Administration

- First proces before a company goes under

Def Process Grounds - s 557 Effects of Administration - s 558

Placing company under distress to an
independent qualified expert (insolvency
practitioner) for the purposes of reviving
the company
Administration is to going concern for the
benefit of creditors and members - s 522 IA
Administration provides protection against
suit but does not suspend operations,
management and control.
It prevents the creditors from taking action
to enforce their claim against the company
during the administration process- s 522 IA
Who can apply?
Members and Contributories
Directors of the company
Creditors
Official receiver
Any supervisor appointed under a voluntary
agreement
Apply for Admin Order to the Court
The admin order is issued if the court is satisfied
that the company is or likely to be able to pay
debts and that the admin order is reasonably likely
to achieve the objective of administration. - s 531
When the company's net assets are more than
the liabilities including contingent/possible
liabilities.
If the company has long term high value assets.
When the company reason for failure is other
than financial reasons.
When there has been a fundamental shift in
business requiring someone with expertise to
restructure the company
A company with little history of financial default.
NET LoFEH
All proceedings against the company for recovery of any debt or decree is
stayed.
No suit can be instituted against the company without the leave of the court
and approval of the administrator.
The company continues to operate and said that the directors may not exercise
certain powers as provided in the regulations without the approval of the
administrator.
Every company must have in their documents and correspondences “UNDER
ADMINISTRATION”.
Unlike liquidation, the company may not enter into contract beyond a certain
threshold without the approval of the administrator.
The administrator must be notified every time members hold a general
meeting and he is entitled to attend and make representations.

Appointing Admin Duties of Administrators

An administrator is appointed by way of an admin order and considered an officer of the court - s 1. Duty to convene a creditors meeting within 70 days from appointment .
523 2. Duty to prepare a proposal and send it to the creditors within 60 days from appointment.
3. Duty to appear before the creditors committee on request subject to a 7 days notice.
Appointment of an administrator by debenture holders 4. Duty to control the companies assets
5. Duty to take control of the affairs of the company
● A court can issue an admin order on application by the debenture holder. 6. Duty to publish notice of appointment within 7 days from appointment.
7. Duty to distribute the property to creditors by law
Appointment of an administrator by a company or its directors

● Notice of intention to appoint an administrator must be given within 7 days to

shareholders. They must identify an administrator with his consent. It is lodged in
Court together with a statutory declaration that the company is unable to pay its
debts.
● Once prepared the notice is lodged in court within 14 days, this notice is the
application of an appointment of administrator.
 Liquidation
Def
Liquidation is collection of assets belonging to a debtor to be applied to be discharged as outstanding debts.
Liquidation is the orderly realisation of a company's assets so as to pay its debts.
Members Voluntary Liquidation - Grounds s 393-394
1. Close because purpose is fulfilled or duration has ended.
2. Members/Creditors pass special majority - 75% of the members -
for MVL.
3. Notice of Resolution published within 14 days after the passing of
the resolution in the Gazette, two dailies and their website.
4. Lodge with the Companies Registrar after 5 weeks from notice of
resolution being passed the following:
a. a statutory declaration in Form 32B - solvency statement made
by directors
b. a statement of financial position in Form 32
c. audited accounts from an auditor approved by the Official
Receiver; and
d. proof of payment of the requisite fee for voluntary liquidation
5. Members appoint IP liquidator- powers of the directors cease.
Liquidator realises assets and distributes.
6. Within thirty days of appointment as a liquidator, he publishes a
notice of intention to liquidate in two dailies and the Gazette
7. Liquidator holds the first meeting of creditors within thirty days of
the notice of intention to liquidate and begins to liquidate the
company.
8. Liquidator then informs the registrar of the final meeting and
submits a copy of his report.
9. Registar registers the report and the company is dissolved in 3
months.
NB Members cannot voluntarily liquidate a company if it is unable to
pay its debts; instead they are to inform the creditors who must then
agree to commence a voluntary creditors liquidation.
Creditors Voluntary Liquidation - Grounds s 403 Liquidation by the Court - s 423-4
1. The debt for a registered company should be 75,000 ksh- unable to pay Grounds:
within 21 days. The company is deemed unable to pay its debts 1. If the company has not commenced operation in a period of 12 months of
2. The creditors can look at the solvency statement and if able to satisfy incorporation.
the courts that the company is unable to pay its debts. 2. Where the company has suspended operation for a period of 12 months.
3. Creditors commence by issuing a notice of CVL upon the company 3. For a public company where the members fall before statutory moratorium
4. NB no statutory solvency statement needed. - 7 members
5. Members pass special majority - 75% of the members - for CVL. 4. When the company fails to comply with the provisions of the Act
6. The directors are then under obligation to appoint an insolvency
practitioner as an interim liquidator of the company. Process:
7. The role of interim liquidator is to convene the first meeting of 5. The AG may apply for liquidation to the High Court
creditors within 14 days of the notice of voluntary creditors 6. Court makes liquidation order and appoint OR.
liquidation.
a. The first creditors meeting is made to confirm the interim
liquidator or appoint another and it is also meant to convene
the liquidation committee.
8. The directors must also publish in a widely circulating newspaper /law
gazette the notice of voluntary liquidation as proposed by the
creditors.
9. Liquidator then informs the registrar of the final meeting and submits
a copy of his report.
10. Registar registers the report and the company is dissolved in 3
months.
 Effect of Liquidation Order

● The official receiver must notify the registrar - company can only trade on including the name “UNDER LIQUIDATION” . Stay of all proceedings against/or by the company unless with the leave court
● Management and control passess to the liquidator. Directors no longer in control
● No transfer or dealing in the property of the company is valid except with approval/consent of the liquidator.
● A company under liquidation does not hold general meetings unless convened by the liquidator.
● No orders for attachment or recovery of debt can be made against the company unless with the approval of court.
● Liquidation does not terminate employment contracts or any other contracts for that matter. Suppliers can still bring valid claims for unpaid goods to the liquidator. Parties will be bound unless the liquidator expressly waives the right or varies the contract
terms.
○ An unpaid seller of goods even though the property has passed to the buyer has three rights;-
■ A lien on the goods in his possession
■ Right to stopping the goods in transit
■ A limited right of resale

Players in Insolvency

Members - Directors AG
1. have to vote 1. To prepare a statement of affairs of the company 1. He can move the court to make liquidation order
2. initiate MVL 2. To ensure the company cooperates fully with the liquidator in the liquidation 2. The AG can also move after ordering an investigation into the membership or
3. Intiitate CVL when insolvent process. business of the company who maybe running illegally
3. They must provide records and documents and any other materials on activities
of the company on demand as requested by the liquidator.
4. He is not to enter any contract or obligation on behalf of the company once the
liquidation order is made.

Liquidators Official receiver

1. Act as a liquidator for the company where no liquidator has been appointed or
Duties where a vacancy arises due to resignation or death or incapacity of the appointed
1. To trace and secure the companies assets by obtaining the statement of affairs. liquidator.
2. To convene the first meeting of creditors 2. To convene the first meeting of creditors where the court orders or where there is
3. To take over control and management of the company no liquidator.
4. To prepare regular updates on the conduct of his liquidation to the official receiver and courts 3. To propose the appointment of a liquidator when the members cannot agree.
5. To realise the assets of the company 4. To file court upon investigation his report on what he considers to be the cause of
6. To make a distribution of realized assets to the creditors in a manner prescribed by Act and the regulations. failure
7. To file a final report 5. To receive regular updates of liquidation from the company liquidator

Powers - 3rd Schedule IA Court Powers

1. To convene a meeting of creditors or members where necessary. 1. Making a liquidation order
2. He can transfer a assign sale, alienate or otherwise deal in the assets 2. Appointment of a liquidator on recommendation of the OR where creditors
3. Direct any director to exercise any powers as he determines on the company are unable to agree
4. Enter into compromise or agreement with any creditor for the purposes of discharging any debts 3. Make any orders on application for liquidator
5. Institute or defend suits on behalf of the company 4. Impose sanctions for offences related to liquidation.

NB - Qualifications of IP - holds a degree, 5 years of practice, at least 2 years in insolvency, worked with IP practitioner for 4 years
 Bankruptcy

Debtor Application - s 32 -35 Creditors Application - s 17-31 Discharge s 254

1. Debtors petition and shall be in Form 10 set out in the First Schedule. 1. Creditor's application for bankruptcy order shall be in form of a petition in Form 3 1. A bankrupt is automatically discharged from bankruptcy three years after the
2. The petition shall be accompanied by the following docs - set out in the First Schedule and shall be accompanied by the following bankrupt lodged a statement of the bankrupt's financial position in
documents— accordance
a. an affidavit to the petition which shall be in Form 8 set out in the First 2. Creditor can apply to court to cancel the discharge
Schedule; a. verifying affidavit which shall be in Form 4 set out in the First Schedule; 3. If there is any alternative to bankruptcy in place.
b. statement of debtors financial position, which shall be called a "statement of b. proof of the debt which shall be in Form 5 set out in the First Schedule; and
affairs", and shall be in Form 11 set out in the First Schedule; and c. the application for appointment of trustee which shall be Form 9 of the First
c. application for appointment of trustee which shall be in Form 9 of the First schedule.
Schedule d. The petition shall be preceded by a statutory demand and shall be in Form 6 set
out in the First Schedule.

Process

● Once an application for bankruptcy is made then an interim trustee is appointed to take over the matters of the debtor
● The Bankrupt is then to lodge a statement of his financial position with bankruptcy trustee(Sec 50) = if anything hidden = offence
● After the public examination a meeting can be convened by the official receiver/trustee or the creditors for way forward to pay creditors according to priority:
○ First Priority - section 247 of the Act (for bankrupts), section 473 (for companies in liquidation)
■ Trustee remuneration
■ Costs for court proceedings
■ Costs incurred by creditor
○ Second Priority
■ Wages of Employees
○ Third Priority
■ Taxes

Alternatives to Bankruptcy

Voluntary Arrangement Summary Instalment Order Non asset procedure - s 343

1. Debtor makes a proposal to creditors A summary instalment order (Sec 323) is an order made by the Official Receiver MAde o the Business Reg service and it usually lasts 12 months instead of the
2. The proposal has to identify a IP practitioner to supervise directing the debtor to pay the debtor's debts- normal three year period for bankruptcy.
3. Consent then given my IP Practitioner (a) in instalments or in some other way; and REquirements:
4. Debtors make an app to Court to give him temporary protection. (b) in full or to the extent that the Official Receiver considers practicable in the - Debt up to $47,000
5. Court then directs IP ractioner to convene first meeting to consider particular circumstances of the case (a) the debtor has no realizable assets;
proposal (b) the debtor has not previously been admitted to the no-asset procedure;
6. Creditors then approve proposal and enter VA. A supervisor is also detailed in the summary installment order. (c) the debtor has not previously been adjudged
NB - can be only paid over 3 years (d) the debtor has total debts that are not less than one hundred thousand shillings
and not more than four million shillings; and
(e) the debtor does not have the means to repay any amount towards those debts.