Like a Phoenix from the Ashes of Insolvency: An Appraisal of the Rescue Culture of the Kenyan Insolvency Act of 2015

Before the commencement of the Insolvency Act of 2015, the statutory provisions regulating insolvency law in Kenya were found in the Companies Act, Cap 486 of the Laws of Kenya and the Bankruptcy Act, Cap 53 of the Laws of Kenya. The pertinent provisions of the former outlined the procedure to be followed in the event of corporate insolvency while the latter detailed the course of action to be followed in the event of personal insolvency, or bankruptcy as it is more commonly known. Despite the dissimilarities in the two regimes of insolvency law there was one crucial similarity between them, that is, neither the Bankruptcy Act nor the Companies Act espoused a rescue culture. An individual found to have committed “an act of bankruptcy” would be declared bankrupt by a court of competent jurisdiction and a corporate body would in most cases be wound up. It is for this reason that the insolvency laws in Kenya were for a long time referred to as the “Kiss of Death” Laws. This reality was articulated in Jambo Biscuits v. Barclays Bank (2002) where Justice Ringera stated, “I think it is notorious facts of which judicial notice may be taken that receiverships in this country have tended to give the kiss of death to many a business.” The Kenyan Insolvency Act of 2015 is closely modelled upon the UK Insolvency Act of 1986. This latter Act epitomizes the rescue culture. As elaborated upon by Lord Browne-Wilkinson the rescue culture seeks to preserve viable businesses and is fundamental to much of the Insolvency Act of 1986. This Act was the governmental response to the report and recommendations of a multi-disciplinary committee tasked with reviewing insolvency law and practice in the United Kingdom in the late 1970s. The Cork Committee laid the foundations for the so called rescue culture and argued that a good, modern system of insolvency law should provide a means for preserving viable commercial enterprises capable of making a useful contribution to the economic life of the country: “We believe that a concern for the livelihood and well-being of those
dependent upon an enterprise which may well be the lifeblood of a whole town or even a region is a legitimate factor to which a modern law of insolvency must have regard. The chain reaction consequences upon any given failure can potentially be so disastrous to creditors, employees and
the community that it must not be overlooked.” Rescue procedures are thus major interventions necessary to avert the eventual failure of a company. Central to the notion of rescue is, accordingly, the idea that drastic remedial action should be taken at a time of corporate crisis. This remedial
action should take place ex ante as opposed to attempting to deal with the backlash that follows total corporate failure ex post facto. The term rescue culture has primarily been used in the context of corporate insolvency, but the present research will attempt to extend its use to personal insolvency specifically arguing that the various alternatives to bankruptcy do have the effect of rescuing an insolvent individual from otherwise imminent bankruptcy which has grim ramifications for persons adjudged bankrupt. This research will be divided into three subsequent parts. Part I will endeavor to summarize the roots of the current insolvency regime in Kenya, as well as examine the meaning of rescue culture together with its importance in any well-functioning insolvency regime. Part II will analyze the aspects of the Insolvency Act, 2015 that espouse a rescue culture for insolvent natural persons. Part III will analyze the rescue options for corporate bodies whose financial position is redeemable. The paper will end with a brief conclusion.