Receivership is often confused with administration, and the confusion is understandable: both put an insolvency practitioner in charge of a struggling company and both can end with the business trading its way back to health. But receivership is narrower, older, and increasingly a legacy mechanism rather than a live option for new lending. Understanding why matters to any director who has given a debenture, and to any lender deciding how to structure new security today.

What receivership is and who can use it

An administrative receiver, sometimes called a receiver and manager, is appointed by the holder of a debenture secured by a floating charge over the whole, or substantially the whole, of a company’s property, to realise that property and recover what the company owes. Unlike an administrator, a receiver is appointed by the debenture holder directly, without a court application, which makes receivership faster to trigger than administration but also less protective of the company’s other stakeholders.

The critical limitation, and the one many people miss, is that this route under section 690 of the Insolvency Act, 2015 is available only to holders of debentures created before the Act came into force. Under section 690(4), a floating charge created after the Act commenced does not qualify. For debentures written today, the equivalent power a lender holds is not a right to appoint a receiver in the old sense; it is the right, as holder of a qualifying floating charge, to appoint an administrator instead. Section 734(2) of the Act preserves the relevant provisions of the repealed Companies Act, Chapter 486, specifically so that receiverships tied to pre-2015 debentures continue to be governed by the old regime rather than falling into a gap the new Act never intended to create. This distinction has been tested directly: in In re Arvind Engineering Limited, the High Court held that a pre-2015 debenture empowering its holder to appoint a receiver-manager can, on a purposive reading, also qualify that holder as a holder of a qualifying floating charge able to appoint an administrator under section 534(2)(b), even though the instrument predates the Act and could not have referred to it expressly.

What happens once a receiver is appointed

Once appointed, the receiver takes control of the charged property with a view to selling or otherwise realising it to repay the debenture holder. The directors do not lose office, but their power to manage the company is displaced to the extent the receivership requires; the High Court has held that directors retain limited residual duties, including preparing a statement of affairs for the receiver, maintaining the share register, calling statutory meetings, and lodging returns, even while day-to-day control sits with the receiver.

The receiver’s legal position is a curious hybrid. Kenyan courts have confirmed that a receiver is not an officer of the court and is not simply the debenture holder’s agent; the receiver remains, in law, an agent of the company, while owing fiduciary duties on account to the debenture holder who appointed them. That means the receiver’s actions bind the company and the company remains liable for the receiver’s dealings with third parties, even though the receiver was put in place to protect the debenture holder’s interests rather than the company’s.

Receivership and administration are not necessarily mutually exclusive. The two regimes can in principle operate alongside each other where doing so serves the objectives of the company’s stakeholders, for example where the public interest in the company’s survival, including the interests of employees, unsecured creditors, or an entire supply chain, justifies bringing the administration framework’s protections to bear on top of an existing receivership. This remains a developing area of practice, and a lender or director considering it should take specific advice on how the two regimes interact on the facts of a particular case rather than assuming a settled route exists.

Priority of claims on realisation

When the receiver realises the charged assets, the proceeds are not simply handed to the debenture holder in full before anyone else is paid. The Second Schedule to the Insolvency Act sets out an order of priority that applies across liquidation and administration alike, starting with the expenses of the insolvency process itself and money advanced to preserve the company’s assets, before secured and preferential claims are addressed in turn. A debenture holder enforcing security through a receiver should not assume the appointment guarantees first call on every shilling the company owns; the statutory priority regime still applies to what the receiver collects.

Why this matters for lending and borrowing today

For a business granting security today, the practical reality is that receivership in the old, debenture-holder-appoints-directly sense is not on the table; any lender taking a floating charge now is taking the right to seek an administration order, or to appoint an administrator directly as a qualifying floating charge holder, rather than the right to appoint a classic receiver. That shift matters because administration comes with a statutory moratorium protecting the company from other creditors and a duty on the administrator to consider the company’s survival as a going concern first, protections that classic receivership, focused squarely on the appointing creditor’s recovery, did not offer to the same degree.

For a company that gave a debenture before the Insolvency Act came into force and still has that instrument outstanding, receivership remains a live risk, and the analysis above, particularly the residual duties retained by directors and the priority scheme governing how proceeds are distributed, still applies in full.

How We Can Help

Clay & Associates Advocates advises lenders on structuring security and enforcing debentures, and advises company directors on their residual duties and options once a receiver has been appointed, including where receivership and administration may need to run together. Our guide to corporate administration covers the modern equivalent available for debentures created after the Insolvency Act came into force. Where a company under receivership might instead benefit from a formal rescue process, our guide to company voluntary arrangements sets out that alternative. Contact our insolvency and restructuring practice to discuss a debenture, an enforcement strategy, or a company’s options once a receiver has been appointed over it.

Sources: Insolvency Act, 2015, sections 690 and 734, and the Second Schedule; In re Arvind Engineering Limited, Insolvency Petition 03 of 2019, [2019] KEHC 12266 (KLR).

Frequently asked questions

Can a lender appoint a receiver over a debenture signed today?
No. Section 690 of the Insolvency Act only permits appointment of an administrative receiver under debentures created before the Act came into force. A modern floating charge holder appoints an administrator instead.

Is a receiver an officer of the court?
No. Kenyan courts have held that a receiver is an agent of the company with fiduciary duties on account to the debenture holder, not an officer of the court and not simply the debenture holder’s agent.

Do the directors lose their positions once a receiver is appointed?
No. Directors remain in office but lose day-to-day management control to the extent the receivership requires, while retaining limited residual duties such as preparing a statement of affairs and lodging returns.

Can a company be in receivership and administration at the same time?
In principle, yes, where doing so serves the objectives of the company’s stakeholders, though this remains a developing area of practice and specific advice should be taken on the facts.