KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
Oraro & Company Advocates ACK Garden Annex, 6th Floor 1st Ngong Avenue P.O. Box 51236-00200 Nairobi Kenya Tel: +254 709 250 000 Email: litigation@oraro.co.ke Web: www.oraro.co.ke
1. Overview of Legal and Regulatory System for Insolvency/Restructuring/ Liquidation 1.1 Legal Framework Financial restructurings, reorganisations, liquidations and insolvencies of business entities and partner - ships in Kenya are predominantly governed by the Insolvency Act 2015 (IA). Other specialised statutory regimes include: • the Companies Act 2015 (CA), on compromises, arrangements, reconstructions and amalgamations of companies and directors’ duties during these financial processes; • the Capital Markets Act, on the restructuring and reorganisation of publicly traded companies; • the Kenya Deposit Insurance Act (Cap 487C); • the Banking Act (Chapter 488); and • the Central Bank of Kenya Act (Chapter 491), on the administration, receivership and liquidation of banking, finance and insurance companies. Despite being repealed, laws such as the Bankruptcy Act, Section 89 of the Law of Succession and the Companies Act (repealed) continue to apply to any past event or steps that preceded the coming into effect of the relevant parts of the IA. 1.2 Types of Insolvency Restructuring, reorganisation and insolvency pro - ceedings may be either voluntary (commenced by the company or directors) or involuntary (instigated by a regulator or creditors), depending on the company’s financial position, its objectives and applicable laws.
Administration Administration is primarily a voluntary rescue mecha - nism initiated by the company or its directors, but may also be involuntary when initiated by a creditor holding a floating charge or by a court. The objectives of an administration include: • maintaining an insolvent company as a going con - cern; • achieving a better outcome for the company’s creditors; and • realising the property of the company to make a distribution to secured or preferential creditors (Section 522 of the IA). Administration commences with the appointment of an administrator (who must be a qualified insolvency practitioner – Section 526 of the IA) by either the com - pany, its directors, the court or the holder of a qualify - ing floating charge. As it is a rescue mechanism, the commencement of an administration imposes a moratorium such that neither a resolution for liquidation nor a court order for the liquidation may be issued (Section 559 of the IA). Furthermore, any proceedings or executions against the company are stopped, and any creditors may exercise their rights against the company only with the consent of the court or administrator (Section 560 of the IA). The administrator is required to make a proposal set - ting out how they intend to achieve the purposes of the administration, and this proposal is presented to the company’s creditors and members during the
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