Insolvency Act, enacted a decade ago to safeguard businesses, has failed to witness a single business revival or the return of any funds to creditors by the Official Receiver according to statistics.
So I decided to go back and try to understand what the Members of Parliament had in mind when legislating the Insolvency Act, 2015. According to my findings, the Parliament never imagined it would be the sword for killing businesses that it has become today. Here are a few reviews that I gathered from various MPs
“If this Bill is passed, it is going to repeal the Bankruptcy Act Cap. 53, which has been trying to deal with matters relating to insolvency and yet, really not dealing with them. It has been a source of many problems and many cries in this country”, former Taita Taveta MP Naomi Shaban said.
“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. I want to believe that the passage of the Companies Bill, the Insolvency Bill and the Companies and Insolvency Bill legislation is a good step in the right direction; it will give the latitude that Kenyans need to own enterprises. The wealth of country should as much as possible be in the hands of the people of Kenya. As we do that, we cannot at the same time be seen to be taking actions that are reversing the processes that we intend to protect. It is contradictory and unacceptable,” former Rarieda MP Nicholas Gumbo said.
“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 and the professionals will be paid a percentage based on what they have done,” former Makadara MP Benson Kangara said.
“It gives bankrupt persons a chance to seek ways of bailing themselves out and restoring their normal status,” former Turkana MP Emanikor Joyce said.
“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,” former Kitui Central MP Mulu Makali said.
“The Bill we discussed a few days ago provided for the protection of businesses that would otherwise collapse because they are having problems. It actually provided support for them. We know that creditors suffer when businesses fail but the Insolvency Bill provides for their protection,”Seme constituency MP James Nyikal said.
“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. So, the practitioners will take care of the debtors and this will give a lot of credibility to anybody else who may want to come and do business in Kenya”, former Senator Rose Nyamunga said.
Based on the above, it’s clear that parliament never intended that the Insolvency Act would kill businesses and plunder company resources to the detriment of creditors as is currently the case.
The law itself is fine, what appears to be a problem is its implementation. To address this, a potential solution could be to revise the compensation structure for Insolvency Practitioners, tying their remuneration to a percentage of the recovered assets. This adjustment aims to prevent the current practice of practitioners swiftly compensating themselves and abruptly closing companies.
