An Appraisal of company voluntary arrangements as a corporate rescue mechanism in Kenya

Abstract

Before the enactment of the Insolvency Act No. 18 of 2015, insolvent companies in Kenya primarily faced winding up or receivership, with limited negotiation options, such as schemes of arrangement. The Insolvency Act No. 18 of 2015 introduced more flexible approaches, among them Company Voluntary Arrangements (CVAs). Yet, in almost ten years, there has been minimal utilisation of CVAs by financially distressed companies in Kenya. Using the Explicit values and the communitarian vision theories, this doctrinal legal research evaluates the effectiveness of the law governing the CVAs in Kenya post-2015, examining their adaptation and efficacy given the country’s legal, economic and social circumstances. The study also undertakes to draw best lessons from the United Kingdom legal framework on CVAs, this research will embark on a comparison of their framework, in order to understand what lessons Kenya can borrow to strengthen its framework on CVAs to make it more viable and effective in the country. Findings reveal that while CVAs offer a promising alternative for debt resolution and avoidance of liquidation, their uptake or utilisation by financially distressed companies in Kenya has been minimal, and their success sporadic. Factors influencing these outcomes include a lack of awareness and understanding of CVAs among stakeholders, a weak regulatory framework, and the capacity of insolvency practitioners. This study underscores the need for targeted legislative reforms, enhanced professional training for insolvency practitioners, and increased public awareness to optimise the effective use of CVAs as a tool for corporate rescue.