Supreme Court Clears Way for Sh 700 Million Insolvency Case Against KISCOL

 

Supreme Court has opened the door for a full insolvency trial against Kwale International Sugar Company Limited (KISCOL), ending its bid to halt bankruptcy proceedings over a disputed Sh700 million debt.

In a ruling that sharpens the stakes for the troubled sugar miller, the court dismissed KISCOL’s attempt to frame the case as a constitutional dispute, ruling instead that it was a commercial matter best handled by lower courts.The decision means that insolvency proceedings filed by EPCO Builders Limited – and backed by other creditors – will now proceed before the High Court.For KISCOL, it is a major legal setback. For its creditors, it is a long-awaited opening.

Soured deal

The roots of the dispute stretch back more than a decade.

In April 2012, KISCOL contracted EPCO Builders to construct a sugar factory in Kwale County, a flagship industrial project valued at about Sh2.22 billion.EPCO says it completed the work as agreed.

But by May 2019, it claimed more than Sh712 million remained unpaid.Letters were sent. Demands were made. The money, EPCO says, never came.With negotiations stalled, EPCO escalated the matter to court.

In July 2019, it filed a creditor’s insolvency petition, arguing that KISCOL was unable to meet its financial obligations and should be declared insolvent under Kenya’s Insolvency Act.Other creditors soon followed.Southern Engineering Company Limited and the Catholic Archdiocese of Mombasa joined the case, reinforcing claims that KISCOL had defaulted on multiple debts.What began as a construction dispute was now a test of corporate survival.

KISCOL’s defence

KISCOL pushed back hard.

The company contended that the debt in question was disputed and that the insolvency proceedings were being misused as a means of debt collection.Central to its defence was an arbitration clause in the construction contract.Any disagreement over payments, KISCOL argued, should have been resolved through arbitration, not through the courts.Kwale Sugar Director Harshil Kotecha said that the relationship between the parties was governed by a contract dated April 30, 2012, which provided for dispute settlement, starting with mutual consultation and then arbitration.

Kotecha argued that a dispute arose as to what, if anything, was owing to EPCO, and there was a possibility of the sugar company setting up a counterclaim.

He said that attempts to resolve the dispute by mutual consultation were not successful, and EPCO prematurely purported to issue an illegal, invalid, irregular and unenforceable statutory demand.The director said Epco ought to have referred the dispute to arbitration in accordance with the dispute resolution clause.

Kotecha said the commencement of the insolvency proceedings was malicious and intended to blackmail and embarrass the appellant and ruin its business.Kotecha said that the project engineer was obligated to verify works done by the contractor and to determine if the works meet the standards.

He further averred that there was correspondence on record demonstrating that the question as to how much is owing to EPCO is contentious and the performance certificates issued by the architect are irregular.

Commercial matter

The Supreme Court was not persuaded.In a unanimous ruling, a five-judge bench led by Deputy Chief Justice Philomena Mwilu – and including Justices Njoki Ndung’u, Issac Lenaola, Mohamed Ibrahim and Willis Ouko – rejected the constitutional framing of the appeal.

The judges said the dispute revolved around a commercial contract and the existence of a debt – not the interpretation or development of constitutional law.“In truth, the matter concerns the application of insolvency law, not the development of constitutional doctrine,” the court ruled.Procedural complaints raised by KISCOL, the judges added, did not amount to constitutional violations that would justify intervention by the apex court.

The result:the Supreme Court stepped aside, clearing the way for lower courts to determine the facts.Insolvency case heads to trialWith the constitutional hurdle removed, the insolvency petition now returns to the High Court for a full hearing.

There, judges will examine whether KISCOL is insolvent, how much, if anything, it owes EPCO, and whether the company can sustain counterclaims or set-offs under the contract.EPCO says the evidence is clear.It maintains that it completed the project, submitted invoices, and received acknowledgements from KISCOL confirming parts of the outstanding debt — promises that were never honoured.

KISCOL disputes that account.

The company insists there are unresolved questions about performance certification, payment calculations and contractual compliance.

It describes the insolvency case as malicious and destructive, alleging it was designed to cripple operations rather than resolve a genuine dispute.

High stakes

The case now enters its most consequential phase.For EPCO and other creditors, it is about recovering money long overdue.For KISCOL, it is about corporate survival – and the risk that a debt dispute could tip the company into insolvency.

The High Court will now decide whether Kwale Sugar can keep the doors open – or whether its financial troubles have finally caught up with it.