High Court affirms position of secured creditors in insolvency proceedings

The High Court, in its ruling in High Court Insolvency Petition E018 of 2020 in the matter of Tusker Mattresses Limited, held that a secured creditor is entitled to exercise its statutory power of sale without recourse to the court exercising insolvency jurisdiction. Dentons Hamilton Harrison & Mathews represented the secured creditor in this matter.

The company had applied for an injunction to stop the secured creditor from exercising its statutory power of sale. It did so on the ground that an earlier ruling of the court had put in force a moratorium staying any and all legal proceedings and actions against the company or executions of any judgment, orders or decrees pending the determination of the insolvency proceedings.

The secured creditor argued that the stay of any and all legal proceedings did not affect secured creditors. This was because when the court ordered a stay of any and all legal proceedings, actions against the company pending hearing and determination of the insolvency proceedings, it only applied to unsecured creditors who ought to be treated equally, as opposed to giving priority to those who would have completed proceedings and moved to execution.

The High Court held:

• It cannot be argued that the exercise of statutory power conferred by security documents constituted a legal proceeding, as opposed to legal proceedings which by their nature connote invocation of the court processes to enforce a right. 
• It is settled law that a secured creditor is entitled to exercise its rights under the security document or statute in the event of default by the company, and that the power is not subject to insolvency proceedings commenced against the company by any other creditor.
  
  

This decision provides clarity on the position of secured creditors and whether they can exercise their statutory power of sale when insolvency proceedings are pending.

For more information on this decision or any other insolvency matters, kindly get in touch with the team listed under key contacts.

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Read the original publication at Dentons Hamilton Harrison & Mathews.