The High Court has struck out a petition seeking the liquidation of the Kenya Union of Savings and Credit Co-operatives (KUSCCO), ruling that the case was filed under the wrong legal framework.

Justice Rhoda Rutto found that KUSCCO is registered under the Co-operative Societies Act and cannot be directly subjected to liquidation proceedings under the general Insolvency Act.

The ruling, delivered on September 28 and reported on Tuesday, ends an insolvency petition filed in March by Rupsa Regulated NWDT Sacco Society Limited.

Rupsa had sought to liquidate KUSCCO over an alleged unpaid statutory demand of about KSh108.85 million and had cited financial information which it argued showed significant liabilities relative to assets.

The court did not determine whether KUSCCO was financially insolvent.

Instead, it ruled that even if financial distress existed, a creditor could not bypass the procedures established under the Co-operative Societies Act.

Co-operative Law Takes Priority

The judgment centred on whether a registered co-operative society falls within the category of companies that can be wound up under the Insolvency Act.

Justice Rutto ruled that although KUSCCO has corporate status and can own assets, enter contracts and sue or be sued, that does not make it a company registered under the Companies Act.

The court also noted that the use of the word “Limited” in KUSCCO’s name does not change its legal status.

Under the Co-operative Societies Act, a co-operative society can generally only be dissolved through the framework supervised by the Commissioner for Co-operative Development.

The High Court can still exercise certain powers during the liquidation of a co-operative, but those powers arise within that specialised process rather than through an independent creditor petition under the Insolvency Act.

The decision gives KUSCCO immediate relief from the liquidation petition but does not resolve broader questions surrounding its financial position.

Any creditor seeking further action would therefore need to pursue remedies available under the Co-operative Societies Act.

The ruling is also significant for Kenya’s co-operative sector because it clarifies the legal process that must be followed when creditors seek the winding up of a registered Sacco or other co-operative society.