KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
3.2 Legal Status Out-of-court restructurings in Kenya are contractual in nature and are, therefore, binding only upon the debtor-company and creditors expressly consenting to the restructuring, whether through SSAs, moratoria or negotiated variations of facility terms. 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation Company Voluntary Arrangement Please see 1.2 Types of Insolvency for the definition and objectives of CVAs (Section 625 of the IA). Upon receiving a copy of the proposal, the supervi - sor must convene a meeting of the company and its creditors, for the creditors to vote on the proposal. The CVA is deemed to have been approved if a major - ity of the members and creditors of the company pre - sent at the meeting vote in its favour, following which an application is made to court for its approval. If approved by a court, the CVA takes effect on the day after the date on which it was approved, and becomes binding upon all the creditors and the company. The supervisor will then monitor the implementation of the approved CVA (Section 633 of the IA). A CVA will not be approved if it affects a secured cred - itor’s rights to enforce its security, unless the secured creditor consents to it. Where a secured creditor does not consent, the CVA should ensure that the secured creditor: • will not be in a worse a position than if the com - pany was liquidated; • receives no less from the assets to which the credi - tor’s security relates than any other secured credi - tor having a security interest in those assets that has the same priority as the subject creditors; and • will be paid in full, from the assets secured, before any payment from the assets or the proceeds from
Therefore, any party aggrieved by a breach of the terms of the facilities may seek legal recourse there - under. Consensual Restructuring v Insolvency Proceedings Banks tend to use insolvency proceedings to recover debts, largely due to their financial capability to defend a debtor’s objection to such insolvency proceedings in court. This is not always the case for impecunious creditors, who usually prefer consensual restructuring agreements. Consensual Restructuring Creditors prefer this avenue over insolvency proceed - ings in the belief that it is inexpensive, informal, fast, flexible, less confrontational and confidential. In Kenya, consensual restructurings include standstill agreements (SSAs). For instance, in Synergy Industrial Credit Limited v Multiple Hauliers (EA) Limited [2020] KEHC 3103 (KLR), the company faced with a liquida - tion petition sought to have the petition struck out on the basis of an SSA with its lenders, which was geared towards restructuring its operations and managing cash flow, working capital and liquidity requirements. The court adjourned the hearing of the liquidation peti - tion for a period of 12 months to allow the SSA to take effect. Creditor Steering Committees The creditors committee is formed for the purpose of ensuring that the creditors’ interests are protected, since all of the creditors cannot personally monitor the process by which the administrator’s proposal is implemented, once the proposal is approved (Regula - tions 113 and 114 of the Insolvency Regulations and Section 574 of the IA). Bank and Lender Support Banks provide a conducive and accommodating envi - ronment to borrowers, with opportunities to restruc - ture the facilities. Lenders are known to issue mora - toriums, freeze interest on repayments, and restrain enforcement measures.
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