CM REGULATORY ALERT
Takeaway: Non-registration under section 974 of the Companies Act does not, without express statutory language or necessary implication, extinguish a foreign company’s legal personality or automatically deprive it of standing to institute proceedings in Kenya. Whether the company is “carrying on business in Kenya” remains a fact-sensitive inquiry.
Executive Summary
In Stichting Rabobank Foundation v AVA Chem Limited & Christopher Irungu Mwangi (Civil Appeal No. E090 of 2025) the Court of Appeal overturned a High Court decision that had struck out a foreign lender’s debt-recovery suit solely because it was not registered in Kenya under section 974 of the Companies Act, 2015.
The Court separated four concepts that are often conflated: juridical personality, capacity to sue, locus standi and statutory registration. It held that section 974 regulates the carrying on of business in Kenya, it does not itself declare an unregistered foreign company non-existent, invalidate every contract or debt or impose an automatic bar to suit.
Background
In 2022, Stichting Rabobank Foundation, an entity incorporated in Netherlands, found itself before the High Court in Nairobi, seeking to recover approximately USD 230,868 owed under a financial support agreement with Ava Chem Limited. The debt itself was not the issue. Ava Chem did not dispute that the money was owed. Instead, it challenged Rabobank’s right to bring the claim in Kenya. Its argument was straightforward: Rabobank was an unregistered foreign company and, as such, had no standing to sue before the Kenyan courts.
The High Court accepted that argument. It relied on section 974 of the Companies Act 2015, which requires foreign companies “carrying on business in Kenya” to register locally. Since Rabobank had not done so, the Court struck out the claim.
The decision had significant consequences. A foreign lender could have a valid and undisputed debt, yet still be shut out of the Kenyan courts simply because it had not completed a local registration process. What began as a straightforward debt recovery claim had therefore become a question of access to justice and the legal consequences of doing business in Kenya without registration.
The Court of Appeal’s Decision
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A foreign company does not lose its juridical existence merely because it has not registered under the Companies Act. Section 974 prohibits an unregistered foreign company from carrying on business in Kenya, but does not expressly bar it from instituting proceedings, recovering a debt or enforcing a contract.
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The mere fact that a foreign company transacts with a Kenyan person or entity does not, without more, establish that it is carrying on business in Kenya.
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A loan or financial support arrangement is not automatically a debenture. Its statutory character depends on the instrument’s legal attributes, context and evidence.
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Where “carrying on business” depends on disputed facts, the issue is ordinarily unsuitable for final determination through a preliminary objection.
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Any consequences of an established contravention must be derived from the Companies Act and applicable general law; they should not be assumed.
What Does “Carrying on Business in Kenya” Mean?
The Court rejected a single abstract formula of determining what “carrying on business in Kenya” means. To determine whether a company is carrying on business in Kenya one should look at what the parties actually did, rather than simply relying on the names or descriptions used by the parties. Relevant considerations include:
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Factor |
Questions for assessment |
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Nature and pattern |
The entity’s ordinary business, number and frequency of transactions, whether activity is isolated or systematic. |
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Territorial connection |
Where contracts are negotiated and concluded, place of performance, where funds or services originate. |
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Operational presence |
Any Kenyan office, branch, employees, agents, infrastructure or other continuing commercial presence. |
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Duration and continuity |
The period, recurrence and organisational character of the activity. |
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Instrument and purpose |
The legal attributes of the agreement or security and the specific statutory purpose for which the expression is interpreted. |
Important Limits of the Decision
The Court did not determine that Rabobank was, or was not, carrying on business in Kenya. Nor did it determine the merits of the debt claim, the pending application for judgment on admission, the enforceability of the financial support agreement, or any evidentiary question concerning Rabobank’s Kenyan activities. Those matters return to the High Court for determination.
The ruling therefore protects access to court; it does not excuse foreign companies from registration, tax, licensing, exchange-control, sector-specific or other compliance requirements.
Practical Implications for Businesses
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Stakeholder |
Key implication |
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Foreign companies and investors |
Access to Kenyan courts is not automatically lost through non-registration. However, transaction structuring and operational footprints should be reviewed early to determine whether registration is required. |
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Kenyan counterparties |
Non-registration alone is unlikely to dispose of a claim. Challenges should address the statutory text, the company’s actual activities and the legal consequences said to follow. |
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Lenders and funds |
Cross-border loans are not automatically debentures, but their terms, security package, marketing, place of execution and pattern of activity may affect regulatory characterisation. |
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Litigants and counsel |
A preliminary objection must rest on a pure point of law and undisputed facts. Evidence-dependent questions should be addressed through appropriate pleadings, discovery and trial. |
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Boards and compliance teams |
Legal personality, standing, registration, licensing, tax and contract enforceability should be analysed separately and documented. |
Recommended Action Points
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Map the foreign entity’s Kenyan activities, including transaction frequency, personnel, agents, premises, marketing, contracting, performance and payment flows.
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Assess registration obligations before commencing or expanding activity in Kenya, and separately review tax, licensing, beneficial ownership, employment, data protection and sector-specific requirements.
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Draft cross-border contracts to record the parties, place and mode of execution, governing law, dispute-resolution mechanism, performance obligations, payment route and security structure.
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Preserve evidence showing where negotiations, execution, funding, performance and decision-making occurred.
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When raising or resisting a preliminary objection, identify the precise legal proposition and test whether every fact necessary to apply it is truly admitted or undisputed.
How CM Advocates LLP Can Assist
At CM Advocates LLP, our Corporate & Commercial and Dispute Resolution teams work together to support foreign investors, lenders, multinational groups and Kenyan counterparties across the full life cycle of their transactions and operations.
Our Business Establishment & Compliance Advisory (BECA) Unit assists with market entry and ongoing compliance, including:
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Foreign company registration and market-entry structuring;
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Companies Act and beneficial ownership compliance;
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Tax and sector-specific regulatory compliance reviews; and
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Compliance remediation and board-level risk advisory.
For cross-border transactions and financing arrangements, our Corporate & Commercial practice advises on:
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Cross-border lending, security and investment documentation;
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Corporate structuring and transaction implementation; and
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Jurisdiction, governing law, arbitration and enforcement considerations.
Where a commercial relationship develops into a dispute, our Business Litigation Unit (BLU) and Dispute Resolution & Appellate Practice Group provide support on:
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Commercial litigation and debt recovery;
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Urgent interim relief;
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Jurisdictional and enforcement disputes; and
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Arbitration and appellate proceedings.
Together, these practice areas enable CM Advocates LLP to provide end-to-end legal support—from establishing a business and structuring transactions to managing compliance risks and, where necessary, protecting clients’ interests through dispute resolution.
Business Establishment & Compliance Advisory (BECA) Unit: beca@cmadvocates.com
Business Litigation Unit (BLU): businesslitigation@cmadvocates.com
Dispute Resolution & Appellate Practice Group: disputeresolution@cmadvocates.com
CM Advocates LLP – Contact Details
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Head Office – Nairobi
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Mombasa Office
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Disclaimer
This publication is provided for general informational purposes only and does not constitute legal, tax, regulatory or investment advice. It is not intended to be comprehensive and should not be relied upon as a substitute for advice based on the facts of a particular matter. Specific advice should be sought concerning foreign-company registration, market entry, cross-border transactions, financing arrangements, contractual enforceability, dispute strategy and related compliance obligations.
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