Voluntary Arrangement Proposal (Kenya)

A Voluntary Arrangement Proposal in Kenya records the voluntary arrangement proposal and the particulars that give it legal effect.

Under Section 622 of the Insolvency Act No. 18 of 2015, a director of a company may make a proposal for a CVA to the company's creditors without the company first going into administration or liquidation. The proposal must contain a statement of the company's affairs — including assets, liabilities, and creditor details — and must be supervised by a licensed insolvency practitioner appointed as the nominee. The nominee assesses the proposal and prepares a report for the court and for creditors, advising whether the arrangement is worth putting to a meeting of creditors.

For individuals, Section 262 of the Insolvency Act No. 18 of 2015 permits an insolvent individual to make an IVA proposal to creditors through a licensed insolvency practitioner acting as nominee. The IVA proposal must set out the individual's assets, debts, monthly income and expenditure, the proposed dividend payable to unsecured creditors, the duration of the arrangement, and the nominee's fees. Once accepted by the required majority of creditors, the IVA binds all creditors who were entitled to vote, including those who voted against the proposal.

The Official Receiver, attached to the High Court of Kenya under Section 4 of the Insolvency Act No. 18 of 2015, administers insolvency proceedings and maintains the register of insolvency practitioners in Kenya. Only persons licensed by the Official Receiver may act as insolvency practitioners and nominees in CVA and IVA proceedings. The High Court of Kenya — specifically the Commercial Division — has jurisdiction to hear challenges to voluntary arrangements under Sections 634 and 280 of the Insolvency Act.

A Voluntary Arrangement Proposal in Kenya differs from a Scheme of Arrangement under Sections 648 to 671 of the Companies Act No. 17 of 2015. A scheme of arrangement requires High Court approval and is typically used for larger corporate restructurings, mergers, or demergers. A CVA under the Insolvency Act is a faster, less costly procedure that does not require court sanction to take effect — though the court can be asked to review the arrangement if a creditor claims material irregularity or unfair prejudice under Section 634 of the Insolvency Act No. 18 of 2015.

A Kenya Voluntary Arrangement Proposal must also address obligations under the Kenya Revenue Authority (KRA). Tax debts owed to the KRA — including unpaid PAYE under the Income Tax Act Cap. 470, VAT under the Value Added Tax Act No. 35 of 2013, and withholding tax — are preferential creditors under the Second Schedule to the Insolvency Act No. 18 of 2015. The proposal must account for the priority of KRA claims to be credible and to secure the required creditor majority.

A Voluntary Arrangement Proposal in Kenya is needed when a company or individual is insolvent or facing imminent insolvency and wishes to avoid winding up, liquidation, or personal bankruptcy by reaching a negotiated settlement with creditors under the Insolvency Act No. 18 of 2015.

A CVA proposal is required when a company registered with the Business Registration Service (BRS) is unable to pay its debts as they fall due — the statutory test of cash-flow insolvency under Section 384 of the Companies Act No. 17 of 2015 — but the directors believe the business is viable if given time and a reduction in its debt burden. A CVA allows the company to continue trading while implementing the arrangement.

A Voluntary Arrangement Proposal is needed when a company or individual has received a statutory demand from a creditor under Section 390 of the Insolvency Act No. 18 of 2015 and the debt cannot be paid within the 21-day period. Filing a CVA or IVA proposal demonstrates to the creditor that a structured repayment plan is being pursued, which may deter the creditor from petitioning for winding up or bankruptcy.

An IVA proposal is needed when an individual debtor faces multiple debts to several creditors and wishes to consolidate obligations into a single monthly payment supervised by a licensed insolvency practitioner, avoiding a bankruptcy order from the High Court of Kenya that would impose significant restrictions on their financial and professional activities.

A Voluntary Arrangement Proposal is required when a business owes preferential debts to the Kenya Revenue Authority (KRA) — including arrears of PAYE under the Income Tax Act Cap. 470, VAT under the Value Added Tax Act No. 35 of 2013, or NSSF contributions under the NSSF Act No. 45 of 2013 — and needs a structured mechanism to satisfy those debts over an agreed period without enforcement action.

The proposal is needed when secured creditors, unsecured creditors, and trade creditors hold conflicting claims against the same debtor, and a collective binding mechanism under the Insolvency Act No. 18 of 2015 is preferable to separate negotiations with each creditor.

Parties in Kenya should prepare a Voluntary Arrangement Proposal (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid Voluntary Arrangement Proposal in Kenya under the Insolvency Act No. 18 of 2015 must contain the following essential elements to be considered by creditors and, where required, by the High Court of Kenya.

Debtor Identification: Full legal name of the company (with BRS registration number) or individual debtor, registered address, and nature of business or occupation. For a CVA under Section 622 of the Insolvency Act, the proposal must be made by a director of the company — not by the company itself.

Statement of Affairs: A complete and accurate schedule of assets (with estimated realisable values), liabilities (listing each creditor by name, amount, and class — secured, preferential, or unsecured), and any contingent or disputed debts. The statement must disclose obligations under the Income Tax Act Cap. 470 owed to the Kenya Revenue Authority (KRA) as preferential debts under the Second Schedule to the Insolvency Act No. 18 of 2015.

Nominee Details: The full name, licence number, and address of the licensed insolvency practitioner acting as nominee. Under the Insolvency Act No. 18 of 2015, the nominee must be licensed by the Official Receiver and must not have a conflict of interest with the debtor or any creditor. The nominee's fees must be disclosed.

Terms of the Proposed Arrangement: The specific terms offered to creditors — including the dividend payable to unsecured creditors (expressed as cents per shilling), the payment schedule, the duration of the arrangement (typically three to five years for an IVA), and whether the debtor's assets will be realised or retained. The proposal must state whether it is a composition (cash settlement) or a scheme of arrangement (ongoing payments from income or assets).

Priority of Creditors: The treatment of preferential creditors — including KRA for tax debts, NSSF for contribution arrears under NSSF Act No. 45 of 2013, and employees for wages under the Second Schedule to the Insolvency Act — who must be paid in full or according to their priority before any dividend is paid to unsecured creditors.

Creditor Voting: The procedure for convening the creditors' meeting, the voting threshold required for approval (75% in value of creditors present and voting for a CVA under Section 629 of the Insolvency Act; the same threshold for an IVA under Section 269), and the effect of the arrangement on dissenting creditors once the requisite majority has approved.

Supervision and Reporting: The nominee's obligation to supervise implementation of the arrangement, to hold funds in a designated trust account, to issue periodic progress reports to creditors, and to apply to the High Court for directions if the debtor defaults.

Variation and Default: The mechanism for varying the arrangement with creditor consent and the consequences of the debtor defaulting — including the supervisor's right to petition the High Court of Kenya for a winding-up order or bankruptcy order under the Insolvency Act No. 18 of 2015.

Forms-legal.com provides this Kenya Voluntary Arrangement Proposal template as a practical starting point for directors, individual debtors, and their professional advisers to document a proposed arrangement in compliance with the Insolvency Act No. 18 of 2015. Professional advice from a licensed insolvency practitioner is strongly recommended before submitting a proposal to creditors.

Additional compliance elements for a Voluntary Arrangement Proposal (Kenya) used in Kenya include: Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.