Insolvency 2025

KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates

Effect of Liquidation on Pre-Insolvency Contracts The IA does not provide for the effect of liquidation procedures on existing contracts. Arguably, such con - tracts remain valid unless they expressly provide that they stand terminated by virtue of liquidation. How - ever, parties to such contracts are precluded from enforcing them without the leave of the court or liqui - dator due to the imposed moratorium. 5.3 The End of the Liquidation Procedure(s) Once all the assets of the company have been col - lected and realised, they are distributed as per the Second Schedule of the IA. Thereafter, the liquidator must convene a final general meeting of the creditors, after sending relevant notices. At the final meeting, the liquidator must present their report, showing the manner of distribution to the creditors. The creditors will consider the accounts and the liq - uidator’s explanation and resolve on the company’s dissolution. Within seven days after the final gener - al meeting, the liquidator must lodge a copy of the accounts and returns with the Registrar of Compa - nies, together with a return giving details of the credi - tors’ holding at the meeting. 5.4 The Position of Shareholders and Creditors in Liquidation Creditors’ Powers to Disrupt, Block or Frustrate the Liquidation Process Secured creditors (especially those predating the IA) may frustrate insolvency proceedings by enforcing against the secured assets without necessarily sub - mitting to the insolvency proceedings. Creditors can disrupt the liquidation process by removing a liquidator under Sections 468 and 469 of the IA (see Prideinn Hotels & Investments Limited v Tropicana Hotels Limited [2018] KECA 651 (KLR)). Furthermore, creditors may disrupt the liquidation process by opposing a liquidation petition, resulting in its dismissal or adjournment on grounds of non- compliance with mandatory statutory provisions, or by filing an application to stay liquidation proceedings (Sections 427 and 447 of the IA) (see Dankar Ramb- hai Patel v United Engineering Supplies Ltd & another [2020] KEHC 9365 (KLR)).

• any alteration of the shares of the company and its membership or shareholding is void (Section 397 of the IA); and • powers of the directors of the company cease, except for their roles in relation to convening a general meeting or with the sanction of the liquida - tor (Section 399 (2) of the IA). Consequences of Involuntary Liquidation Once a liquidation order has been made, the follow - ing applies: • disposition of the assets, the transfer of shares and alteration of the company’s membership are void; • the execution, distress, attachment or sequestra - tion of the company’s assets is void (Section 430 of the IA); • legal proceedings against the company can only be commenced and continued with the approval of the court (Section 432 (2) of the IA); and • an automatic moratorium exists. Roles of Different Office Holders/Actors The liquidator has the duty of realising all the assets of the company and distributing the proceeds thereof amongst the creditors, with the surplus being distrib - uted to the shareholders. Accordingly, the liquidator will hold a meeting of the creditors of the company, who shall appoint a liquidation committee to represent the creditors’ interests, except where the liquidator is the Official Receiver. The liquidation committee will oversee the liquidation process, ensuring the creditors’ interests are protect - ed. The committee has power to approve the liquida - tor’s exercise of powers set out under Parts I and II of the Third Schedule of the IA. Referral of Insolvency Disputes to Arbitration In Kenya, matters on insolvency cannot be referred to arbitration (see Big Cold Kenya Limited v Afro-Ameri- can Food Company Limited [2022] KEHC 9930 (KLR)). Only the Commercial Division of the High Court of Kenya handles insolvency matters (Section 2 of the IA).

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