Wakilii

Kirkel v Adams (C.A. 24-1933.)

East African Court of Appeal · [1937] EACA 26 · 1937 Appeal Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Appeal from Supreme Court of Kenya judgment on misfeasance summons brought by liquidator against company directors
Decision
Appellant director's liability for misfeasance set aside; judgment in favour of liquidator reversed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal held that in misfeasance proceedings under section 235 of the Companies Ordinance, the liquidator bears the onus of proving both the misfeasance and the resulting loss to the company. The balance-sheet or book value of assets is not the true criterion of their value; rather, the test is the price the assets could have obtained in the market at the time of the alleged misfeasance, following the maxim tantum bona valent quantum vendi possunt. The liquidator failed to discharge this burden. Appeal allowed.

Outcome

Appellant director's liability for misfeasance set aside; judgment in favour of liquidator reversed

Facts

Kinemas Ltd was a private limited company with capital of Sh. 45,000 that operated a cinema. On 3 September 1932, the two directors, Mr and Mrs Kirkel, passed a resolution to sell the company's lease, talkie apparatus, and furniture to Entertainments Ltd (a company of which Mr Kirkel was sole director) for Sh. 10,000. The balance-sheet showed these assets at a total value of Sh. 41,080/45. The company was subsequently compulsorily wound up, unable to pay its creditors in full. The official liquidator brought misfeasance proceedings under section 235 of the Companies Ordinance, claiming Sh. 44,614/96 from the directors. The trial judge found Mrs Kirkel liable for Sh. 17,794/98, holding that the sale price was inadequate and that a person exercising due diligence would not have accepted it. Mrs Kirkel appealed.

Issues

  1. Whether the liquidator bears the onus of proving misfeasance and resulting loss in proceedings under section 235 of the Companies Ordinance.
  2. Whether the balance-sheet value of company assets is the proper criterion for assessing the value of assets allegedly sold at an undervalue by directors.
  3. Whether the appellant director was guilty of misfeasance in selling company assets for Sh. 10,000 when the balance-sheet showed their value at Sh. 41,080/45.

Orders

  • Appeal allowed.
  • Judgment of the Supreme Court of Kenya set aside.
  • Costs awarded to the appellant in the Court of Appeal and in the Court below.

Rules and key headnotes

Company Law — Misfeasance Proceedings — Onus of Proof
In misfeasance proceedings under section 235 of the Companies Ordinance, it is the duty of the liquidator to prove the case against the alleged delinquent director or officer, not for the director or officer to justify their actions.
Company Law — Misfeasance Proceedings — Proof of Loss
To succeed in misfeasance proceedings, the liquidator must prove not only that there has been a misfeasance or breach of trust, but also that the company has sustained loss as a result of that misfeasance.
Company Law — Valuation of Assets — Balance-Sheet Value
The balance-sheet or book value of company assets is not a true criterion of the value of such assets for the purpose of holding a director liable under section 235 of the Companies Ordinance; the proper test is the price which could be obtained for the assets in the market at the relevant time, following the maxim tantum bona valent quantum vendi possunt (things are worth what they will sell for).
Evidence — Onus of Proof — Misfeasance Proceedings
Where a liquidator alleges that directors sold company assets at an undervalue, the liquidator must adduce evidence to establish what the assets could have sold for at the date of the alleged misfeasance; it is not sufficient to rely on balance-sheet values or expert opinions as to value in other circumstances.

Legislation cited (6)

  • Kenya Companies Ordinance Cap. 93 s.235
  • Kenya Companies Ordinance Cap. 93 s.287
  • Companies Act 1929 (England) s.276(1)
  • Companies Act 1908 (England) s.215
  • Companies (Winding Up) Act 1890 (England) s.10(1)
  • Companies Act 1862 (England) s.165

Cases cited (4)

  • In re London and Colonial Finance Corporation Ltd (1897) 13 TLR 576
  • Cavendish Bentinck v Fenn (1887) 12 AC 652
  • Rance's case (1870) 6 LR Ch AC 104
  • City Equitable Case [1925] Ch 407

Full judgment

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Kirkel v Adams (C.A. 24-1933.) [1937] EACA 26 (1 January 1937)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.