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Resolving Insolvency in

Kenya

Below is a description of the time, cost and outcome of the most common insolvency proceeding in each economy under the case study assumptions, as well as the strengths and weaknesses in existing insolvency regulations in four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation.

This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 190 economies. The most recent round of data collection was completed in June 2016.

Compare Kenya to 189 other economies.

  • Indicator Explanation Answer
    Recovery rate (cents on the dollar) 28.4
    Proceeding After Mirage's default on payment, as the debenture holder, BizBank would initiate receivership by filing an application requiring the High Court of Kenya to verify an identified receiver pursuant to Part VII Receivers and Managers of the Companies Act. Mirage or other unsecured creditors may appeal against the appointment before the Court, and according to Section 223 of the Companies Act, the Court can stay or restrain proceedings accordingly based on relevant parties' application, then the receivership proceeding can be converted into liquidation. However, the conversion is unlikely to happen for Mirage's case as BizBank holds 74% of the total outstanding debt and it's likely that the Court would approve its receivership request. receivership
    Outcome The hotel will continue operating as a going concern after the BizBank appointed receiver sell it as a going concern to a third party. going concern
    Time (in years) The receivership will approximately take 4.5 years until BizBank is repaid some or all of the money owed to it upon the completion of the proceeding. The delay is largely due to the inefficiency of court and difficulty to organize hearings. It takes about 2 years until the final judgment is made to approve BizBank's receivership appointment. This takes consideration of all possible delaying tactics adopted by Mirage or other unsecured creditors who are likely to defense BizBank's application and stop the receivership proceeding. Then it would take additional 2.5 years to find a potential buyer of the company, sell it as a going concern and receive the sale proceeds. 4.5
    Cost (% of estate) The costs associated with the case would amount to approximately 22% of the value of the debtor's estate. Cost incurred during the entire insolvency process mainly include court or government agency fees (1.4%), attorney fees (up to 10%), receiver fees (up to 10%), and fees of accountants, assessors, inspectors and other professionals (2%), other costs (2%). 22.0
    Answer Score
    Strength of insolvency framework index (0-16) 9.0
    Commencement of proceedings index (0-3) 3.0
    What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for both liquidation and reorganization 1.0
    Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (a) Yes, a creditor may file for both liquidation and reorganization 1.0
    What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (c) Both (a) and (b) options are available, but only one of them needs to be complied with 1.0
    Management of debtor's assets index (0-6) 3.0
    Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the debtor? No 0.0
    Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0
    Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0
    Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0
    Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of insolvency proceedings? No 0.0
    Does the insolvency framework assign priority to post-commencement credit? (c) No priority is assigned to post-commencement creditors 0.0
    Reorganization proceedings index (0-3) 2.0
    Which creditors vote on the proposed reorganization plan? (b) Only creditors whose rights are affected by the proposed plan 1.0
    Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation? Yes 1.0
    Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in the same class treated equally? No 0.0
    Creditor participation index (0-4) 1.0
    Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency representative? Yes 1.0
    Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0
    Does the insolvency framework provide that a creditor has the right to request information from the insolvency representative? No 0.0
    Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting creditors' claims? No 0.0