WINDING UP OF INSURANCE COMPANIES

Where an insurance company is deemed to be unable to meet its commitments, the

Commissioner of Insurance is permitted to intervene and place such insurance company
under statutory management. This statutory management is not “winding up” but an
audit by the Commissioner as to whether the company may be revived or it may be
wound up.

Under the provisions of the Insurance Act1-

“The Commissioner may, with the approval of the Board-

(i) appoint any person (in this Act referred to as "a manager") to assume the
management, control and conduct of the affairs and business of an insurer to
exercise all the powers of the insurer to the exclusion of its board of directors,
including the use of its corporate seal;”2

The Manager shall, within a period of twelve months from the date of his
appointment, prepare and submit to the Commissioner a report on the financial
position and the management of the insurer with recommendations as to
whether -

(i) the insurer is capable of being revived; or

(ii) the insurer should be liquidated.3

While interpreting the above provision, the Court of Appeal in the case of Republic v
Charles Kasamani t/a Kasamani & Co. Advocates4 had this to say:

“On the plain reading of this provision it appears to us, Prima facie, that neither
the minister (now, the Board), nor the Commissioner of Insurance would have
the power to straightaway commence the liquidation of an insurance company.
The Commissioner has first to appoint a manager under section 67 C (2) and then
it is the manager so appointed who recommends to the Commissioner whether
the insurance company can be revived or it ought to be liquidated. ”

1
Cap 487
2
The Insurance Act, Section 67 C (2)
3
The Insurance Act, Section 67 C (6)
4
[2005] eKLR
At the time of delivery of the above ruling, Section 67 C of the Insurance had not been
amended. Subsequently, and by Legal Notice 11/06, section 67 C (2) was amended to
read that the Board and not the Minister would give prior approval before the
appointment of the receiver manager.

It is to be noted that even under section 67 C (2) the Commissioner is not obliged to
appoint a manager; the Commissioner is given a discretion whether or not to appoint a
manger. The Discretion is bestowed on the Commissioner and not the court. The
question then becomes: can a court by an order of mandamus, compel the Commissioner
to exercise that discretion in any particular manner?

The case of Kenya National Examination Council V Gathenji & others 5 seems to say
the court would have no such power. While quoting a passage from Halsbury’s Law of
England, 4th Edition, the Learned Judges of Appeal held as follows with regard to an
order of mandamus –

“The order must command no more than the party against whom the application
is made is legally bound to perform. Where a general duty is imposed, a
mandamus cannot require it to be done at once. Where a statute, which imposes
a duty leaves discretion as to the mode of performing the duty in the hands of
the party on whom the obligation is laid, a mandamus cannot command the duty
in question to be carried out in a specific way”

Once the report is given, then-

The Commissioner shall, after taking into account the report of the manager,
make appropriate recommendations to the Board, who shall then take a decision
on the matter.6

Where the Board decides that the insurer should be liquidated, the provisions of
the section 123 shall apply.7

On the face of it, the above provisions seem to give the board the discretion to decide on
whether or not the insurance company ought to be liquidated.

5
[1996] LLR 483
6
The Insurance Act, Section 67 C (7)
7
The Insurance Act, Section 67 C (8)
The Court of Appeal in the case of Kensilver Express Ltd & 3 others V Commissioner
of Insurance & 4 others8 stated that the Court of Appeal in the Charles Kasamani case
(supra)-

“Rightly ruled that it was not in the powers of the courts to decide whether an
insurance company would be liquidated or not. This lay wholly with the minister
(now, the Board) and not with the courts prior to the minister (now, the Board)
giving his approval”

The court went further to say that-

“It is therefore clear that a party cannot go directly to court and apply for the
winding up of an insurance company. The minister (now, the Board) must first of
all give his decision on whether the Company should be wound up or not. If he
so decides, then winding up proceedings would be permitted under section 123
of the insurance Act.”

The above provisions should be read in the light of Legal Notice 11 of 2006. By this legal
notice section 67 C was amended to read that the Board and not the Minister would give
prior approval before the winding up of an insurance company.

PROCEDURE IN WINDING UP OF INSURANCE COMPANIES

From the foregoing it is clear that the effect of the above decisions is to confirm that the
court has no power to order and or command the Board and the Commissioner to wind
up an insurance company.

In this regard, the court in the Kensilver Express Ltd case (supra) stated thus:

“For clarity and benefit of removal of doubt, where a Limited Liability Company
deals in the Insurance business and is duly licensed under the Insurance Act, no
winding up proceedings are permitted to be undertaken by any party except
with the approval and permission of the Board of the Insurance Regulatory
Authority, formerly the minister, under section 67 C (8). That the person who
undertakes and applies for winding up proceedings is the Commissioner only

8
[2007]eKLR
 and would be governed by section 123 of the Insurance Act. Namely, the
Commissioner of insurance is the one who applies for winding up proceedings
under the Companies Act. Applications filed by individual parties through
advocates are null and void ab initio and of no effect.”

This, despite the Insurance Act providing that-

“Where a petition for the winding up of an insurer is presented by a person other

than the Commissioner, a copy of the petition shall be served on the
Commissioner and the Commissioner shall be entitled to be heard on the
petition.” 9

The court can however wind up a company under voluntary resolution of that
company10. Voluntary winding up of Insurance Companies is nonetheless made subject
to section 120 of the Insurance Act. This section provides as follows:

Notwithstanding anything to the contrary in the Companies Act, an insurer

carrying on long term business shall not be wound up voluntarily. 11

The jurisdiction to wind up a company is vested in the High Court. The Companies Act
makes provision for this thus:

The High Court shall have jurisdiction to wind up any company registered in
Kenya12

WINDING UP UPON APPLICATION BY THE COMMISSIONER

This is provided for by the Insurance Act thus:

The Commissioner may, with the prior approval of the Board, unless the insurer
is already being wound up by the court, present an application to the court for
winding up the insurer in accordance with the Companies Act …” 13

9
The Insurance Act, Section 121
10
The Companies Act, Section 271
11
The Insurance Act, Section 120
12
The Companies Act, Section 218
13
The Insurance Act, Section 123 (1)
An application to wind up company shall be by way of a petition. The Companies Act
states that:

In any other case, the winding up of a company by the court shall be deemed to
commence at the time of the presentation of the petition for the winding up. 14

By filing the petition, the court will be called upon to make a winding-up order which
order once made, shall be required to be served upon the registrar-

On the making of a winding-up order, a copy of the order shall forthwith be

forwarded by the company, or otherwise as may be prescribed, to the registrar
for registration.15

If, in the case of the winding up of any company by the court it appears to the court
desirable, with a view to securing the more convenient and economical conduct of the
winding up, that some officer other than the person who would by virtue of section 230
of the Companies Act16 be the official receiver should be the official receiver for the
purposes of that winding up, the court may appoint that other officer to act as official
receiver in that winding up, and the person so appointed shall be deemed to be the
official receiver in that winding up for all the purposes of this Act.

14
The Companies Act, Section 226 (2)
15
The Companies Act, Section 227
16
The official receiver attached to the Court for bankruptcy purposes.