Company Administration in Kenya: Purpose, Eligibility and Appointment Routes

Company administration is a statutory rescue and value-preservation procedure. It is not a general pause on debt collection and it should not be used merely to postpone an inevitable liquidation. Before an administrator is appointed, the applicant must identify a realistic administration objective, the statutory appointment route and the financial evidence supporting it. The relevant framework is the Insolvency Act, 2015; the appointment documents and any security instrument are equally important.

What administration is intended to achieve

Administration can be used to rescue a company as a going concern, achieve a better result for creditors than immediate liquidation, or realise property for secured or preferential creditors where the Act permits. The objective must be more than an aspiration. Directors, lenders and advisers should prepare a current cash forecast, statement of affairs, asset and security schedule, creditor list, employee information and a short explanation of how the proposed administration will preserve or create value.

A company that has no viable business, no funding and no recoverable assets may not benefit from administration merely because directors prefer to retain control for longer. Conversely, a company with a profitable core contract, a fundable sale process or an orderly restructuring opportunity may lose value if it enters liquidation too soon. The analysis is commercial and legal: it asks whether administration can realistically improve the statutory outcome.

Who may appoint an administrator

The Act provides routes through which the Court, an eligible floating-charge holder, the company or its directors, and in some circumstances a liquidator, may appoint an administrator. The correct route depends on the company’s status, security, prior insolvency steps, constitutional authority and the statutory notice requirements. A person should not assume that holding a charge, being a director or owning shares automatically supplies a valid appointment power.

A floating-charge holder should review the charge instrument, registration, priority, events of default and any contractual notice requirements. Directors should check board authority, shareholder arrangements, existing petitions, charges and whether a prior appointment or insolvency process limits their route. A Court application should identify the statutory objective, evidence of distress, proposed administrator and why an order is appropriate.

Eligibility and evidence before appointment

The proposed administrator needs enough information to assess whether the appointment is proper and whether the objective is achievable. That includes accounts, bank records, tax position, key contracts, employee claims, secured debt, litigation, asset values and creditor pressures. Missing records, unexplained related-party payments or a disputed security position should be disclosed rather than left for discovery after appointment.

Directors should not move assets, grant fresh security or make selective payments to influence the appointment route. A lender should not rely on a stale charge summary. The relevant evidence should be dated, preserved and capable of being shown to the Court, creditors or later office-holders.

Choosing administration instead of another route

Administration should be compared with consensual refinancing, a company voluntary arrangement, creditors’ voluntary liquidation and Court liquidation. The decision turns on timing, funding, creditor support, the condition of the business and the likely value of continuing trade. A statutory demand or threatened enforcement may create urgency, but urgency does not eliminate the need for a viable plan.

The next article considers the moratorium, proposals and creditor meetings after administration begins. At the appointment stage, the key discipline is to choose a lawful route supported by evidence and an objective that can be achieved in practice.

Records and immediate practical steps

Before an appointment, preserve accounting data, bank access, asset registers, security documents, customer information, insurance, keys and contracts. Identify urgent wages, tax, supplier, landlord and lender issues. Once an administrator is appointed, verify the appointment before releasing property or acting on instructions. A clear handover protects the business and gives creditors confidence that the process is being used for its statutory purpose.

Testing whether a rescue objective is credible

A proposed administration should be tested against a short, evidence-based rescue plan. It should identify the company’s viable business line, immediate funding need, key creditors, essential employees, critical suppliers, secured lender position and the event that will create value: a sale, refinance, restructuring, new investment or controlled completion of contracts. A plan based only on “time to trade out of difficulty” is weak unless the cash forecast shows how wages, tax, stock and operating costs will be met while that happens.

The proposed administrator should receive current, not historic, information. Aged management accounts, a debtor ledger, creditor schedule, security documents, bank statements, tax correspondence, material contracts, employee liabilities, litigation and asset valuations allow the practitioner to form a preliminary view. If information is unavailable, that fact should be disclosed. An appointment is not invalid merely because every record is imperfect, but missing information can affect the feasibility of the objective and the safeguards needed at the outset.

A floating-charge holder considering appointment should assess more than its own recovery. The charge, registration, priority, default and enforcement provisions matter, but so does whether administration will preserve asset value or produce a better result than immediate enforcement. The holder should retain the decision record and appointment notices. Directors should similarly record the board authority, financial basis, alternatives considered and why administration rather than liquidation is proposed.

Where Court appointment is sought, the evidence should explain the company’s distress, the statutory objective, the proposed administrator’s consent and the need for an order. The Court is not asked to endorse a general hope of rescue. It needs enough material to see that the route is available and that the appointment serves an objective recognised by the Act.

Creditors and counterparties should not assume that a proposed appointment has already changed the company’s authority. Until the statutory event, notice or order takes effect, contracts and enforcement rights remain subject to their existing terms and the law. Once administration begins, article 36’s moratorium and proposal framework become central. The distinction prevents both premature surrender of rights and damaging action taken after the process has begun.

Good preparation also protects employees and customers. Identify payroll, employee claims, customer property, deposits, insurance and data obligations before the appointment. A rescue that ignores these matters may preserve a trading name while creating a larger liability problem. The best administration candidates have a defined business value to preserve, a lawful appointment route and records that allow the administrator to act quickly.

Before the appointment, preserve the decision trail: forecasts, board minutes, lender correspondence, proposed administrator consent, notices and records of material creditor communications. This does not make the rescue successful, but it allows creditors and the Court to see that the appointment route was chosen on information rather than improvisation.

Early communication should be accurate and limited to what is known. Directors should not promise that every contract or job will be saved; creditors should not assume that a prospective appointment makes payment impossible. The statutory process, appointment evidence and administrator’s proposals will determine the next stage.

Primary source: Insolvency Act, 2015.