The Insolvency Act, 2015 (the Act) was assented into law on 11th September 2015 and some of its provisions came into effect on the 30th of November by way of Legal Notice No. 244 of 2015. Some of these provisions include Parts I, III and V, the First Schedule and the Second Schedule. Any provision that is not brought into force through gazzetment within nine months after the publication of the Act shall automatically come into force on the expiry of that period. The Act also gives the Cabinet Secretary power to make regulations that may be necessary to transition from the Bankruptcy Act and Cap 486 to the Act.
Unlike previous legislation, the Act seeks to redeem insolvent companies through administration as opposed to liquidation. The Act focuses more on assisting insolvent natural persons, unincorporated entities and insolvent corporate bodies whose financial position is redeemable to continue operating as going concerns so that they may be able to meet their financial obligations to the satisfaction of their creditors. This includes, in the case of companies, the introduction of rights to conduct restructurings and bankruptcy work-outs under an administration process.
Winding-up of companies was previously provided for under Part VI of the Companies Act (Cap 486), while the insolvency of natural persons was covered in the Bankruptcy Act of Kenya (No. 32 of 1930). It is important to note that the transitional provisions of the Act provide that despite the repeal of Cap 486), the Bankruptcy Act and section 89 of the Succession Act (collectively, the “Repealed Acts”), the relevant provisions of these Repealed Acts will continue to apply to any ‘past events’. The rationale being that these past events relate to specific actions taken under the repealed legislation and include, for example, the passing by a company of a special resolution prior to the commencement of the Act, resolving that the company be wound up.
The new Act, is of even more significance to investors in light of recent happenings on the NSE, where oil and gas logistics firm Atlas Development & Support Services (also listed on the London Stock Exchange), recently announced that it will be closing its Kenyan subsidiaries (Ardan Logistics, Ardan Medical Services and Ardan Civil Engineering). Some of the firms’ creditors have sought the government’s intervention in the face of reports that the firm owes its creditors around KES 400 million (approximately USD 4 million). The firm’s creditors have until February 12th to prove their claims. The company also announced plans to focus more on its investment activities in Ethiopia, where it recently acquired a bottle making company - East Africa Packaging Holdings Limited.
Following the enactment of the Insolvency Act, 2015 (No. 18 of 2015); by way of Legal Notice No.1 of 2016, the following provisions of the Act came into operation as of 18th January 2016:
Parts I, III and V, the First Schedule and the Second Schedule were brought into operation as of 30th November 2015 through Legal Notice No. 224 of 2015. In essence, the only provisions of the Act that remain to be operationalised are Part IV, Part XIII and the Fifth Schedule.
The Act has been hailed for its remarkable attempt to overhaul insolvency provisions under the Bankruptcy Act (Cap 53), Companies Act (Cap 489) and Section 89 of the Law of Succession Act (Cap 160). Some of the notable changes include the legal-rescue of insolvent businesses rather than winding them up by providing several alternatives such as rescheduling of debt to lengthen the repayment period instead of commencing bankruptcy proceedings in court. Subsequent to the Insolvency Act, natural insolvent persons could remain “bankrupt” forever. Now as a matter of law, a debtor will automatically be discharged from their debt after three years.
In conclusion, as it had been previously stated, the Insolvency Act consolidates the laws with respect to insolvency. This is in a bid to not only provide for and regulation of the bankruptcy or liquidation of natural persons, incorporated and unincorporated bodies but, also to enable their affairs to be managed for the benefit of their creditors. The latter is done by providing alternatives to bankruptcy and liquidation.
She has advised local and international clients from various target sectors such as energy, oil, manufacturing and financial services in arbitration & mediation, constitutional law, land disputes, debt recovery, banking & commercial litigation, and insolvency matters.
Eva recently advised a bank on enforcement of third party securities under the Insolvency Act, 2015 as well as advising an oil company on its prospective claim against the National Land Commission for denial of fair administrative action under the Constitution in its compulsory acquisition of the oil company’s land.
Eva has a Bachelor of Laws (LLB) from Moi University and a post-graduate diploma in Law from the Kenya School of Law.
We regularly work closely with a broad range of stakeholders including banks, financial intermediaries, distressed companies, creditors, private equity sponsors, and governments.
Our recent experience includes:
For more information about our Restructuring & Insolvency practice, please contact George Oraro SC (Founding Partner) or Noella Lubano (Partner). Alternatively click here to download our Restructuring & Insolvency profile.
Oraro & Company Advocates is a full-service market-leading African law firm established in 1977 with a strong focus on dispute resolution and corporate & commercial law. With a dedicated team of 10 partners, 4 senior associates, 10 associates, 1 lawyer and 36 support staff, the Firm has been consistently ranked by leading legal directories such as Chambers Global, IFLR 1000 and Legal 500 as a top-tier firm in Kenya.
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