The enactment of the Insolvency Act, 2015 marked a paradigm shift in Kenyan corporate law, moving away from a “liquidation-first” mentality toward a sophisticated culture of corporate rescue. At the heart of this shift is the Administration regime, a powerful alternative to liquidation designed to breathe life back into distressed but viable enterprises.
The Statutory Hierarchy – Rescue Over Realization
The primary mandate of an Administrator, as outlined in Section 522 of the Act, is governed by a strict hierarchy of objectives. The primary Objective is to maintain the company as a going concern and its secondary objective is to achieve a better result for the company’s creditors than would be likely if the company were liquidated.
As a last resort the company will realize property in order to make a distribution to one or more secured or preferential creditors.
Crucially, Section 522(4) stipulates that an Administrator may only pivot to the third objective of asset realization if the primary and secondary goals are not reasonably practicable and provided the action does not unfairly prejudice the interests of the creditors.
Maintaining the company as a going concern, as a propriety embodies a wider public policy interest in preserving viable enterprises, protecting jobs, and promoting economic stability. Accordingly, the administrator undertakes a fiduciary-like responsibility to act in the best interests of both the company and its collective body of creditors.
The Court in Midland Energy Limited v George Muiruri t/a Leakeys Auctioneers & another [2019] eKLR reiterates that the primary objective of administration under our current insolvency framework is to give a second chance to financially distressed Companies; a break from the past where the fate of an ailing company was almost invariably a Winding up or liquidation order.
In light of the above, below are the pillars of best practices for any successful corporate rescue:
- Early Intervention and Assessment –Timely invocation of the administration process is critical. Directors and stakeholders should seek professional advice at the first signs of insolvency. A swift move into administration allows the administrator a wider latitude to preserve value and to formulate a viable restructuring plan before the company’s position deteriorates irreversibly.
- Transparent Communication with Creditors and Stakeholders – Open, honest, and regular communication with creditors, both secured and unsecured, is imperative. An administrator must keep all parties apprised of the company’s financial position, the intended strategy, and progress toward achieving the statutory objectives. This fosters trust and mitigates creditor hostility, which could otherwise undermine the process.
- Robust Business and Operational Review – Upon appointment, the administrator should conduct a comprehensive and expedient assessment of the company’s operations, financial records, liabilities, and commercial prospects. Identifying core profitable segments, loss-making units, and potential restructuring opportunities is essential in determining the feasibility of business rescue.
- Formulation of a Realistic Administration Proposal – Under Section 570 of the Act, the administrator is required to prepare a statement of proposals for achieving the purpose of administration. These proposals must be pragmatic, evidence-based, and tailored to the commercial realities of the company. Stakeholder buy-in hinges upon the credibility of this proposal and its perceived benefit over liquidation.
- Avoidance of Asset Dissipation and Preferential Dealings – The administrator must exercise caution to prevent any actions that could amount to unfair preference, undervalue transactions, or fraudulent transfers of assets. A moratorium, as provided under Section 560, is put in place on enforcement actions and legal process against the company under administration to provide a crucial breathing space to stabilise the company and preserve value.
The court in I&M Bank Limited v Mastermind Tobacco (K) Limited (2025) reaffirmed that administration must prevent the realization and depletion of a company’s assets; to give a company its best chance at rescue, administrators must maintain control of the company’s cash flow and assets to support a potential turnaround. The court held that allowing even small, piecemeal executions by individual creditors risks opening the floodgates to numerous claims, which would undermine the objective of a “going concern” and derail the rescue process.
- Collaboration with Professional Advisors – Engagement with insolvency practitioners, financial advisors, and legal counsel ensures that decisions are legally sound, commercially viable, and compliant with statutory obligations. This multidisciplinary approach enhances the prospects of achieving a restructuring or sale that preserves the going concern status.
- Periodic Review and Reassessment – Administration is not a static process. The administrator must remain agile, continually reassessing whether the pursuit of a going concern objective remains viable. Should circumstances change, the administrator must transparently pivot to achieving the second or, as a last resort, the third statutory objective — but only in accordance with the constraints set out under Section 522(4).
Conclusion
The administration regime under the Insolvency Act, 2015 is more than just a legal procedure; it is a vital tool for economic continuity. Its success, however, hinges on the integrity and strategic acumen of the practitioners involved. By adhering to best practices and respecting the statutory priorities enshrined in Section 522, administration can serve as a powerful tool for preserving viable enterprises, maximising returns to creditors, and sustaining economic continuity.
This article is provided free of charge for information purposes only; it does not constitute legal advice and should be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary as set in the article should be held without seeking specific legal advice on the subject matter. If you have any query regarding the same, please do not hesitate to contact our Banking & Finance, Commercial & Corporate Department vide WACommercial@wamaeallen.com
About the author
Virginiah is a seasoned Advocate with great expertise of more than three years in Real Estate, Banking and Finance, Commercial and Corporate Law. She is a focused and self-motivated advocate successful at strategically managing operations with proven team performance.
