KENYA Law and Practice Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
6.6 Foreign Creditors The rights of foreign creditors are comparable to those of creditors in Kenya as regards the commencement of and participation in Kenyan proceedings. However, this does not affect the ranking of claims or the exclu - sion of foreign tax and social security claims from the distribution (Clause 15, Fifth Schedule of the IA). 7. Duties and Liability of Directors and Officers 7.1 Duties of Directors Directors have a general duty to act in the best inter - est of creditors once a company is insolvent (see Re Ukwala Supermarket Limited [2019] KEHC 7877 (KLR) and In the matter of Midas Oil Limited [2020] KEHC 585 (KLR)). When a company is under receivership, the directors take a backseat with regard to their managerial duties but will still have the obligation to prepare a statement of the affairs of the company, to be handed over to the receiver. The directors also retain the duty to: • prepare the company’s audited accounts; • audit those accounts; • call the statutory meetings of shareholders; • maintain the share register; and • lodge returns with the receiver (see Macharia & another v Kenya Commercial Bank Limited & 2 oth- ers [2012] KESC 8 (KLR)). When a company goes into insolvent liquidation, a liquidator may apply to the court for an order that a director/officer be held liable as a contributory if it appears that the director/officer knew or ought to have known that there was no reasonable prospect that the company would avoid being placed in insolvent liqui - dation (Sections 506 (3) and 506 (5) of the IA). Once a company becomes insolvent, the directors owe no continuing duty to the owners. However, where a company enters into a CVA, the directors are under an obligation to come up with a proposal, appoint a supervisor and maintain oversight over the process. The directors should also provide any docu - ments that the supervisor may require to enable the
easy implementation of the plan, as the successful implementation of the programme is to benefit the company. 7.2 Personal Liability of Directors Where directors of a company have committed an offence under the Insolvency Act, the court may: • order the director to repay, restore or account for the money or property or any part of it, with inter - est at such rate as the court considers appropriate; • order the director to contribute such amount to the company’s assets as compensation for the misfea - sance or breach of fiduciary or other duty as the court considers fair and reasonable; or • even disqualify the individual from holding a mana - gerial or directorship position for up to 15 years. Upon satisfying itself of a director’s delinquency, the court can direct the liquidator to report the matter to the Official Receiver. Investigations shall then be com - menced against the delinquent officers, and thereaf - ter, upon sufficient proof and satisfaction of criminal liability, may be reported to the Director of Public Prosecution to commence official criminal proceed - ings (Sections 504, 505, 510 and 511 of the IA). In such instances, the corporate veil will be lifted. Any director found to be liable for such delinquency shall be personally liable and may be imprisoned for a term not exceeding ten years or pay a fine not exceeding KES10 million (Section 1002 of the CA). 7.3 Duties and Personal Liability of Officers Official Receiver The mandate of the Official Receiver (see 1.3 Statu- tory Officers ) includes: • the licensing and supervision of insolvency practi - tioners; • the administration and supervision of the bankrupt - cy of natural persons and the administration and liquidation of companies; • the implementation of the provisions of the IA and Regulations; and • the investigation of offences under the IA. Other duties of the Official Receiver include:
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