Firms urged to take advantage of new Companies Act

By O’Brien Kimani

Legal experts are urging Kenyan companies to take advantage of the revamped Insolvency and Companies Act to make their business robust.

MMC Africa Commercial Law expert, Bernard Musyoka says many companies are plunging into legal problems due to failure to understand the new laws that came into effect last year.

Musyoka says companies facing liquidity problems have a number of options to survive the jaws of auctioneers and liquidators.

The financial problems facing the largest retail chain in the region Nakumatt has left corporate Kenya pondering about the future of many companies in the country.

The retail chain requires billions of shillings to stay afloat due to what financial experts are terming as years of mismanagement and failure to adapt to change.

Commercial law experts say that corporate Kenya needs to adapt to changing business landscape locally and internationally to remain relevant.

MMC Africa Commercial Law expert, Bernard Musyoka says troubled companies should consider re-organizations that could include standstill arrangements and debt conversion into equity, to help them stay afloat in a tough business environment.

Musyoka says due to harsh operating environment that has seen more than 10 listed companies issue profit warnings, most businesses are sinking deeper into debt and face a risk of imminent closure.

In the country companies in the financial, agricultural, manufacturing and fast moving consumer goods are the hardest hit with a huge reduction in profits and dividends to shareholders.

Musyoka says companies that are facing the auctioneers hammer should consider deployment of administration, a corporate insolvency procedure by which a company can be re-organized or have its assets realized for the benefit of its creditors.

He says the process allows for the re-organization of a company under the protection of a statutory moratorium, which prevents creditors from taking action to enforce their claims during the administration process.

He says companies that are heavily indebted can strike a debt to share swap deal.

However Musyoka advices companies to practice prudent business models to avoid falling into problems.

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