Unlocking Kenya’s Bankruptcy Laws To Navigate Financial Crises
In 2020, the owners of Jajo Enterprises declared bankruptcy after a series of unfortunate events in their businesses and Justice Majanja declared them unable to pay off their debts of about Kes 9.7million. They were declared bankrupt and the couple’s property was taken over by a receiver (Full story highlighted in Daily Nation:
https://www.businessdailyafrica.com/bd/data-hub/how-and-when-a-person-can-be-declared-bankrupt 2287408).
Financial crises can strike unexpectedly, pushing businesses to the brink of insolvency. When faced with overwhelming debt and financial hardship, understanding the bankruptcy laws in Kenya becomes crucial for businesses seeking a way out. In this article, we = delve into a broad overview of Kenya’s bankruptcy laws, shedding light on the options available to distressed businesses and individuals to regain control of their financial future.
In 2015, the Kenyan Parliament passed a new bankruptcy law with the aim of modernizing the country’s financial insolvency regime. The law was a response to the challenges posed by the global financial crisis of 2008 and the need to facilitate Kenya’s re-engagement with the global economy. The new law has been lauded by the World Bank and IMF as a key step in improving the country’s business environment. However, the implementation of the new law has been slow, and there are concerns that it may not be able to effectively deal with the challenges posed by the country’s current economic crisis. This is due in part to the lack of a clear and coordinated framework for the implementation of the law. But there is hope.
An Introduction to Bankruptcy Laws in Kenya
Bankruptcy laws in Kenya offer a legal framework that allows debtors, whether individuals or businesses, to seek relief from their debts by filing for bankruptcy. The primary goal of these laws is to provide a fresh start to financially struggling entities and individuals, ensuring fair treatment of creditors while offering a chance for rehabilitation and recovery. According to the Business Registration Service (https://brs.go.ke/bankruptcy/) when an entity is declared bankrupt, often a Trustee will be appointed to manage its properties/affairs and a maximum period of three years is given to help the entity recover. There are two main types of bankruptcy: –
- a) Personal Bankruptcy: Personal bankruptcy is designed for individuals facing insurmountable debts. By filing for personal bankruptcy, individuals can halt creditor actions and work towards a structured debt repayment plan, either through a court approved agreement or by selling off non-exempt assets.
- b) Corporate Bankruptcy: Corporate bankruptcy applies to businesses facing financial distress. This process involves either liquidation, where the company’s assets are sold to pay off debts, or reorganization, where the business undergoes restructuring to continue its operations while repaying creditors over time.
The Bankruptcy Petition Process
To initiate the bankruptcy process, the debtor must file a bankruptcy petition with the Kenyan court. This petition should provide comprehensive details of the debtor’s financial situation, including assets, liabilities, income, and expenses. Once the court receives the petition, an automatic stay is imposed, preventing creditors from taking further collection actions against the debtor. This is sometimes the breathing space that such debtors need to be able to navigate the impending payments.
The Role of Insolvency Practitioners
In bankruptcy cases, insolvency practitioners play a crucial role. These professionals, appointed by the court, act as trustees, administrators, or liquidators, depending on the type of bankruptcy. Their responsibilities include safeguarding the debtor’s assets, distributing proceeds to creditors, and overseeing the implementation of a repayment plan.
The Rehabilitation Process: A Second Chance for Businesses
For businesses facing financial troubles, the rehabilitation process offers a lifeline. Under corporate bankruptcy, a rehabilitation plan can be proposed to restructure the company’s operations, debts, and management. If approved by the court and creditors, this plan allows the business to continue operating while repaying debts under more manageable terms.
The Discharge of Debts: A Fresh Start
For individuals seeking relief from personal bankruptcy, a discharge of debts is a crucial goal. Upon successful completion of the repayment plan, the court may grant a discharge, releasing the debtor from the obligation to repay certain debts. This provides individuals with a fresh start, allowing them to rebuild their financial lives.
Navigating financial crises can be a daunting task for individuals and businesses alike. However, understanding Kenya’s bankruptcy laws can be the key to regaining control and finding a way forward. Whether seeking relief from overwhelming personal debts or giving a struggling business a chance at rehabilitation, bankruptcy laws offer a path to financial recovery. It is essential to approach bankruptcy with the guidance of legal professionals and insolvency practitioners to ensure a smooth and successful resolution. By unlocking the potential of Kenya’s bankruptcy laws, individuals and businesses can embark on a journey towards a brighter and more stable financial future in the digital age.
If you have any questions, reach us via email (law@ammlaw.co.ke) and we will be sure to assist you navigate your way around commercial and business transactions
Article by Elizabeth Museo, Admin & Communication at AMMLAW