Individual Voluntary Arrangements in Kenya: A Practical Alternative to Bankruptcy

An individual voluntary arrangement is a statutory mechanism through which an individual may propose a composition or arrangement with creditors instead of proceeding directly to bankruptcy. It can offer a structured route to repay, compromise or organise debts, but it is not an informal assurance that creditors will be paid later. The Insolvency Act requires a viable proposal, a properly appointed insolvency practitioner, creditor consideration and compliance with the approved arrangement.

An IVA should be assessed early. A person facing demands, execution or a creditor bankruptcy application may have a limited opportunity to put forward a credible proposal. Creditors should assess expected returns, security, costs, income and the reliability of the proposal rather than approving or rejecting it solely because bankruptcy appears more forceful.

What an IVA is intended to achieve

An IVA can bring creditors into one proposal and avoid the expense and disruption of a bankruptcy order where there is a realistic alternative. The proposal may involve instalments from income, a contribution from assets, third-party funding, a sale by agreement, a compromise of claims or a combination of these. Its terms must be clear enough for creditors to understand what is offered, when, from what source and on what conditions.

It does not automatically bind every person or eliminate every secured right. Secured creditors, guarantors, co-owners and parties with proprietary claims may have distinct positions. The proposal should identify each category, the treatment offered and the information needed for a creditor to vote or decide whether to support it.

Preparation and an insolvency practitioner’s role

The debtor should begin with complete disclosure: creditors, debts, security, assets, income, household expenses, business interests, guarantees, pending proceedings and recent transfers. A proposal built on omitted debts or uncertain income is unlikely to be workable. Preserve bank statements, payslips, contracts, valuations, tax records and evidence of any third-party contribution.

An authorised insolvency practitioner may be involved in considering the proposal and, if it proceeds, supervising its implementation. The practitioner’s role is not to guarantee that creditors will approve the plan. The practitioner needs reliable information to report on feasibility, convene or assist with the statutory creditor process where appropriate, and administer the arrangement according to its terms and the Act.

Creditors should test the proposal against recovery reality

A creditor should compare the proposed return with the likely outcome of bankruptcy, ordinary enforcement and any security. Examine the claim amount, security valuation, debtor income, assets, proposed payment schedule, fees, default consequences and evidence for every promised contribution. A proposal that depends on a future sale, refinancing or family contribution should identify the documents, timing and conditions rather than rely on goodwill.

Creditors should also ask whether all material creditors have been disclosed, whether the debtor’s financial statement is current, how disputed claims will be treated and who will monitor compliance. A creditor with security should not assume the arrangement changes the security without clear statutory and contractual treatment.

Approval, supervision and default

The Act and current Regulations govern how an IVA is considered and approved. Voting, notice, creditor classes and court involvement should be checked against the current procedure. Once approved, the arrangement binds the parties to the extent the statute and terms provide. The debtor must make payments, provide information and comply with conditions; the supervisor must administer the arrangement and report as required.

Default should be addressed in the proposal itself. Specify what counts as default, notice periods, whether a variation is possible, what happens to missed contributions and whether creditors may resume recovery or seek bankruptcy. A temporary cash-flow problem should be raised with the supervisor early; hiding it can destroy confidence and reduce the chance of a lawful variation.

Choose the right route before insolvency hardens

An IVA is not suitable for every debtor. It may be unworkable where income is uncertain, assets cannot be realised, creditor claims are heavily disputed or the proposed return is illusory. Bankruptcy, a negotiated settlement, a summary instalment order or another statutory option may be more appropriate. The right choice depends on the real financial position, not the label that seems least severe.

For the debtor, the practical priority is a truthful proposal supported by records. For creditors, it is an evidence-led decision about value, risk and enforceability. Written terms, complete disclosure and timely action are the best protection for everyone involved.

Primary sources: Insolvency Act, 2015 and the current Insolvency Regulations. This is general information, not advice on an IVA proposal or creditor vote.