Che Lu Construction Company Deregistering Didn’t Erase Tax Debts

Case Study: Kenya Revenue Authority v Che Lu Construction Company Limited & 3 others (Miscellaneous Application E1026 of 2023) [2025] KEHC 5105 (KLR) (Commercial and Tax) (25 April 2025) Ruling

Background

• Che Lu applied for voluntary strike-off under Section 897(1) of the Companies Act.
• The Registrar published a Gazette Notice (No. 7484, 23 July 2021) inviting objections, but no objections were filed within the 3-month period.
• The company was struck off in 2021.
• KRA later claimed the company owed KShs. 262,752,670.23 in unpaid taxes (Income Tax, VAT, and penalties)

KRA argued that:

• Che Lu Construction failed to notify KRA (a known creditor) before applying for strike-off, violating Section 900 of Companies Act.
• The company owed KES 262m in tax debt
• The company failed to apply for tax deregistration under Section 81(2), Tax Procedures Act and Section 36, VAT Act as such attracting a penalty of KES 1m.
• Che Lu application for strike-off falsely implied it had no outstanding liabilities, violating Section 897(2)(a) of the Companies Act
• Allowing companies to dissolve without settling taxes undermines tax compliance and public trust.

Che Lu argued that:

• Proper strike-Off process was followed
• KRA failed to object within the 3-month window despite Gazette publication
• No formal demand/assessment was provided pre-strike-off
• KRA wasn’t an “active creditor” since no enforcement action (e.g., agency notices) preceded the strike-off.

Court Findings:

• Che Lu Construction failed to serve KRA (a known creditor) with its strike-off application, despite mandatory requirements. as such violating Section 900(1), Companies Act
• iTax records proved the liabilities (Income Tax, VAT, penalties) accrued before dissolution.
• Non-compliance with Sections 898–903 (creditor notice) warranted restoration.

33.From the above, courts have discretion under Section 918(b) and (c) of the Companies Act to order the restoration of a company when “a requirement under section 898 to 903 is not complied with” or where it is deemed “just” to do so. In the present case, several factors weigh in favor of granting restoration. These include the fact that the application was filed within the six-year period allowed by law, the Applicant has demonstrated it is a creditor with a justifiable cause of action, the Applicant was neither notified nor served with a copy of the application filed by the 1st Respondent under Section 897(1) as required under Section 900(1) of the Companies Act; 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, as that is beyond the scope of this Court in the present proceedings.

• The 3-month Gazette objection period did not replace statutory creditor notices.

Final Ruling

• Che Lu Construction restored to the Companies Register.
• Directors held accountable for unresolved tax debts.

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