Amendments To The Insolvency Act No. 18 Of 2015

The Business Laws (amendment) Act, 2020 (“the Amendment Act”) was signed into law on 18th March, 2020. The Act amends sixteen (16) pieces of legislation to facilitate the ease of doing business in Kenya. This alert highlights amendments to the Insolvency Act, 2015. Section 560 of the Insolvency Act, 2015 creates a moratorium on legal processes while a company is under Administration. Hence, unless leave of Court is obtained, a creditor cannot undertake either of the legal processes provided below:

• Enforcement of security over the company’s property;
• Repossession of goods in the company’s possession under a credit purchase transaction;
• Exercise of right of forfeiture by peaceful re-entry in relation to premises let to the company under Administration by the landlord; or
• Commencement or continuance of legal proceedings (including execution and distress) against the company or the company’s property.

The above notwithstanding, Section 560A of the Insolvency Act, 2015 provided the considerations to be taken into account by the Court in deciding whether to lift a moratorium to include:

• The statutory purpose of Administration;
• The impact of the approval on the applicant particularly whether the applicant is likely to suffer significant loss;
• The legitimate interests of the applicant and the legitimate interest of the creditors of the company, giving the right of priority to the proprietary interest of the applicant; and
• The conduct of the parties.

Section 39 of the Amendment Act has deleted Section 560A of the Insolvency Act, 2015 and introduced new and/or additional grounds that the administrator and/or Court ought to consider in deciding whether to grant an approval sought under Section 560. The grounds include:

• The statutory purpose of the Administration
• The impact of the approval on the applicant particularly whether the applicant is likely to suffer significant loss;
• Whether the provision of protection may be feasible or overly burdensome to the estate;
• Whether the encumbered asset is not needed for the reorganization or the sale of the company as a going concern;
• Whether the secured creditor is not receiving protection for the diminution of the value of the encumbered asset;
• Whether relief is required to protect or preserve the value of assets such as perishable goods; and
• Whether in reorganization, a plan is not approved within six months.
• The legitimate interest of the applicant and the legitimate interest of the creditors of the company, giving the right of priority to the proprietary interest of the applicant;
• Whether the value of the secured creditor’s claim exceeds the value of the encumbered asset;

The Amendment Act also sets the limit for the approval to be granted for a period of not more than twenty-eight (28) days. It therefore follows that any person granted such approval shall be required to undertake the process for which the approval is sought within twenty-eight (28) days. Further, Section 40 of the Amendment Act has introduced a new Section 723A to the Insolvency Act, 2015. The new provision allows a creditor to request information from a relevant Insolvency Practitioner. The Insolvency Practitioner is required to provide information sought within five (5) business days after receiving the request. The provision further allows the Insolvency Practitioner to extend the period for providing the information where he considers that the nature of the request requires an extension of time. The Insolvency Practitioner has to provide a notice to the creditor that specifies the period within which the requested information is to be provided and the reasons for the extension of time. Overall the Amendment Act is geared at offering the administrator and/or Court further guidance when faced with a request or application to lift a moratorium. The Amendment is also aimed at safeguarding the rights of the secured creditors during the administration process while also ensuring that the objectives of Administration encompassed under section 522(1) of the Insolvency Act, 2015 are met. If you need further information on this or any other matter pertaining insolvency, recovery of debts, restructuring of loans or your business, please feel free to contact us through law@cmadvocates.com.