KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
3.8 Lenders’ Liability Under Environmental Laws
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 avail - able to the lender: appointment of a receiver, suing the chargor, leasing the property and tak - ing possession of the property. Enforcement of these remedies may take longer than exercising the statutory power of sale, especially if the mat - ter is contentious. Priority of Legal Charges According to Section 81 of the LA, charges rank according to the order in which they are reg - istered, 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 regis - tered. 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, con - senting to the creation of the subsequent secu - rity and confirming that its security ranks subse - quent to the new charge. Lenders can also enter into an intercreditor agreement.
Kenyan courts apply the “polluter pays” principle under which the person responsible for environ - mental damage is liable for it. A lender is not liable for non-compliance with environmental laws since a legal charge does not constitute a transfer of the property. However, when enforcing the security by the appointment of a receiver or the leasing or taking possession of the charged property, a lender qualifies as an “owner” under the EMCA and will therefore be liable for non-compliance with environmental laws. 3.9 Effects of a Borrower Becoming Insolvent A borrower’s insolvency does not affect a lend - er’s security interest. Insolvency is usually an event of default in the charge instrument that would trigger enforcement by the lender. Where an administrator has been appointed, the con - sent of the appointed administrator or approval of a court of competent jurisdiction would need to be obtained in order to enforce security. Under Section 590 of the Insolvency Act, the administrator of an insolvent person’s estate is prohibited from interfering with a secured credi - tor’s right to enforce its security. 3.10 Taxes on Loans The following taxes apply to loans: • Withholding tax at the rate of 15% is payable on interest income earned by resident and non-resident persons. • Deemed interest where the loan is provided free of interest Withholding tax is also appli - cable to such deemed interest. The Kenya Revenue Authority (KRA) determines the deemed interest rate and withholding tax rate.
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