CROSS-BORDER INSOLVENCY UNDER INSOLVENCY ACT, 2015

The bankruptcy of multinational companies usually triggers diverse and uncoordinated legal proceedings in various countries connected to the affairs of that company. This lack of coordination imposes substantial costs on both the bankruptcy process and itself (for instance, by multiplying administrative expenses) and on international commerce generally (by preventing lenders from predicting accurately the consequences of debtor insolvency).[1] This is magnified the unresolved multi-jurisdictional cross-border conflicts that ensue between jurisdictions which produce adverse consequences worldwide because of significant and complex legal issues.

In 2015, Kenya adopted legislation based on the UNCITRAL Model Law on Cross-Border Insolvency.[2] The said law provides for the enforcement of the provisions of the UNCITRAL Model Law in Kenya[3] with certain modifications in its application.[4]

The provisions on cross-border insolvency are to apply if:-[5]

  1. ‘assistance is sought in Kenya by a foreign court or a foreign representative in connection with a foreign proceeding;
  2. assistance is sought in a foreign State in connection with a proceeding under the Insolvency Act and any other written law relating to insolvency in Kenya;
  3. a foreign proceeding and a proceeding under the Insolvency Act and any other written law relating to Insolvency in Kenya in respect of the same debtor are taking place concurrently; or
  4. creditors or other interested persons in a foreign State have an interest in requesting the commencement of, or participation in, a proceeding under the Insolvency Act or any other written law relating to insolvency in Kenya.’

Where there is a Treaty or other form of agreement which Kenya is a party to with one or more States, it would take precedence over the provisions of the cross-border insolvency in the Act.[6] The High Court has jurisdiction in regards the issue of recognition of foreign judgments and cooperation with foreign courts.[7] Also under the provisions, insolvency administrators are given authorization to act on behalf of a Kenyan insolvency proceeding, in a foreign State as permitted by the law of the said State.[8]

Foreign representatives have direct access to the Court to make an application under the Fifth Schedule of the Insolvency Act. In such a situation, the jurisdiction of the court on them shall however be limited to the application that they have made.[9] Foreign representatives also have a right to commence a proceeding under the Insolvency Act as long as the conditions for commencing such a proceeding are met.[10] They can also participate in a proceeding regarding a debtor under the Insolvency Act or any other written law relating to insolvency in Kenya if they are recognized by a court of a foreign proceeding.[11]

Foreign creditors have the same rights as local creditors when it comes to commencement and participation in a proceeding under the Insolvency Act and any other written law on insolvency.[12] Ranking of claims is however not affected by this. There is no direct recognition of foreign proceeding in which the foreign representatives are appointed. The foreign representative has to make an application to the High Court for recognition of such a proceeding, and the same may be admitted or rejected.[13]

The High Court has powers to grant provisional reliefs from the time of lodgement of such an application till its determination if it deems fit.[14] It can also grant reliefs on recognition of a foreign proceeding, main or not, for purposes of protecting the assets of the debtor or interests of the creditors.[15]

Recognition of a foreign main proceeding stays commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations, or liabilities; and execution against the debtor’s assets. It also suspends the right to transfer, encumber or otherwise dispose of any assets of the debtor.[16] The Fifth Schedule also calls for cooperation and direct communication between the High Court and the foreign courts or foreign representatives.[17] The Insolvency Act allows for existence of concurrent proceedings in Kenya, after recognition of a foreign proceeding, but only to the extent of debtor’s assets in Kenya, and to the extent necessary to implement cooperation and coordination to other assets of the debtor that should be administered in that proceeding under the Kenyan law.[18]

* LL.B (Hons) (Moi University), PGD (KSL), LL.M (University of Nairobi),Advocate of the High Court of Kenya.

[1] Jay Lawrence Westbrook (1991), Theory and Pragmatism in Global Insolvencies: Choice of Law and Choice of Forum, 65 AM. BANKR. L. J. 457, 460-61.

[2] Insolvency Act, No. 18 of 2015 Laws of Kenya

[3] Ibid, Section 720

[4] Ibid, Fifth Schedule

[5] Supra note 146, Fifth Schedule, Section 3

[6] Ibid, Section 5

[7] Ibid, Section 6

[8] Ibid, Section 7

[9] Ibid, Section 11,12

[10] Ibid, Section 13

[11] Ibid, Section 14

[12] Ibid, Section 15

[13] Ibid, Section 17

[14] Ibid, Section 21

[15] Ibid, Section 23

[16] Ibid, Section 22

[17] Ibid, Section 27

[18] Ibid, Section 30

BP2O3126
SAMORA MARSHEL
Associate, Advocate of the High Court of Kenya

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