This week’s Random 10KM Jogging Thought: TEN REASONS WHY KENYA'S INSOLVENCY ACT REMAINS A TOTAL FAILURE

When the Kenya parliament enacted the Insolvency Act 10 years ago, the main aim was to preserve value for businesses and creditors, protect jobs and tax base. But 10 years in, their hopes remain elusive.

Reading Hansard, this is what they said when debating the Insolvency Act 2015:

·????? HON. KANGARA: “The Insolvency Practitioners sole mandate will be to see that companies that have gone under are up and running. Initially, liquidators would go to a company and pay themselves with the first money that they make. That will be a thing of the past...”

·????? HON. (Ms.) EMANIKOR: “It gives bankrupt persons a chance to seek ways of bailing themselves out and restoring their normal status.”

·????? HON. GUMBO: “We have a duty, as a country, not only to recognize but to protect those enterprises which have taken a lot of sweat and blood to build.”

·????? HON. MULU: “The Bill also provides for creditors meetings, which is very important. This is a meeting where creditors will come together and be given information about what is happening to the company and, at the same time, make a decision on how to take care of their interests, the interests of the shareholders and everybody else.”

·????? HON. NYIKAL: “The Bill.. provided for the protection of businesses that would otherwise collapse because they are having problems. It actually provided support for them.”

·????? HON. (Ms). NYAMUNGA: “In insolvencies, you need a lot of assurance that even after going through the process, after sorting out the creditors, the debtors/businesses will be allowed to continue with their business as usual.

HOWEVER, 10 years in, we don’t know of a single business that has come out of insolvency. As someone who has now been involved in turning around an insolvent real estate fund since Covid, for over 4 years now, I can speak based on deep experience about why the law does not work in Kenya.

1.???? RESPONSIBLE OFFICE HAS ABSOLUTELY NO INTEREST IN TURNAROUNDS: The office of the Official Receiver and most Insolvency Practitioners definitely have no interest in any turn around. They are clearly incentivized to raze down businesses. My suspicion is that they somehow derive immense value when businesses fail, hence they would rather see businesses fail than recover. That is how they have razed down Nakumatt, Uchumi, Tuskys, and many more.

2.???? NO EXPERIENCE IN TURNAROUNDS: The people in the Official Receiver’s office and most insolvency practitioners have zero experience in running, let alone turning around any business. Most of these practitioners are theoretical legal and accounting career professionals only focused on fees, not experienced business people.

3.???? NO PROCESS TO BECOME A PRACTITIONER: I was shocked when I spoke to an Insolvency Practitioner who told me that there is no process or exam that one can sit to become an insolvency practitioner. That it’s a one man show - you go sit in front of the Official Receiver, Mark Gakuru, and he asks you random questions and therefrom decides whether or not you will be practitioner. Our constitution no longer allows the certification to such a big role to be left to the whims of one individual. Practitioners are living in fear that if you do something that the Official Receiver does not like, he just pulls your license. On top of that, in the entire country, they have only approved about 20 people.

4.???? NO OVERSIGHT BY PARLIAMENT: Parliament has totally abdicated its oversight role. It put a great piece of legislation in place, the Insolvency Act, which has NEVER done what it was intended to. However, parliament has never sought to understand why the act is not delivering on its promise as businesses and creditors continue to suffer.

5.???? FIRE!: Insolvency is wrongly perceived in the country, not as a tool for business recovery and creditor protection, but as something that everyone needs to run away from. This perception makes a situation go from bad to worse.?

6.???? CULTURE OF PLUNDER: We have a culture of seeking to make the most amount of money, with as little effort as possible and within the shortest time possible. Once there is an insolvency issue, vultures surround the Official Receiver for what they can get on the cheap. I am involved in a litigation where a buyer has offered about 10% of the fair value!

7.???? LACK OF PUBLIC AWARENESS: The general public is not aware of insolvency and its role in society and there are no efforts being made to educate them. ?

8.???? SLOW JUDICIAL PROCESSES: Insolvency by its nature is an adversarial process, especially given the lack of public awareness, ergo a lot of issues end up in court. The slow processes in our judiciary make it difficult to resolve issues. There are cases such as Kenatco that are in year 25, Mumias year 10, etc. Perhaps we should consider a specialized Insolvency Court to move matters faster. ?

9.???? LACK OF PUBLIC OFFICE AND REGULATORY SUPPORT: Public officers and regulators amplify the confusion by not understanding nor educating the public on the important role of insolvency in our society. I was surprised when a regulator immediately issued a directive to change name to dissociate themselves with insolvency.?

10.? ADVERSARIAL RATHER THAN COLLABORATIVE PROBLEM SOLVING APPROACH: The insolvency process in Kenya is conducted as an adversarial legal process rather than a collaborative, mediated, problem solving approach. Lawyers tend to be the winners rather than the stakeholders, businesses and creditors.

Next week I shall propose solutions to these problems bedeviling our Insolvency Practice.