KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
Scheme of Arrangement Restructuring mechanisms are available to companies under Part XXXIV of the CA. An SOA can be used to effect a variety of debt reduction strategies or insol - vent 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). Pre-Insolvency Moratorium CVAs and SOAs are not accompanied by an auto - matic moratorium. A company may thus apply to court for a moratorium to facilitate an organised restructur - ing and protect the company from liquidation, resolu - tions being made or meetings being convened with - out the consent of provisional supervisors. Once a moratorium is issued, it lasts for 30 days, and may be extended in accordance with Sections 645 (3) and 669 of the IA. 4.6 The Position of Shareholders and Creditors in Restructuring, Rehabilitation and Reorganisation Roles Played by Shareholders in Restructuring and Reorganisation From the onset, shareholders have a right to informa - tion regarding the effect of an arrangement or com - promise under Sections 924 and 925 of the CA. They consider and approve proposals for voluntary arrange - ments or schemes of arrangement during a company meeting. Under Section 629 of the IA, the proposal is deemed approved if it is passed by a majority of shareholders present at the meeting. Similarly, under Section 926 of the CA, the court would sanction a compromise or arrangement if it was voted for by 75%
A CVA is binding on all of the creditors of a company just as an SOA, which cannot be disrupted by dissent - ing creditors once it has been approved by the court. Trading of Claims Against a Company Neither the IA nor the CA contains provisions to guide the trading of claims. However, subject to a supervi - sor’s approval it is likely that a creditor may sell its claim to a third party in a CVA. As for an SOA, approval has to come from the company. Rights of Set-Off Neither the CA nor the IA refers to a statutory right of set-off in a consensual restructuring. That being said, there is nothing to preclude parties from incorporat - ing such a right within the terms of the CVA or SOA, provided that the requisite number of creditors agree to include such a provision. Existing Equity Owners Neither the IA nor the CA addresses the receipt or retention of an ownership interest by equity owners, presumably because their interests become subor - dinate to the debt during restructuring. However, the CVA or SOA may affect a change in equity ownership of a company, in which case the rights and obligations of existing equity owners will also be subject to the terms of the restructuring. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure See 1.2 Types of Insolvency . 5.2 Course of the Liquidation Procedure Consequences of Voluntary Liquidation Once a resolution to liquidate a company is passed, liquidation commences and the following conse - quences follow: • the company ceases to trade, unless trading will be beneficial for liquidation; • the company retains its corporate status and pow - ers until dissolved (Section 396 of the IA);
of shareholders or class or shareholders. Creditors’ Roles in Restructuring and Reorganisation
The main role of creditors is to vote for or against a proposal on how the debts of the insolvent company will be restructured and paid. In doing so, the creditors must assess all the relevant and necessary informa - tion with regard to the proposal, to enable them to make an informed choice.
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