Insolvency in Kenya: An Introduction
With the harsh economic times since the COVID-19 pandemic, some companies in Kenya have been unable to service their facilities. Prior to the Insolvency Act, such companies would have suffered the only fate preferred by creditors: asset stripping, resulting in a premature liquidation of the company.
However, the Insolvency Act 2015 marked a dynamic shift away from punitive insolvency proceedings towards rehabilitative processes which, inter alia, focus on restoring the company to operate as a going concern and securing the interests of all stakeholders involved. These dynamic objectives under the Act have been the basis of many struggling companies in Kenya being placed in administration between 2020 and 2025, as opposed to undergoing the aggressive liquidation processes traditionally preferred by most creditors in pursuing outstanding debts.
Despite the objectives of the Insolvency Act, the Kenyan economic landscape is filled with instances where secured creditors have opted to appoint receivers rather than submit to insolvency proceedings and ensure that the interests of all stakeholders are upheld. For context, Section 690 (2) of the Insolvency Act provides that a holder of a floating charge in respect of a company’s property may not appoint an administrative receiver and that any such appointment shall be rendered void.
However, this restriction does not apply to a creditor whose security was created before the commencement of the Insolvency Act or where an administrative receiver was appointed before the commencement of the Insolvency Act. As recently as 2024, in Athi River Steel Plant Limited v Rao and 4 Others (Civil Appeal 592 of 2019) 2024 KECA 585 (KLR), the Kenyan Court of Appeal affirmed the creditors’ right to appoint an administrative receiver in accordance with the terms of the loan documents and the securities, to realise the company’s asset in satisfaction of the outstanding debt. Most creditors with securities predating the Insolvency Act appear to prefer this route to submitting to general insolvency proceedings, which does not guarantee recovery of the secured amount.
Read the Kenyan chapter here.
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