Times Tower in Nairobi, the headquarters of the Kenya Revenue Authority (KRA).
A dissolved Chinese construction firm that closed shop in Kenya nearly four years ago has been restored to the companies register to enable the Kenya Revenue Authority (KRA) claim unpaid taxes amounting to Sh262 million.
Che Lu Construction Company Limited was struck off from the registry through a Gazette Notice issued by Registrar of Companies on July 23, 2021 after it applied for dissolution and subsequently folded its business.
However, KRA noted the dissolution in November 2023 and rushed to court seeking an order for restoration of the company saying it owes the taxman a total of Sh262 million being unpaid income tax of Sh160 million, Withholding Tax (Sh224,005) and VAT Sh102.5 million, which continues to accrue interest and penalty.
Through its officer Victor Mino KRA said in making the application, the company failed to serve the taxman with a copy of the application contrary to provisions of the Companies Act.
It equally failed to apply to deregister its tax obligations and cancellation of its Personal Identification Number as required under the Value- Added Tax Act and the Tax Procedures Act.
KRA emphasised that the company was struck off the companies register before clearing the taxes due, which are considered a debt.
While directing the Registrar to reinstate the firm, High Court judge Rhoda Rutto said the restoration was necessary for the purpose of addressing the tax liability.
"Several factors weigh in favour of granting restoration. These include the fact that the application was filed within the six-year period allowed by law, KRA has demonstrated it is a creditor with a justifiable cause of action and the KRA was neither notified nor served with a copy of the application for deregistration filed by the company as required under Section 900(1) of the Companies Act," said Justice Rutto.
She further noted that the company failed to comply with the tax deregistration provisions as outlined in the Tax Procedures Act.
"Thus, it is only fair and just that the company be restored as this would enable the parties to follow due process which includes addressing the taxes as alleged to be owed," she stated.
The court noted that the company and its director Mr Zhang Qinwen had not provided any justification for non-compliance with the Tax Procedures Act.
Section 10 of the Act mandates that any person who ceases to be required to be registered for tax purposes must apply to the KRA Commissioner for deregistration. The other director for Che Lu Construction Company Limited was a Kenyan named Victor Mawira Marangu.
In defence, the company and director Zhang Qinwen denied owing KRA the sum of Sh262 million in form of taxes and contended that the dissolution procedure was duly followed, which is why the Registrar of Companies, struck the firm off the Register.
Mr Zhang Qinwen added that it was KRA's own indolence that led to its failure to challenge the dissolution within the prescribed period of three months after the Companies Registrar published the notice in the Kenya Gazette. He argued the allegation of non-service was unfounded.
However, the court determined that KRA had established a strong case with evidence showing that a tax obligation was existing.
The court noted KRA's claim that the tax debt had accrued penalties amounting to Sh1 million.
"It is not disputed that the company was a registered taxpayer with as indicated in the iTax General Ledger. A cursory examination of the iTax General ledger submitted as exhibit in court shows the tax assessments were made before the application for striking off was filed," said Justice.
The court said it was evident that the tax was due creating a strong case of tax liability to the KRA. This makes KRA a creditor under the meaning of the Companies Act, the court ruled.
"I do not agree with the company and its director's assertion that the burden lay with KRA to show cause upon publication of the Gazette notice. This position overlooks the statutory duty placed upon the company to serve a copy of the application for striking off on all known creditors. The obligation to notify known creditors, such as the KRA, cannot be shifted to the Registrar’s General notice in the Gazette," said Justice Rutto.
In a separate case where a “dead” company was resurrected, Justice Helene Namisi ordered the registrar of companies to restore Dream Dressing and Household Items Trading Company Ltd to the list of existing firms in Kenya, in order for KRA to collect Sh125.8 million debt.
“The Registrar of Companies is hereby directed and ordered to forthwith restore the 1st respondent, Dream Dressing and Household Items Trading Company Ltd, to the register of companies; Costs of the application awarded to KRA,” Justice Namisi ruled.
