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The High Court in Nairobi was confronted with the collapse of Cytonn High Yields Solutions LLP (CHYS), a scheme that had raised over Kshs 11 billion from more than 3,000 creditors. The central question was whether the administration process should continue or be terminated in favour of liquidation. Creditors argued that the appointed administrator had failed to take meaningful steps to safeguard their interests, while the administrator sought an extension of his mandate.

Justice Mabeya began by situating the dispute within the framework of the Insolvency Act, particularly sections 522 and 597. Administration is intended to preserve value, maintain a company as a going concern, or achieve a better outcome for creditors than liquidation. Termination of administration is permitted where improper motive is shown. The court emphasized that the administrator’s conduct must be measured against these statutory objectives.

On the facts, the administrator had filed notices of appointment and prepared a statement of proposals, but he had not demonstrated active recovery of assets or protection of creditors’ funds. He admitted that CHYS could not be rescued as a going concern, yet failed to disclose what assets were under his control or what steps he had taken to enforce loan notes against the SPVs that had received billions from CHYS. The court noted that creditors’ allegations of complacency and collusion with company promoters were not rebutted. Moreover, the administrator had given creditors less than 24 hours to review a 75‑page proposal, ignoring the court’s earlier direction that reasonable time must be afforded. By the time the administration period expired, no tangible progress had been made.

A key issue was the role of the SPVs. Although legally distinct, they had received substantial funds from CHYS without security. The court applied the common law doctrine of tracing, holding that creditors were entitled to follow their money into the projects financed by the SPVs. Preservation orders were therefore justified to prevent disposal of those assets, even while respecting the principle that no party should be condemned unheard. The court reasoned that temporary restraint was necessary to avoid fraud and protect the public investors.

Ultimately, the court found that administration had failed to achieve its objectives. The administrator appeared more protective of the promoters than of the creditors, and his inaction was highly prejudicial. Drawing on precedent from Re Nakumatt Holdings Ltd, the court concluded that liquidation was the only viable option. It terminated the administration, appointed the Official Receiver as liquidator, ordered preservation of the identified projects, and dismissed the administrator’s application for extension.

Significance of the Judgment

• It underscores the court’s supervisory role in insolvency, ensuring administrators act in the collective interest of creditors rather than shielding promoters.
• It demonstrates willingness to pierce the veil of SPVs through tracing where public funds are at risk, balancing corporate separateness with equitable remedies.
• It highlights the importance of transparency, candour, and creditor engagement in administration processes.
• It sets a precedent that where administration stalls and objectives are unattainable, liquidation becomes the default remedy.