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September 21, 2018

Disputed spouse’s shares in limited liability companies

Section 17 of The Married Women's Property Act 17 provides that any question between husband and wife as to the title to or possession of property, either party may apply to any judge of the High Court, and the judge may make such order with respect to the property in dispute.

It is worth noting that this Act is available for both husband or the wife; the statute is as such in keeping with matrimonial equality.

Judges have in the past tackled the tricky question of whether shares held in a limited company should be counted alongside other interests and matrimonial property. Many have asked the question whether a court can adjust shares held in a limited liability company by the spouses.

The issue arose in the case of Mungai vs Mungai, where Ms Lilian Njeri, then wife of former Cabinet Minister Njoroge Mungai, who had sought the dissolution of Magana Holdings Ltd where she owned one share and Dr Mungai held 399 shares, under Section 17 of the Married Women's Property Act.

In the judgments of Kwach, JA and Shah, JA in Mungai vs Mungai, Civil Appeal No. 191 of 1995 [1995] LLR 405 ,the parties who were wife and husband respectively each held shares in family companies, Magana Holdings Ltd and Muni Ltd. Apparently, the wife had filed an originating summons under section 17 of the 1882 Act for determination of the wife’s rights to various properties including rights to shares in the two companies. She had also filed a petition for the winding up of the two companies.

The Superior Court struck out the petition on the ground that the petition was an abuse of the process of the court in view of the existence of an application under section 17 of the 1882 Act. On appeal Kwach, JA said in part: “The application under section 17 of the Married Women’s Property Act 1882 could only deal with property held by the respondent as a husband. It would not cover shares held by the respondent in a limited liability company in which the wife also held shares in her own right”.

On his part Shah, JA said the 1882 Act remedies are of a special nature. Section 17 of the 1882 Act being a procedure section:

"merely declares the rights of a married woman to properties jointly held by spouses or by the husband.

The Act cannot decide anything that a company court exercising its independent and separate jurisdiction

under the Companies Act Cap 486 can decide. The two jurisdictions are totally independent of each other”.

Later in the judgment Shah, JA added that the wife’s rights under section 17 of the Married Women’s Property Act of 1882 are separate and distinct from her rights as a shareholder/director of a company.

Justice Richard Kwach had ruled that Section 17 only dealt with properties held by the husband and did not cover shares held in a limited liability company. Justice Shah had also said that Section 17 should not be used to decide matters under the purview of Companies Act cap 486.

"The two jurisdictions are totally different from each other," Justice Shah said.

In the Muthembwa vs Muthembwa case (Civil appeal no. 74 of 2001), the Court of Appeal ruled that Section 17 of the Married Women's Property Act of 1882 made it clear that it had no jurisdiction to distribute properties registered in the name of the company in which man and wife were shareholders.

In the Muthembwa vs Muthembwa case the Court of Appeal ruled that courts have no jurisdiction to alter the register of a limited liability company by using Section 17 of the Married Women's Property Act or pass proprietary interest from one spouse to another.

In the matter of Mereka vs Mereka, the case was of significance since it wanted the husband to hold half of the shares in the Dee-Em company in trust for the wife. Since the court could not entertain a dispute on a property registered in the name of a company, Ms Njeri had amended her application to claim part of Mereka's 2,499 shares in the company.

But the court here made it clear that the onus is on the applicant to show how she may have contributed to the ownership of shares held by the husband in such a company.

It found that in the case of a limited company where the wife holds shares, just like a husband, she was only entitled to her part of the share and a proportionate share upon liquidation and upon sale of any of the company assets.

The Mereka case settled the mighty question of what happens to shares owned by spouses in limited liability companies upon divorce.

It made it clear that such matters should not be brought to court under Section 17 of the Married Women's Property Act.

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