The debtor is a company, the demand letters have gone unanswered, and the account remains unpaid. Execution may yet find no assets worth seizing. For creditors facing a company that cannot or will not pay, the Insolvency Act provides a collective remedy: a petition to wind the company up and place it under liquidation, where a liquidator realises the assets for the benefit of creditors as a class.
When can a creditor petition to wind up a company?
A creditor may petition where the company is unable to pay its debts. A company is treated as unable to pay its debts where it fails to respond to a formal demand for a sum due, or where the creditor can otherwise satisfy the court that the company cannot meet its obligations as they fall due. The grounds and the procedure appear in the Insolvency Act, which can be consulted through Kenya Law, and the demand stage is where careful drafting pays for itself.
What does the process involve?
The petition is presented to the court and served on the company, which may oppose it, pay the debt, or seek time. Where the court is satisfied, it makes a winding up order and a liquidator is appointed to collect and realise the assets and distribute them according to the statutory order of priority. Secured creditors take in accordance with their security, the costs of the liquidation rank ahead of unsecured claims, and unsecured creditors share in whatever remains.
What should creditors weigh beforehand?
- Whether the debt is genuinely due and undisputed, since a disputed debt is the wrong vehicle for a petition.
- The realistic value of the company’s assets measured against the costs of the process.
- Settlement possibilities, which remain open up to the hearing of the petition.
- The effect on any security held and on the wider commercial relationship.
The firm advises creditors and companies on insolvency remedies through its banking and securities practice, and the firm’s practice areas page describes the related debt recovery services that usually come first.
For guidance on your specific situation, contact CS Advocates LLP , call, WhatsApp, or book a confidential consultation at our Westlands, Nairobi office.