KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
creditors’ meeting. The proposal may take the form of a voluntary arrangement or compromise (Sections 566 and 567 of the IA) and is subject to a vote during the creditors’ meeting (Section 568of the IA). However, the creditors’ meeting will not be convened if the proposal states that the administrator believes that: • the company has sufficient property to enable each creditor to be paid in full; • the company has insufficient property to enable a distribution to be made to unsecured creditors; or • the administration’s objectives cannot be achieved (Section 569 of the IA). Company Voluntary Arrangements (CVAs) A CVA is generally a voluntary scheme whereby the directors propose a plan to settle the company’s debts or arrange its financial affairs. It may also be proposed by an administrator/liquidator. The process entails convening a meeting of the com - pany and its creditors, to a vote on the CVA proposal (Sections 625–627 of the IA). A provisional supervisor is appointed to oversee the voting process and will first issue a report setting out the particulars of the debts owed to the creditors (Section 307 of the IA). If the CVA is approved, the company continues trad - ing on a more flexible repayment schedule. Once approved, the CVA becomes binding upon the credi - tors and the company (Section 630 of the IA). A CVA is ordinarily supervised by an insolvency practitioner selected by the directors (Section 625 of the IA). The Insolvency Act does not, however, provide for strict timelines within which a CVA should be concluded. Administrative Receivership This involuntary financial remedy is available to hold - ers of a debenture predating the coming into force of the Insolvency Act (Section 690 of the IA), to cater for pre-2015 securities. It is the process by which secured creditors appoint a receiver over a company, to real - ise the secured assets and recover their debt. Having been appointed outside court, the receiver is an agent of the company and maintains a fiduciary relationship with all parties involved.
Once an administrative receiver is appointed, the directors’ powers are suspended save for the duty to prepare audited accounts, call statutory meetings, maintain the share register and lodge returns (see Macharia & another v Kenya Commercial Bank Limited & 2 others [2012] KESC 8 (KLR)). Liquidation This is the process by which the assets of a company are realised and distributed amongst its creditors in the order of priority. Any surplus is distributed to the shareholders. The Insolvency Act provides for two types of liquidation procedures: • voluntary liquidation; and • liquidation ordered by the court. Voluntary liquidation Voluntary liquidations are instituted by shareholders or creditors of a company. Shareholders’/members’ voluntary liquidation must be accompanied by a direc - tors’ statutory declaration setting out that the com - pany is still solvent (Section 382 of the IA). A company may be voluntarily liquidated when: • the period fixed by the articles for the duration of the company expires; • an event occurs that requires the company to be dissolved, and a general meeting has passed a resolution providing for its voluntary liquidation; or • the company resolves by special resolution that it be liquidated voluntarily (Section 393 of the IA). Before passing a resolution for voluntary liquidation, the company must give notice to the holder of any qualifying floating charge in respect of the company’s property. Liquidation commences once the resolution to voluntarily liquidate the company is passed (Sec - tion 395 of the IA). The notice will then be published in the Kenya Gazette, a newspaper of nationwide cir - culation, and on the company’s website. Upon the commencement of voluntary liquidation, the company ceases to trade, except as may be neces - sary for its beneficial liquidation, and any attempts to transfer the shares of the company or change the status of the company’s shareholders are void. How -
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