KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
3.6 Formalities When a Borrower Is in Default Enforcement of a Legal Charge Section 90 of the LA prescribes the formalities for the enforcement of a legal charge in the event of default by the borrower. If the borrower is in default for one month, the lender issues a notice of the default to the borrower, requiring the borrower to remedy the default within the notice period (at least three months if the default relates to non-payment). If the borrower fails to do so and the lender opts to exercise statutory power of sale, the lender issues another 40-day notice. Upon lapse of the notice period, the property is valued and sold. The time taken to sell the property would vary according to market demand and could range from a month to more than a year. The LA also provides additional remedies available to the lender: • appointment of a receiver; suing the chargor; • leasing the property; and • taking possession of the property. Enforcement of these remedies may take longer than exercising the statutory power of sale, especially if the matter is contentious. Priority of Legal Charges According to Section 81 of the LA, charges rank according to the order in which they are registered, unless the charge instrument (with the prior written consent of a prior security holder) states otherwise. 3.7 Subordinating Existing Debt to Newly Created Debt According to Section 81 of the LA, charges rank according to the order in which they are registered. However, existing legal charges may be subordinated to newly created legal charges by agreement between the lenders. The holder of the prior registered charge would typically sign a consent form on the subsequent charge, consenting to the creation of the subsequent security and confirming that its security ranks subse - quent to the new charge. Lenders can also enter into an intercreditor agreement.
Section 974 of the Companies Act, which prohibits a foreign company from carrying on business in Kenya unless it is registered. Recent High Court decisions have not been entirely uniform on the consequenc - es of non-registration: some decisions have taken a strict approach to locus standi while more recent decisions suggest that non-registration does not itself bar a foreign company from suing and that whether it is carrying on business in Kenya is a matter of fact. Accordingly, although a foreign lender may validly take Kenyan security, it should consider the recent High Court decisions. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security When granting security, the borrower will be respon - sible for the following costs: • stamp duty at a rate of 0.1% of the borrowed amount for registrable securities such as legal charges; • the legal fees of the borrower’s and lender’s advo - cates, as prescribed by the Advocates Remunera - tion Order based on the amount secured; and • nominal registration fees charged by the relevant registries. In addition, the borrower is usually responsible for the lender’s enforcement costs, including legal fees. 3.5 Legal Requirements Before an Entity Can Give Valid Security The following requirements must be met: • the borrower must have the capacity to give the security under its constitutive document; • the directors of a corporate guarantor should be satisfied that the company derives corporate ben - efit from giving security over its real estate assets, even where the borrower is a related company; • the borrower should comply with the 30-day regis - tration timeline for security as set out in the Com - panies Act, unless extended by the court; and • financial assistance for the acquisition of real estate assets is not prohibited.
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