Financial sector to reap big in cross-border insolvency

NAIROBI…Banks and insurance firms are set to be the major beneficiaries on relaxation of complex judicial process following adoption of laws that regulate cross-border insolvency.

Adoption of the model law on cross-border insolvency is seen offering creditors and financial sector players with a presence outside the country greater legal certainty for trade and investments.

The implementation of key provisions in the Act remain on paper, with the office of the official receiver hit by lack of enough resource capacity to handle  companies trading across the region  when they go into liquidation.

“Whereas the foregoing introduces immense opportunities to the corporate sector, the dilemma for most of the creditors and more specifically the players in the financial sector remains the implementation of the Act,” said MMC Africa Law Corporate Finance, Banking and Debt Management expert, Mungai Kamau.

Insolvency occurs when an organisation or individual is unable to pay debt on time, putting entities at risk of either winding up or being restructured.

Kamau said the existing platform for credit sharing information and the legislation restricting sharing of certain information require review to improve availability of vital information and hence create certainty in the debt management.

In recent publications and reacting to the capping of interest rates, banks have cited uncertainty in debt recovery and increase in Non-Performing Loans (“NPLs) as one of the factors driving the costs of lending in Kenya.

“With a vibrant credit reference system to back the insolvency legislation, the exposure would be greatly reduced and thus enabling a bigger number of hard working Kenyans to access credit,” added Kamau.

The costs of loans would also be reduced significantly making it affordable to a majority in the formal and informal sectors.

The business law adopted by the United Nations Commission for International Trade Law (UNCITL) has been modified for its application in Kenya to provide investors some certainty through provision of co-operation between the courts and other authorities in Kenya and other foreign member states in the implementation of the insolvency laws.

Debt Management experts are now pushing the private sector players to lobby for restructuring of the official receivers office to give it capacity to deal with the various matters introduced by the Act.

The laws that are to be harmonized with other economies in East Africa to simplify judicial processes were meant to make Kenya a suitable destination for international and regional trade.