The delicate balance of safeguarding stakeholders and creditors’ interests during administration

  • 14 Apr 2022
  • 2 Mins Read
  • 〜 by Kennedy Osore

The essence of administration is to rescue companies that are under financial distress while safeguarding the interests of creditors and other stakeholders in the company. One of the key objectives of administration as set out under the Insolvency Act, 2015 is to achieve a better outcome for the company’s creditors as a whole than would likely be the case if the company were liquidated (dissolved) without first being under administration.  Administration thus offers some breathing space for insolvent companies and better returns and packages for creditors. 

Who is an administrator?

Administration commences with the appointment of an administrator. The administrator ought to be a qualified insolvency practitioner who fulfils the following requirements:

  • Satisfies the requirements of the insolvency regulations with respect to education, practical training and experience;
  • Is a member of a recognized professional body; and 
  • Satisfies the requirements (if any) of the rules of the governing body.

What is the role of the administrator?

Once an administrator assumes the role, he/she has certain duties and obligations. Some of the key duties include:

Control of assets

The administrator assumes control of the assets of the company. He has a role to prevent the dissipation, waste and unlawful disposal of the assets of the company.

Management of the company

The administrator is mandated to manage the affairs of the company as a going concern in order to generate more revenue to pay off the debts of the company.

Protection of creditors’ interests

The administrator is entrusted with protecting the rights of creditors taking into account their respective priorities to repayment of debts owed to such creditors. The acts of the administrator should not infringe on the rights of any creditor unless they consent otherwise. The administrator may convene creditors’ meetings from time to time to discuss the progress of the administration of the insolvent company.

Recent High Court ruling terminating the appointment of an administrator

The insolvency case of Kimeto & Associates Advocates v KCB Bank Kenya Limited & 2 others has shed more light on the critical role of an administrator. In a ruling issued by the High Court on Thursday, April 14, 2022, Justice Alfred Mabeya revoked the appointment of Mr. Ponangipalli Venkata Ramana Rao as the administrator of Mumias Sugar Company Limited (In Administration). The applicants in the case had sought his removal claiming that his conduct as administrator did not take into account the interests of all creditors. 

The ruling by the court highlights the important role played by administrators of companies in financial distress. It also serves as a reminder to insolvency practitioners of their duty to the creditors during the administration process. Failure to uphold the duties negatively impacts on the administration process and may lead to the termination of the appointment of the administrator.