Abstract

In the year 2015, Kenya made great changes especially the legislation of insolvency in the country. The alterations that were made are purely based on consolidating relevant rules and regulations that concern the matters of individual and corporate insolvency in depth.
The insolvency legislation made two major changes i.e., procedure about individual and corporate bankruptcy as well as the facilitation procedure for winding up the corporation in order to protect and increase the benefits for individuals, creditors and companies.
Before “the enactment of the Insolvency Act, 2015”, the winding-up provisions for corporate bodies were contained in the Companies Act (Cap. 486) (now repealed by the Companies Act, 2015). In contrast to this, legislation as well as “the rules and regulations for individual level of insolvency” were contained in the Bankruptcy Act (Cap. 53) (now repealed by the Insolvency Act, 2015).  The Insolvency Act, 2015 consolidates both individual person and corporate insolvency into one piece of legislation.
The Insolvency Act should have been founded on the principle of preservation of the company, whose continuation is a means of recovery so as to keep the generation of wealth and jobs, which is essential to cope with the new economic realities. The change occurred recently in our country and requires changing the mind to adopt the new reality. The Insolvency Act governed by the principles of corporate commercial law, should make possible the recovery or rescue of companies with the participation of all creditors of the company in both the private and public sphere, which would be an improvement in terms of financing business activities in Kenya.

Introduction

In the year 2015 “Insolvency Act”, Kenya began the process of changing the country’s corporate insolvency and individual person bankruptcy laws through the enactment of the Insolvency Act, 2015 which relates to “natural persons and incorporated and unincorporated bodies”. Thus, the major aim of enacting the Insolvency Act is to ensure the resettlement of legal affairs in order to manage the beneficial points of creditors. Such laws, rules and regulations provide a platform to regulate liquidation or bankruptcy of the incorporated and un-incorporated organizations as well as any person who comes under this category. On 11th September 2015 Kenya formally enacted the Insolvency Act was acquiesced and the Act was implemented in the country when the relevant Cabinet of Secretary in this case the Attorney General officially notified in the Kenya Gazette (Hannigan, 2015). The Insolvency Act was launched in the country by publication in the Kenya Gazette because this is a constitutional requirement before any law may have an impact. After the process of passing of the bill by the relevant arm of Parliament, the law requires Presidential assent, thereafter publication and commencement in the case of the Insolvency Act was through a notice by the Attorney General in the Kenya Gazette.
It has also been witnessed that after the first launch of Insolvency Act Gazette it is necessary to bring into force legislative requirements that were not introduced at the publication i.e. those that require a specific commencement notice. This gave time lap of nine months to introduce a number of the legislative requirements, which are an important part of the Insolvency Act.
The date of the Presidential Assent for both of the two Acts namely The Companies Act, 2015 and The Insolvency Act, 2015 is 11th September 2015. The Government of Kenya gazette both pieces of legislation on 11th and 18th September, 2015 respectively.
Legal authorities of the Kenya modified various sections that exert positive and significant impact on various businesses. However, it is also noticed that the implementation of this law came through various stages, for example Government gazette section 1 of the Companies Act on 18th September, 2015.
The Insolvency Act, 2015 is Act No. 18 of 2015.  Government published it in the Kenya Gazette on 15th September, 2015.  The President assented to the Insolvency Act on 11th September, 2015. The commencement dates vary from section to section as is the Companies Act, 2015.  The general date of commencement for the Insolvency Act as published in the Kenya Gazette is 18th January, 2016.
However, the core objective of this essay is to critically analyse the impact of the Insolvency Act 2015 in the economy of Kenya and how the relatively new law, rules and regulations would significantly impact to ensure or protect the rights of creditors and financial business transactions.

Discussion and Analysis

In Kenya, various legal regulations have been launched exerting a positive and significant impact on different aspects of life. Among various legal provisions, the Companies Act assumes the most important for smoothening business regulation in the country. Such law has too much importance from a business point of view, and the primary purpose is to resolve various legal issues that increase the ratio of losses in the business. As already mentioned, the implementation of legal regulations for the growth of business in the country, the Companies Act is to justify those issues that arise in transactions of various businesses in the country (Muiruri, & Bosire, 2015). In the Companies Act of Kenya, it has been noticed that the winding up of the companies is covered in section 4. Prior to the enactment of the Insolvency Act, 2015, legal provisions for individual insolvency were contained in the Bankruptcy Act, No 32 of 1930 (now repealed).
Hence, it is also noticed that there is too much similarity among the laws of Kenya and the laws of United Kingdom. Thus, the basic reason to revamp the Companies Act and the launch of Insolvency Act 2015 is to follow the latest mode of information that should synchronize with the international laws. In Kenya, the older version of the Companies Act (Cap. 486) (now repealed) was in line with the rules and regulations of the UK Companies Act of 1948 that is presumed to be outdated. Kenya, therefore, saw an urgent need to revamp the corporate legal regulations of the country in order to remove discrepancies and to modernize its corporate law (Masoud, 2013). Following long and protracted reform efforts, in 2015 legal bodies greatly emphasized the importance of making modifications in the Kenya legal rules and regulations and this resulted in the launch of the latest Company and Insolvency Acts of Kenya of 2015. It is noticed that the “Kenya Companies Act 2015”, is clearly a complete replica of the UK Companies Act of 2006.    
Are the timeliness of payment failed execution and the Acts of bankruptcy itself adequate and sufficient to file for bankruptcy? And how about the situation of debtor who possesses sufficient assets to repay their debts? Is the mere presumption of insolvency of the obligor entrepreneur relevant or not for its bankruptcy to be decreed? Well, from the object of study will be presented some alternatives that have the debtor solvable to continue with the debtor’s commercial activity and not have their bankruptcy decreed, and thus, generating jobs, taxes, profits, etc.

Assumptions for Bankruptcy

The assumptions for bankruptcy are classified by the doctrine in three, namely, quality of debtor, legal insolvency and the sentence that decrees bankruptcy. The quality of debtor is of paramount importance in order for bankruptcy to be decreed. The Law on Bankruptcy and Recovery of Companies includes this quality so that the rules that are regulated by it apply (Mungai, 2015). In other words, the law affects the individual entrepreneur, the individual company with limited liability and the business corporation, including joint-stock companies, limited partnerships, limited companies, joint-stock companies and partnerships.
In this way, it is clear that the Insolvency Act, 2015 only applies to those registered in the register of companies for the relevant categories. Nevertheless, it should be noted that the law excludes certain economic activities, even if they are registered in the register, namely: public companies and joint stock companies, public or private financial institutions, credit cooperatives, consortia, pension plans, insurance companies, insurance companies, capitalization companies and other entities legally equivalent to these. With regard to legal insolvency, it can be justified in three situations: I – the debtor’s timeliness; II – by the failed execution; III – for Acts of bankruptcy. The sentence that decrees bankruptcy is that it ends the first phase of bankruptcy, thus declaring the bankruptcy of the debtor. The old bankruptcy law, provided for only two situations in which bankruptcy was allowed: claim based on net and certain title (section 1 of the repealed Bankruptcy Act); and request based on Acts of bankruptcy (section 2 of the the repealed Bankruptcy Act). With the new law, three situations were determined on which the decree of bankruptcy is based, namely: the debtor’s timeliness, the execution failed and the acts of bankruptcy (Langat, 2015).

Insolvency Act 2015

The year 2015 saw the commencment of great changes made especially in the legislation of insolvency in the country. Thus, the alterations that were made are purely based on consolidating the relevant laws, rules and regulations that concern matters of individual and corporate insolvency in depth (Mburu, 2015). The Insolvency Act, 2015 made two significant changes i.e., procedure about individual and corporate bankruptcy as well as the facilitation of the procedure for winding up the corporation in order to protect and increase the benefits of individuals, creditors and companies. Hence, a number of changes came into existence, and this incorporates the following terms and conditions especially in cases involving corporations. Hereby, major amendments relate to the induction of rights regarding bankruptcy and restructuring procedure of the top management and administration.

Insolvency Act, 2015 Transition

In Kenya, legal legislation bodies facilitated the enactment of both the Companies Act, 2015 and the Insolvency Act, 2015 and operationalized them at the same time in the year 2015. As mentioned above, it is noticed that after enactment it the relevant Cabinet Secretary (in this case the Attorney General) was given a duration of nine months to officially notify the changes in both Acts by publishing the required commencement notices in the Kenya Gazette (Nyaundi, 2015). Therefore, it is also observed that if the notification regarding modification of both Acts could not be completed on the given time then it would be necessary for Government to obtain an extension of the time provided from the National Assembly. The Insolvency Act, 2015, repealed the Bankruptcy Act and the relevant provisions of the Companies Act (Cap. 486).
In this Act number of sections and provisions has been repealed in order to make it modern and successful. In this regard, section 89 of the Law of Succession Act (Cap. 160) (the Succession Act)  is repealed (Kamau, 2015). However, a transitional section of the Insolvency Act illustrates that apart from the cancellation of Bankruptcy Act (Cap. 486) and and section 89 of the Succession Act; there is an existence of relevant provisions of the cancelled parts that is only applicable for any prior cases or events after the commencement of the Insolvency Act, 2015. The Cabinet Secretary has enough legislation power to revamp the law by promulgating such rules and regulations as are necessary to ensure that the implementation of the Act is smooth and successssful.
According to the Insolvency Act, 2015 it has been noticed that insolvency of the individual and that of the corporate body should be handled in light of the new Act (Ongore, 2011). Prior to this version organisation insolvency was mostly dealt under the “Winding-up provisions of the Companies Act (Cap. 486) (the Companies Act)”. In contrast to this individual level of insolvency mostly catered under the Bankruptcy Act (Cap. 53) (the Bankruptcy Act)”. However, the current version of the Insolvency Act advocates that there must be an option of redemption regarding company insolvency through proper techniques of administration under the light of the liquidation aspects. In this latest version of Kenya insolvency law mostly focusing on the assistance of individual and organisation insolvency where it has been analysed that the financial position of the entities should be redeemable and has some capacity to operate in an efficient manner in the future in order to satisfy the actual financial needs of the customer/creditor. Thus, it is also assumed that the lending parties would always be entitled to take a forefront position in the process of liquidation and bankruptcy (Kivuvo, & Olweny, 2014). In this regard, the basic purpose of this forefront process is to motivate the creditor and protect the interest of the creditor. In Insolvency Act, therefore, the major concern is to protect and respect the rights of the creditor who is secured.

Insolvency of Natural Persons

Creditors Application

According to the Insolvency Act section 15 (a) and section 17 the creditor has the right to file an application in the Court similarly to the process applicable under section 6 of the now repealed Bankruptcy Act. However, the application of the Insolvency Act should be extended to the unsecured creditors as it totally depended on adjudication of debtor bankruptcy, as it is essential to notice the actual factors and requirements of modification in the light of the Insolvency Act. In the previous insolvency law for individual persons, a petition of bankruptcy would only be acceptable when the debtor was resident in Kenya and carried out the business in Kenya (Koech, et al., 2016). Now this process has been changed according to section 15(3) because under that section the application can only be acceptable when the debtor is physically present at the time of application or carried out the business in a minimum time period of 3 years or was resident in the country on a temporary basis. However, these modifications have been widened under the scope of bankruptcy, and this allows the application of bankruptcy to protect the rights of a creditor or organisation in the light of new Insolvency Act.

Bankruptcy Trustee Power over Charges

According to the Insovency Act, 2015 under section 200 bankruptcy trustees have an authority to cancel any property charges but this is only in the case when the charges are created within a year or 2 years before the start of bankruptcy, and the party is unable to pay the dues. In addition, charges might not cancelled only in a secure mode of money in which the actual money has been paid in advance (Omasete, 2014). This mode of transaction ensures the security of the creditor over the real value of property transferred or sold, or there is any consideration of valuable goods just to secure the good faith of the creditor. Therefore, such transactions in which the lending institutions provide  money in advance in order to obtain protection from charges then bankruptcy trustees do not have rights to cancel the charges.

Option of Secured Creditor in Bankruptcy Event

According to the Insolvency Act, 2015 there are three options that actually protect the creditor only in the case of issuing the debt for own-selves. There is an explanation in depth to protect the creditor in the following sections of the Insolvency Act namely sections 226 and 228. According to these sections there are certain options for the creditor to get protected in bankruptcy; “realize the charge; surrender the charge to the bankruptcy trustee for the benefit of creditors; or have the property valued and prove for the balance due after deducting the amount of the valuation”. On another hand, according to the “Bankruptcy Act now repealed” no time frame is mentioned for appropriately ensuring that said options can be exercised to ensure the security of the creditor (Mboga, 2015). Moreover, the “Insolvency Act” gives a full right to the bankruptcy trustee to secure the creditor to hold the charge of any bankrupt property through the above-mentioned options within the limit of 30 days after the issue of the notice receipt by the trustee. The basic purpose of “the Insolvency Act” is, therefore, to protect the creditor and resolve the issue on time within the mentioned new legal framework of the country.
Herein, there is an option for the creditor to surrender the charge of bankrupt property to the trustee within the duration of 30 days. Another perspective that is noticed in this Act is that if the creditor does not take any of the above mentioned options then the bankruptcy trustee plays its role in order to protect the creditor for its general benefits. In the latest law on insolvency in Kenya, there are sound provisions for the creditor in order to protect them which was not the case of in the previous version (Ongore, 2011). But in the latest applicable insolvency law all the debt of a lending party should be secured only when the creditor will go for any of the said options within the time period of 30 days after the release of the notice from the bankruptcy trustee.  

Claim of Interest by the Creditor

According to Insolvency Act, 2015 there are several provisions in order to protect the creditor in which claim of interest is one of the best option. Creditors have a sound option for the claiming of interest on the lending amount but this choice is only valid from the date of the commencement of bankruptcy. In the case of individual insolvency the debtor has to pay the specific interest rate to the creditor according to the written contract between both parties (Mutuku, 2011). Moreover, the debtor has to respect the debt judgment and pay the interest on the specified agreed rate in accordance with the contract agreement. Under the Insolveny Act, 2015 the bankruptcy trustee allows the creditor to claim the interest rate only if the surplus assets would remain after the actual valuation of debt. 

Court Power Order for Charged Property Disposal

Under the provisions of the Insolvency Act, 2015 there are number of provisions that actually secures the interests of the creditor among several options “Disposal of Charged Property” is considered to be one of the best options. But this totally dependent upon the decision of the Court regarding the disposal of property charged. Under section 62, and section 227(1) and (2) are similar to the previous applicable law and the Court has the power to dispose of the charge over the property in light of these provisions (Iancu, 2012). Therefore, this rule is only valid when the Court is fully satisfied on the justification for the sale of property and release notification for the sale of the property. The Court has power to decide “when, where, how and by whom the property would be sold”.
In this option, the Insolvency Act, 2015 gives authority to the bankruptcy trustee to file an application in the Court for the sale of the bankrupt’s property on which the Court will decide whether it is necessary to sell the property or not. If the decision goes in the favour of the trustee, then the Court will make an order and give authority to the trustee to dispose the property when it is not subject of a security interest (Bernardo, 2012). But in this case satisfaction of the Court is an utmost feature that has to be met for the disposal of the charged property and this condition is for the better protecton of the interests of creditors in the case of bankruptcy.

Bankruptcy Automatic Discharge

According to the previous applicable laws, rules and regulations, there was no option for the automatic discharge of bankruptcy, in other words the old law (now repealed) did not provide any time period for the automatic discharge. The provisions for the automatic discharge or release of bankruptcy are now revamped in the Insolvency Act, 2015. Under section 254 of the “Insolvency Act 2015”, there is a valid option for instinctive discharge of the property within the time period of three years, but this is only expected in light of subsection 2 (Miguens, 2010). According to subsection 2  of section 254 the creditor objection means a lot, or any objection that comes from the bankruptcy trustee under section 256 of Insolvency Act. However, there is a statutory limitation of this option and it cannot be applicable in the case of “fraud or fraudulent breach of trust or amounts payable under the Matrimonial Causes Act or the Children Act”. In addition, the creditor expectation should be valid prior to the termination of regulated time period of 3 years. If early bankruptcy discharge has been notified then there is no point of this clause in the Act (Phelps, & Danning, 2010).

Corporation Insolvency

The Insolvency Act deals with the collective execution of an entrepreneur or commercial company in a state of insolvency. However, due attention is not given in the current legislation to the principle of preservation of the company. Since it deals more with the liquidation of the company’s assets than with its recovery and maintenance of jobs, with the consequent production of wealth for the country and distribution of income (Kim, 2012). In addition, the limitation of collective execution to bankruptcy only to commerce and some types of industry, leaves out of the benefits in this type of process the service sector, which could use the extinction of existing obligations before declaration of the breach and the possibility of rehabilitation in a shorter period of time than occurs in civil insolvency. Kenya updated its bankruptcy legislation in order to adapt this to the most advanced laws applicable in the Western nations in the field of insolvency law, taking into account the principles in force in this area, with the possibility of satisfying a greater number of creditors and involving them in the process of company recovery, as there is public interest in maintaining this productive system.

Treatment of Commercial Insolvency in Current Law

The bankruptcy law in force is based on the decree of bankruptcy in two types of systems, one of presumptions and another one of fact.  In the first hypothesis, the state of insolvency is presumed, both on the basis of legality. Already in the latter, there is a confession of commercial entrepreneur regarding insolvency. Moreover, the common requirement in situations related to the presumption of economic crisis is that the petitioner proves his status as a creditor, without any limitation as to the value of the credit (Raeschke-Kessler, 2016). In addition, the above-mentioned basis of presumption no longer fully meets the needs of the national business. Bankruptcy in the format in which it is currently structured serves only to proceed with the liquidation of the subsisting asset, without taking into account the recovery of the company or its social and economic importance for the community in which it is located. In addition, bankruptcy is a legal process that also does not solve the situation of companies in the country, since it is intended to solve the applicable particular financial crisis, that is, only considering short-term obligations with suppliers, when it is known that currently the main debts of the companies are related to tax, labour and bank credits with real guarantees, all of which are not subject to bankruptcy (Kawalsky, 2012).

Right of Business and New Law

Thus, the definition of a company is disposed with its integrating elements in section 966 of the Companies Act, that is to say, a person (physical or juridical) who carries out a professionally organized economic activity. This is intended for the production or circulation of goods or services for the market for the purposes of profit and subject to the risks of the particular business, a notion that goes beyond commercial capitalism and joins the industry (Waxman, 2014). The aforementioned structural change in the concept of what is a commercial activity requires a change in the bankruptcy law in order to adapt it to the new sectors of the economy that have joined the commercial activities obtaining in the country. For example, those belonging to the third sector, such as real estate.

Change of Focus with Recovery of Company

The recovery of companies is important to change the mentality of the law of bankruptcy, having as a fundamental scope the principle of preservation of a company and not only emphasisiiing on proceeding to the liquidation process. It is necessary to take into account the social and economic importance of the concept of corporate rescue for a certain region, including labour and technology (Ongore, 2011). Thus, the scope of the recovery is greater than that existing in the current system, since it takes into account not only the financial crisis but also the economic crisis, which occurs when equity is negative, that is, in the state of insolvency. In addition, that law should involve all creditors, from labour, through the treasury, to the unsecured, not only the latter, as in the legal moratorium, in order for the creditors to finance the maintenance of that business activity (Mutuku, 2011). Another positive factor is that the application for a cancellation can only be formulated from a certain amount, that is, between twenty (20) or forty (40) minimum salaries in force in the country, depending on the type and size of the company, and not on the basis of a negligible amount related to a particular credit, which provisions have been included in the new law.

Conclusion

The Insolvency Act, 2015 should have been founded on the principle of preservation of the company, whose continuation by means of recovery keeps the generation of wealth and jobs, which is essential to cope with the new economic reality we experience as is the case in international best practice. The rules and regulations should be constantly revamped in order to ensure that the embrace the spirit of the new law to enable the country adapt to changing systems to meet the ever demanding realities of the corporate world. The new legislation in question establishes a new treatment for the insolvency of companies governed by the rules of commercial law, and should make possible the their recovery or rescue possible with the participation of all creditors in both the private and public sphere, which would be an improvement in terms of financing of business activities in the country.

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