KENYA Law and Practice Contributed by: Walid Khan, Ruth Wangui Rukwaro and Christina Wanjiku Wood, Africa Law Partners
Failure to stamp securities will render them inadmis- sible as evidence before a Kenyan court and therefore they may not be fully enforced in Kenya. Notice of the security created over movable property must be registered at the collateral registry, for such security to be effective against third parties. Failure to register a charge at the Companies Registry renders the charge void. Ultimately, failure to perfect securities will result in the lender losing priority during recovery. 5.2 Floating Charges and/or Similar Security Interests Floating charges and security interest over all present and future assets of a company are permissible under Kenyan law. 5.3 Downstream, Upstream and Cross- Stream Guarantees Entities can give downstream, upstream and cross- stream guarantees. No statutory approvals are required for a company to give a guarantee or pro- vide security unless there are specific restrictions in its constituting documents. 5.4 Restrictions on the Target A limited company may purchase its own shares only out of: (i) distributable profits of the company; or (ii) the proceeds of a fresh issue of shares made for the purpose of financing the purchase. Any premium pay- able on the purchase by a limited company of its own shares is required to be paid out of distributable prof- its of the company. If a person is acquiring or proposing to acquire shares in a public company, neither the company nor any oth- er company that is a subsidiary of the company may give financial assistance (directly or indirectly) for the purpose of the acquisition before or at the same time as the acquisition takes place. Similarly, if a person is acquiring or proposing to acquire shares in a private company, a public company that is a subsidiary of that company cannot give financial assistance (directly or indirectly) for the purpose of the acquisition before or at the same time as the acquisition takes place. 5.5 Other Restrictions Other restrictions in connection with the grant of secu- rity or guarantees include:
• the borrower’s constitutional documents (which may create restrictions on the amount or manner through which securities may be issued); • consents from government offices (eg, land control board consent where the land is agricultural land, regulatory consents where the borrower is in a regulated business); and • consent from existing lenders. 5.6 Release of Typical Forms of Security Charges are released by executing, stamping and reg- istering a discharge of charge. Guarantees, pledges and debentures are released by way of a deed of release. 5.7 Rules Governing the Priority of Competing Security Interests Generally, priority of competing security is determined by time. Priority is given to the security registered ear- lier. Contractual subordination is permissible where lend- ers agree to have their debt subordinated. This is gen- erally done by way of a subordination agreement and such agreements survive the insolvency of a borrower. 5.8 Priming Liens A priming lien is a lien on property senior to, or with the same priority as, existing liens on the same property. In Kenya, certain security interests automatically arise and prevail against a registered security of the lender. These commonly include statutory liens, charges or possessory rights that do not need to be registered. Examples include: • tax liens; • customs duty; • employee wage claims; and • landlord’s liens. Insolvency law also gives rise to preferential debts such as employee wages and certain government charges, which have to be paid in preference to secured creditors. These statutory or legal liens are capable of “priming” the security interest of a lender in that they become
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