KENYA Law and Practice Contributed by: Walid Khan, Ruth Wangui Rukwaro and Christina Wanjiku Wood, Africa Law Partners
effective automatically and are registration-independ- ent. For example, unpaid employee benefits to the Kenya Revenue Authority or unpaid taxes are capable of payment in priority over secured and unsecured creditors. Landlords can also have a right of distress on unpaid rent, extendable to secured creditors where the security is situated on leased land. Typically, lenders try to restrict the risk of priming liens by: • due diligence – revealing prospective statutory claims or arrears before lending; • agreements with existing lenders; • covenants and undertakings – requiring the bor- rower to remain current with taxes, rent and employee obligations; • reserves or escrow arrangements – retaining funds for the payment of statutory dues and avoiding accrual of priority claims; and • monitoring and reporting obligations – ensuring continuous compliance through periodic borrower disclosure. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders A lender may enforce its collateral on the occurrence of an event of default. Events of default are typically provided for in the finance documents (particularly the loan agreement and the securities). The method of enforcement differs according to the type and char- acter of the security. Where a charge is registered over immovable property, the lender may: • sue the chargor for any money due and owing under the charge; • appoint a receiver of the income of the charged land; • lease the charged land or, if the charge is of a lease, sublease the land; • enter into possession of the charged land; or • sell the charged land. For debentures or floating charges, the lender may appoint a receiver over the company, while, for guar-
antees, the lender may sue the guarantor for the guar- anteed sum. In order to ensure proper realisation of security, it is crucial to ensure that the security was perfected in the first place and that due process is followed during enforcement. 6.2 Foreign Law and Jurisdiction The choice of foreign law as the governing law of finance documents will be recognised and upheld by the Kenyan courts. Submission to foreign jurisdiction will also be recognised and upheld by the Kenyan courts. A waiver of sovereign immunity in a contract is generally enforceable in Kenya where it is explicitly expressed. 6.3 Foreign Court Judgments A judgment given by a foreign court or an arbitral award against a borrower will be enforceable in Kenya without a retrial of the merits of the case. 6.4 A Foreign Lender’s Ability to Enforce Its Rights Previously, there were no matters that impacted a foreign lender’s ability to enforce its rights under a loan or security agreement. However, the Business Laws Amendment Act, 2024 widened the scope of the CBK’s regulation of non-deposit credit providers to include foreign lenders, thus requiring registration of foreign lenders with the CBK. Some court decisions have also created jurisprudence to the effect that for- eign entities are required to establish a presence in Kenya in order to access Kenyan courts.
7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
The moment insolvency proceedings against a bor- rower are initiated in Kenya, a moratorium is placed and there is an automatic stay according to the Insol- vency Act. This prevents lenders from initiating or con- tinuing enforcement action, such as the realisation of secured assets, without leave of the court. The stay is designed to preserve the assets of the debtor and facilitate fair treatment of all the creditors.
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