company’s operations and its role in Kenya’s agricultural sector.</p>
<p dir="ltr">The legal battle stems from a Sh2.2 billion contract awarded to EPCO Builders Ltd for the construction of a sugar factory for Kwale Sugar. The agreement, signed years ago, included a clause mandating arbitration for dispute resolution. However, tensions arose when EPCO claimed that Kwale Sugar failed to settle a Sh405 million payment for work completed, alleging non-performance by the contractor. Kwale Sugar, in response, argued that the payment demand was unjustified, citing deficiencies in EPCO’s work. EPCO initiated insolvency proceedings in 2019 through <em>Nairobi High Court Insolvency Petition No. 007</em>, seeking to recover the outstanding debt. Kwale Sugar countered by requesting conservatory orders to block the petition, insisting that the matter be resolved through arbitration as stipulated in their contract. Both the High Court and the Court of Appeal rejected Kwale Sugar’s pleas, allowing the insolvency case to move forward, which prompted the company to escalate the matter to the Supreme Court.</p>
<p dir="ltr">In its ruling, the Supreme Court emphasized that it lacked jurisdiction to issue a stay on High Court proceedings, as such authority is limited to decisions originating from the Court of Appeal. The court further noted that Kwale Sugar’s application did not raise sufficient constitutional grounds to warrant its intervention. The judges stated, “The Court cannot bypass the Court of Appeal to provide relief to a party before the High Court, as this would be inconsistent with its jurisdiction.”</p>
<p dir="ltr">This decision underscores the judiciary’s commitment to respecting the hierarchy of courts and limiting the Supreme Court’s role to matters of constitutional significance or appeals from the Court of Appeal. By dismissing Kwale Sugar’s application, the court has cleared the path for the insolvency proceedings to continue in the High Court, placing the company’s financial future in jeopardy.</p>
<p dir="ltr">The ruling is a critical blow to Kwale International Sugar Company, which now faces the prospect of liquidation if it cannot settle the Sh405 million debt or successfully challenge its validity in the High Court. The company’s survival hinges on its ability to negotiate a settlement with EPCO or present a compelling defense against the debt claim. Failure to do so could result in the collapse of a key player in Kenya’s sugar industry, potentially affecting jobs, local farmers, and the broader agricultural supply chain in Kwale County.</p>
<p dir="ltr">Kwale Sugar has been a significant employer and economic driver in the region, producing sugar and supporting local cane farmers. Liquidation could disrupt these operations, exacerbating challenges in an already struggling sector plagued by market competition, regulatory hurdles, and fluctuating sugar prices.</p>
<p dir="ltr">This case highlights the growing tension between enforcing commercial debts and preserving distressed businesses in Kenya. The judiciary’s decision to allow insolvency proceedings reflects a prioritization of creditor rights, ensuring that companies like EPCO can seek redress for unpaid debts. However, it also raises concerns about the survival of businesses in critical sectors like agriculture and manufacturing, where closures can have far-reaching socio-economic consequences. Kenya’s insolvency framework aims to balance these competing interests by providing mechanisms for debt recovery while offering pathways for corporate rescue, such as restructuring or settlement agreements. The Kwale Sugar case may prompt further discussions on how courts can support struggling businesses without undermining creditors’ rights.</p>
<p dir="ltr">With the Supreme Court’s ruling, the focus now shifts back to the High Court, where the insolvency petition will proceed. Kwale Sugar must either settle the Sh405 million debt, negotiate a viable repayment plan with EPCO, or present evidence to dispute the debt’s legitimacy. The outcome of these proceedings will determine whether the company can avoid liquidation and continue its operations. Stakeholders in Kenya’s sugar industry, including farmers, employees, and policymakers, will be closely watching the case as it unfolds. The decision could set a precedent for how similar disputes are handled, particularly in industries critical to the nation’s economy.</p>
<p dir="ltr">The Supreme Court’s dismissal of Kwale Sugar’s bid to halt insolvency proceedings marks a pivotal moment in the company’s fight for survival. As the case progresses, it will likely spark further debate about the delicate balance between protecting creditors and safeguarding businesses critical to the nation’s economy. For now, Kwale Sugar faces a critical juncture, with its survival hinging on its next moves in the High Court.</p>
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