KENYA: HIGH COURT CLARIFIES THE LEGAL POSITION ON FOREIGN INSOLVENCY PROCEEDINGS IN KENYA
In a series of rulings, the Kenyan High Court has determined the nature of recognition of foreign insolvency proceedings in Kenya and held that foreign liquidators may practice in Kenya upon recognition.
The First Ruling
The first ruling related to an application dated 12 July 2021 by the Applicant, the liquidator of Zarara Oil and Gas Company Limited, an insolvent Mauritius company (the “Company”), in which he requested the High Court of Kenya to recognise the decree by the Supreme Court of Mauritius by which he was appointed liquidator of the Company. The Applicant argued that the Company had existing assets, recurring liabilities, and expenses in Kenya that he needed to take charge of as liquidator, failing which the Company and its creditors would suffer detriment.
The Court delivered its ruling on 3 November 2021 (the “First Ruling”) by which it stated that for a court to recognise foreign insolvency proceedings, it needed to be satisfied that there was proof of appointment of the Applicant as a foreign representative and proof of the existence of the foreign insolvency proceedings.
The Court recognised the foreign insolvency proceedings and found that the Applicant was qualified to bring the application and that he had met the requirements of the Insolvency Act on cross-border insolvency. The High Court, however, issued a caveat in the recognition order that no assets belonging to the Company would be allowed to leave or be transferred out of Kenya by the Applicant without leave of court.
The Second Ruling
In a subsequent application, the Applicant sought an order from the High Court to allow him to appoint a Kenyan insolvency practitioner as liquidator of the Company in respect of its assets in Kenya. The principal argument advanced by the Applicant was that only an authorised insolvency practitioner has the authority to act as a liquidator of a company in Kenya under the Insolvency Act. Therefore, the Applicant did not have the powers of a liquidator in Kenya. For this reason, the Applicant stated that he needed a local insolvency practitioner to assist in the Kenyan – related aspects of the liquidation.
The Court delivered its ruling on 24 October 2022 (the “Second Ruling”), in which it held that the Companies Act was only procedural and administrative in relation to matters relating to insolvency. The Court determined that the Insolvency Act is a complete code governing local and cross-border insolvency matters. The Court further highlighted that its role under the Fifth Schedule of the Insolvency Act (which provided for Cross Border Insolvency) was intended to assist the Applicant as a foreign representative to execute his obligations and was complimentary to the jurisdiction of the Supreme Court of Mauritius.
The High Court noted that a foreign liquidator may still entrust the distribution of all or part of the debtor company’s assets in Kenya to a person designated by the court, provided the court is satisfied that such designation is in the interest of and for the protection of creditors in Kenya. In exercising its discretion to appoint a local liquidator, the Court requires an elaboration of the assets to be entrusted to the Kenyan liquidator and the costs of the liquidator to determine whether such an appointment would be in the interest of the creditors.
Implication and conclusion
The rulings affirm that as soon as the Kenyan Courts recognise foreign liquidation proceedings, a foreign liquidator/insolvency practitioner has powers similar to those of a liquidator appointed under the Insolvency Act. No need to appoint a locally qualified insolvency practitioner as a company's liquidator that is the subject of foreign liquidation proceedings. This would call for an amendment of the Insolvency Act, which provides that only an insolvency practitioner authorised by the Official Receiver can act in that capacity and that any unauthorised person who purports to act as such commits an offence.