In Kenya, there’s been an ongoing debate among insolvency professionals on whether administrators can sell land under a fixed charge without following the detailed sale procedures set out in the Land Act of 2012. Secured lenders (like banks) looking to sell a borrower’s land must issue several notices before being entitled to proceed with the sale. These notices give the borrower time to repay the loan before the sale can go forward. The sale price is also restricted.
The debate has finally been resolved in the recent case of Pine Care Limited & 2 others v Rao & 2 others (Commercial Case E536 of 2023) [2024]. The court’s decision supports the view that we have long held: administrators are not required to issue the Land Act notices when selling land that is subject to a fixed charge. Instead, administrators operate under the ambit of the Insolvency Act, which empowers them to sell company assets (including those under a fixed charge) without adhering to the same requirements that bind secured lenders under the Land Act. The court’s ruling makes sense to us because the administrator acts as an agent of the company and not as an agent of a secured lender.
Administrators are however required to obtain a court order to enable them to sell fixed-charge assets as if they were unsecured. If the court order is granted, the sale proceeds are required to be paid to the secured lender to settle its outstanding debts. In practice, we would expect the secured lender and the administrator to be aligned on the sale of the charged land before it is sold.
The ruling could lead to a more flexible sale process, without administrators being bound by the price restrictions in the Land Act. However, administrators must still be prudent. Properties should not be sold at an undervalue. In Pine Care, the court clarified that while undervaluation claims won’t halt a sale, affected parties can seek damages, though they would rank as unsecured creditors.
Overall, this decision marks a positive development for insolvency professionals, providing a clearer, more efficient path for administrators managing property sales in an insolvency scenario.
