My Company Can’t Pay Its Debts: What Are the Options Before Liquidation?

Directors of a struggling Kenyan company often assume liquidation is the only formal option once debts can’t be paid on time. Since the Insolvency Act, 2015, that hasn’t been true. The Act introduced rescue procedures specifically so that a viable business under short-term pressure doesn’t have to be wound up just because it has reached the point where it needs to act.

Administration: A Court-Backed Pause to Restructure

Administration puts an independent administrator in charge of the company, appointed by the company or its directors, by the court, or by the holder of a floating charge. Its defining feature is a moratorium: for as long as administration is in effect, creditors cannot start or continue legal proceedings, levy distress, or move to wind the company up, except with the court’s permission. The administrator’s job is to maintain the company as a going concern where possible, and to achieve a better outcome for creditors than an immediate liquidation would. Administration buys time and breathing room; it does not itself write off debt.

Company Voluntary Arrangements: Negotiating a New Repayment Plan

A Company Voluntary Arrangement lets the directors propose a formal repayment plan directly to creditors, extending the repayment period and settling debts through instalments rather than in full immediately. It is supervised by a licensed insolvency practitioner, and becomes binding once approved by the company and by creditors holding the required majority, then sanctioned by the court. Banks and insurance companies cannot use this route. A CVA is generally the lighter-touch option compared to administration, and works best where the underlying business is sound and creditors can be persuaded that a structured plan beats forcing liquidation.

Administrative Receivership

Where a secured creditor holding a floating charge is owed money, it may appoint a receiver to realise specific assets and recover the debt, rather than pursuing the company through the courts. This route serves the secured creditor’s recovery first; it is not primarily a rescue tool for the company, though the underlying business can sometimes continue trading in a reduced form while the receiver works.

When Liquidation Still Becomes the Answer

Liquidation remains available, and sometimes it is genuinely the right outcome, where the business is not viable even with breathing room, or where a voluntary arrangement or administration has already failed. Section 424 of the Insolvency Act sets out the grounds, inability to pay debts is the most common, alongside prolonged failure to commence or continue business, failure of a voluntary arrangement, or cases where liquidation is simply just and equitable. Directors who liquidate voluntarily and early, before creditors force the issue, are generally in a stronger position on personal liability than directors who keep trading regardless.