Insolvency Law at Kenya
Insolvency law in Kenya is governed by a modern legal framework that consolidates personal and corporate insolvency under one statute. The law emphasizes debt resolution, creditor protection, and corporate rescue where possible. Below is a detailed overview:
1. Main Legislation
The primary law governing insolvency in Kenya is:
The Insolvency Act, 2015
This Act repealed earlier laws (like the Companies Act's winding-up provisions and the Bankruptcy Act) and introduced a unified legal framework for:
Corporate insolvency (liquidation and administration)
Individual insolvency (bankruptcy and alternatives)
Cross-border insolvency
Insolvency practitioners' regulation
It is supplemented by:
The Insolvency Regulations, 2016
Companies Act, 2015 (for company structure and operations)
Civil Procedure Act (for enforcement of judgments)
2. Types of Insolvency Proceedings
a. Corporate Insolvency
i. Administration (Rescue Process)
Aims to rescue viable companies from liquidation.
An administrator is appointed by a creditor, the company, or the court.
The administrator takes control of the company and attempts to restructure or sell it as a going concern.
A moratorium (legal protection) is imposed during administration to prevent enforcement by creditors.
ii. Company Voluntary Arrangements (CVA)
A legally binding agreement between a company and its creditors to pay off debts over time.
Requires approval by 75% (in value) of creditors.
Supervised by an insolvency practitioner.
iii. Liquidation (Winding-Up)
The company’s assets are sold, and proceeds distributed to creditors.
Can be voluntary (by shareholders or creditors) or compulsory (by court order, usually upon creditor petition).
Liquidator is appointed to manage the winding-up.
b. Personal Insolvency
i. Bankruptcy
Initiated by a debtor or creditor.
A trustee is appointed to manage the debtor’s estate and distribute assets.
Discharge from bankruptcy may occur after 3 years (automatic if the debtor cooperates), giving the individual a fresh start.
ii. Individual Voluntary Arrangements (IVA)
Alternative to bankruptcy; the debtor proposes a repayment plan to creditors.
Requires approval by 75% in value of creditors.
Supervised by a licensed insolvency practitioner.
iii. Debt Relief Orders (DROs)
Introduced for low-income individuals with minimal assets.
Offers debt write-off after a set period, subject to eligibility.
3. Priority of Claims
In both corporate and personal insolvency, debts are settled in this order:
Secured creditors (have collateral over assets)
Insolvency costs (administrator or liquidator fees)
Preferential debts (e.g., employee wages, taxes)
Unsecured creditors
Shareholders (if anything is left)
4. Insolvency Practitioners
Must be licensed by the Official Receiver or the Insolvency Licensing Board.
Handle administration, liquidation, and trustee roles.
Subject to regulatory oversight for compliance and conduct.
5. Cross-Border Insolvency
Kenya has incorporated principles of the UNCITRAL Model Law on Cross-Border Insolvency (Part VI of the Insolvency Act).
It allows for recognition of foreign proceedings and cooperation between Kenyan and foreign courts or insolvency practitioners.
6. Notable Features & Reforms
Corporate rescue culture: The Act emphasizes administration and CVAs over liquidation where possible.
Moratorium protection: During rescue procedures, creditors are barred from initiating enforcement, giving the debtor time to reorganize.
Debtor protection: Particularly for individuals, the law offers alternatives to bankruptcy.
Regulatory framework: Professionalization of insolvency practice ensures better protection for stakeholders.
Conclusion
Kenya’s Insolvency Act, 2015 brought a significant shift towards modern, balanced insolvency practice, prioritizing business rescue and individual financial rehabilitation. It aligns with international best practices and provides a comprehensive toolset for addressing insolvency across sectors.
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