KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
their sale is made to any other creditor ranking lower in priority (Section 628 (6) of the IA). However, this procedure may be challenged, as set out in 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure and 4.3 The End of the Restructuring, Rehabilitation and Reorganisation Procedure . A Scheme of Arrangement (SOA) An SOA can be used to effect a variety of debt reduc - tion strategies or insolvent restructurings, such as debt-for-equity swaps. When a majority (ie, 75%) of the creditors or class of creditors, or members or class of members, present and voting either in person or by proxy at the meeting have agreed to a proposed SOA, then the company may present the SOA to the court (Section 926 of the CA). Under an SOA, the rights of a secured creditor to enforce its security are guided by the terms of the proposal submitted to court for approval. Where the SOA affects the rights of a secured creditor, the pro - posal must explain how these rights shall be protected CVAs and SOAs are not accompanied by an automatic moratorium. A company may thus apply to court for a moratorium to facilitate an organised restructuring by protecting the company from liquidation or convening meetings without consent of provisional supervisors. A moratorium lasts for 30 days and may be extended in accordance with Sections 645 (3) and 669 of the IA. 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure Determining the Value of Claims and Creditors To participate in a restructuring process, a creditor must submit proof of debt in the prescribed form and within the time prescribed by either the company or the supervisor. Non-Debtor Parties Neither the IA nor the CA prohibits the release of non- debtor parties from their liabilities, provided that such a release forms part of the proposed CVA or SOA and is voted upon. This approval is ordinarily provided by (Section 924 (3) of the CA). Pre-Insolvency Moratorium
secured creditors holding third-party charges or guar - antees. Roles of Creditors Creditors’ main role during CVAs and SOAs is to vote on the various restructuring proposals. While there is no checklist provided under the IA, the creditors have a duty to assess all the relevant and necessary infor - mation to make an informed choice. Claims of Dissenting Creditors As stated in 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation , a CVA is binding on all the creditors of a company. Similarly, once an SOA is approved by creditors, an application is made to court to approve it before it can bind all the credi - tors and the company. Priority New Money Companies commonly seek cash injections when their business structure is viable but they are suffering from poor trading conditions. New or existing lenders may inject funds into such companies, secured against its assets by way of further charges, subject to consent from existing chargees. Under Section 535 of the IA and Section 38 of the MPSR Act, priority amongst the chargees shall be determined based on the time of registration. Timelines and Milestones The IA and CA do not set out timelines or milestones for concluding CVAs and SOAs, as these agreements are contractually agreed upon by the parties involved. On the other hand, pre-insolvency moratoriums only lasts for 30 days, although they may be extended in accordance with Sections 645 (3) and 669 of the IA. Arbitration As set out in 5.2 Course of the Liquidation Proce- dure , disputes touching on the aspect of insolvency are non-arbitrable in Kenya.
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