INS NSOLV LVENC NCY ACT CT 201 015 INTR NTRODUCTION The Insolvency act was assented into law on 11 th September, 2015. It consolidates procedures relating to bankruptcy of natural persons and corporate insolvency matters. The two are now under one Act that is Insolvency Act. Bankruptcy was previously governed by the Bankruptcy Act chapter 53 of laws of Kenya (Formerly the English Bankruptcy Act 1930) while the liquidation of companies was governed by the Companies Act chapter 486 laws of Kenya (formerly the English Companies Act of 1948). The Acts largely reflected the English position of the time as they had not been repealed and were rarely ever amended. For purposes of the Insolvency Act, the recognized professional bodies are:- 1) Law Society of Kenya. 2) Institute of Certified Public Accountants. OBJECTIVES OF REPEALI ALING NG THE BAN ANKRUPT UPTCY AC ACT AND AND THE COMP MPANI ANIES S AC ACT PAR ART VI i. To secure an equitable distribution of the property of the debtor/ Company among his/its creditors according to their respective rights against him/it. ii. To relieve the debtor/company of his/its liability to his/its creditors and to enable him/it to make a fresh start in life/business free from the burden of his/its debts and obligations. iii. To protect the interests of the creditors in his/its affairs and for the imposition of punishment where there has been fraud or other misconduct on his part. iv. To offer suitable alternatives other than declaring bankruptcy or liquidation companies. Focus is shifted from debt recovery to restructuring mechanisms. v. To promote business. When there are better safeguards for investors business tends to grow. 1
SA SALI LIENT NT FEAT ATUR URES OF THE NE NEW INS NSOLVENC NCY AC ACT 20 2015 BAN ANKRUPT UPTCY OF NATUR NATURAL AL PERSON SONS – PAR ART III 1. The Act amalgamates the Bankruptcy proceedings and the Companies liquidations into one insolvency law. 2. The Act regulates Insolvency Practice and the practice of insolvency practitioners. The Official Receiver’s office is in charge of regulation of insolvency practice in Kenya. Qualified insolvency practitioners/professional bodies will apply to the Official Receiver to act as such. 3. The Act introduces an instant Bankruptcy for three years once a petition for bankruptcy is filed (Section 41) and an automatic discharge (section 254). A bankruptcy order takes effect when the court makes an order in respect of a debtor been adjudged bankrupt. This means that there is no need of a Receiving Order and one will head straight to Bankruptcy upon the court issuing the order. 4. The new act introduces a different approach other than liquidation and focuses also on debt restructuring mechanisms. 5. The Act introduces several alternatives to bankruptcy:- i. Enter into voluntary arrangement with the creditors; ii. Pay creditors in instalments under summary instalment order; iii. Enter the no asset procedure. This is done by a debtor filling with the Official Receiver a statement in the prescribed form stating he has no realizable assets. The Official Receiver will admit such person if satisfied. The debtor is discharged from participation of no-asset procedure automatically at the expiry of twelve months thereof when the debtor was admitted to the no-asset procedure. Once the debtor is discharged, his debts that were unenforceable on the debtor’s entry to the no -asset procedure are cancelled. SIO and NAP do not require the debtor to go to court. The act gives discretion to the Official receiver to take charge of these alternatives and do constitute out of court settlements. 6. Once a bankruptcy order is issued against a person, the person is restricted as to the business activities they can undertake. This is meant to protect the public from trading with insolvent persons. The Bankrupt must disclose to potential business 2
partners of his current position. There is also a provision for a registry (database) for all bankrupts accessible to members of the public. 7. Section 19 of the Act introduces a provision where a creditor can expedite a creditor’s application for bankruptcy, where there is a risk of the debtors’ property depreciating or the value of the property can significantly reduce. Need not wait for the mandatory 21 days indicated in the statutory demand. 8. Section 35 introduces a new provision on Joint Bankruptcies. Where two or more debtors who are partners in a business partnership may make a joint application for bankruptcy order. 9. Creditors meetings can be attended by a non-creditor, who is not a proxy for the creditor. The non creditor can offer information on the debtor’s affairs. 10. The list of Bankruptcy offences have been increased and updated in the Act (division 25). For example, the offence by bankrupts in relation to management of companies, offence in relation to fictitious losses or expenses, bankrupt leaving Kenya without consent etc. 11. The Act introduces entitlement of surviving spouse to household, furniture and other personal effects. This will not form part of the bankrupt’s estate. 12. The Act introduces an allowance which may be made out of the estate to the surviving spouse or to any of the relatives or dependants of the deceased debtor. This is not provided for in the former Act. LI LIQUI UIDAT ATION N OF COMP MPANI ANIES -PAR ART VI 13. The Act provides that when a company is being liquidated, every present and former member (includes directors, former directors, shareholders and former shareholders) are liable to contribute to its assets to any amount sufficient for pursuant of its debts and liabilities and the expenses of the liquidation. The Companies Act does not have provisions holding former members of a company liable to contribute in the liquidation process. 14. The Act makes void the transfer of shares and attempts to alter members’ status after a resolution for voluntarily liquidation has been passed thereby securing the interest of existing members during the liquidation period. 3
15. In the Act only an authorized insolvency practitioner is eligible for appointment as a liquidator. 16. The Attorney General can apply to court to liquidate a company on grounds of Public Interest. For example, where a company is suspected of Commission of Offences or where information has been obtained from Capital Markets Authority under the Capital Markets Act or by the Registrar of Companies on fraud or other offences or its directors are convicted of an offence involving fraudulent conduct. 17. The mandate of the Official Receiver has been expanded. The Act has placed upon the Official Receiver the duty to conduct investigations into the failure of the company and if need be the Official Receiver can apply to court to have any person examined in court. 18. Section 474 is new to our laws. It makes it possible for an unsecured creditor to share into the assets of a company under liquidation where there is a floating charge on the comp any’s property. This provision will place a holder of a floating charge in the same position as unsecured creditor in sharing the compa ny’s assets. 19. The Act gives power to the court to rescind contracts entered into by company in liquidation before the liquidation. Questionable contracts may be set aside therefore ensuring the financial viability of companies. 20. The Act gives power to the liquidator to transfer assets of the company to its employees provided the company’s liabilities have been fully satisfied. This power is however subject to authorization by a resolution of the company and /or the company’s articles provide for the exercis e of this power. 21. Section 487 exempts documents relating to a company in liquidation from stamp duty. 22. The Act introduces new offences during the liquidation period. Previously offences related to conduct by the directors of the company before liquidation. There is also an update to the number of the offences listed. 23. The Act makes it possible to liquidate unregistered companies. Provisions relating to registered companies will apply. 24. The act provides for alternatives to liquidations:- a. Company voluntary arrangement with the creditors; b. Administrations; 4
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