Kenyan law recognizes two broad modes of dissolution of a company. These are liquidation, and striking off the register of companies at the Companies Registry.
Liquidation of a company may by the company’s shareholders (Members’ Voluntary Liquidation or MVL), the company’s creditors (Creditors’ Voluntary Liquidation or CVL); or by the High Court upon application by specified persons.
Members’ Voluntary Liquidation
This is where the shareholders of a solvent company decide, bypassing a resolution, to wind up the affairs of a company and for that purpose appoint a liquidator to wind up the company. The proceeds are then used to settle the company’s liabilities and any surplus is distributed to shareholders. The process for members’ voluntary liquidation is set out under the Insolvency Act. MVL may be done even when the company is solvent.
Creditors’ Voluntary Liquidation
This occurs where the company’s creditors resolve, and appoint a liquidator, to liquidate the company. This method of liquidation typically happens when a company is insolvent, that is, it is unable to pay its debts as they fall due. For that purpose, the Insolvency Act stipulates the instances when a company is deemed to be unable to pay its debts.
Liquidation by the High Court
The High Court of Kenya has jurisdiction to supervise the liquidation of companies registered in Kenya. Liquidation by the high court is initiated by a liquidation order issued by the high court after an application made in that regard has been heard and determined. The persons who may make such an application are set out under the Insolvency Act.
Striking Off a Company
Upon registration, each company is entered in the register of companies maintained by the Registrar of Companies (‘the Registrar’). Under certain circumstances, the companies’ names may be removed by the Registrar from that register. This is known as a ‘strike off’ or ‘striking off’.
The aim and end effect of a strike-off is that the company is dissolved and ceases to exist. As such, striking off provides an alternative to a voluntary liquidation especially when the company is dormant with no assets or liabilities. However, unlike liquidation, striking off is at the Registrar’s discretion.
A strike-off is initiated by the company making an application (through its directors) to the Registrar that the company be struck off the register of companies. The procedure for strike off from the point of application up to dissolution is provided under the Companies Act.
Administration of Insolvent Companies
The Insolvency Act permits the appointment of an administrator of the company’s business. The first objective of the administration is to rescue a failing company and retain it as a going concern. The second objective is to achieve a better result for the company’s creditors than is likely if the company is liquidated (without first being in administration). The Administrator’s crucial role can be illustrated in the case of Nakumatt Holdings, placed under administration in January 2018 and later liquidated, and ARM Cement Limited, placed under administration in August 2018 with ongoing legal proceedings regarding ARM Cement’s insolvency and recovery.