KENYA Trends and Developments Contributed by: Noella Lubano, Paul Kamara, Kateline Mang’ich and Anne Cheloti, Oraro & Company Advocates
Oraro & Company Advocates ACK Garden Annex, 6th Floor 1st Ngong Avenue P.O. Box 51236-00200 Nairobi Kenya Tel: +254 709 250 000 Email: litigation@oraro.co.ke Web: www.oraro.co.ke
Insolvency in Kenya: An Introduction With the harsh economic times since the COVID-19 pandemic, some companies in Kenya have been una - ble to service their facilities. Prior to the Insolvency Act, such companies would have suffered the only fate preferred by creditors: asset stripping, resulting in a premature liquidation of the company. However, the Insolvency Act 2015 marked a dynam - ic shift away from punitive insolvency proceedings towards rehabilitative processes which, inter alia, focus on restoring the company to operate as a going concern and securing the interests of all stakehold - ers involved. These dynamic objectives under the Act have been the basis of many struggling companies in Kenya being placed in administration between 2020 and 2025, as opposed to undergoing the aggressive liquidation processes traditionally preferred by most creditors in pursuing outstanding debts. Despite the objectives of the Insolvency Act, the Kenyan economic landscape is filled with instances where secured creditors have opted to appoint receiv - ers rather than submit to insolvency proceedings and ensure that the interests of all stakeholders are upheld. For context, Section 690 (2) of the Insolvency Act pro - vides that a holder of a floating charge in respect of a company’s property may not appoint an administra - tive receiver and that any such appointment shall be rendered void. However, this restriction does not apply to a creditor whose security was created before the commence - ment of the Insolvency Act or where an administrative receiver was appointed before the commencement of
the Insolvency Act. As recently as 2024, in Athi River Steel Plant Limited v Rao and 4 Others (Civil Appeal 592 of 2019) 2024 KECA 585 (KLR), the Kenyan Court of Appeal affirmed the creditors’ right to appoint an administrative receiver in accordance with the terms of the loan documents and the securities, to realise the company’s asset in satisfaction of the outstand - ing debt. Most creditors with securities predating the Insolvency Act appear to prefer this route to submit - ting to general insolvency proceedings, which does not guarantee recovery of the secured amount. The current landscape There is a growing trend of unsecured creditors trig - gering liquidation proceedings by way of statutory demand, to compel payment of a debt owed to them. In Kenya, for a creditor to place a company under liq - uidation, they must issue a 21-day statutory demand to the company, as set out in Section 384 (1) of the Insolvency Act. This will only be permitted where the company owes the creditor a debt of KES100,000 or more. In determining such demands, and in conse - quent objections to such demands by companies, Kenyan courts continue to grapple with pressing questions, such as: • who qualifies as a creditor in such demands; • who should issue the statutory demand; and • the correct form in which a statutory demand should be issued. On the issue of who qualifies as a creditor under the Insolvency Act to commence liquidation proceedings, Section 2 of the Act defines a creditor to include a person who is entitled to enforce a final judgment or
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