Data from the Official Receiver’s office shows liquidations of Kenyan companies by court spiked in Februrary, with eight petitions for liquidation of companies filed. It was the second-highest number of petitions for liquidations of companies filed in court in a single month since the Office began making the records publicly available in October 2015, with nine petitions filed in October 2022 and February 2020.
The worrying statistics come as the Shilling continues to weaken. The Kenyan shilling hit a new record low of 136.02 against the dollar at the start of May, having lost 9.0 percent in 12 months to December 2022.
The annual inflation rate in Kenya on the other hand stood at a three-month high of 9.2% in March 2023, unchanged from February.
The Constitution of Kenya 2010 lays out three ways to liquidate a company; members’ voluntary liquidation, creditors’ voluntary liquation, and liquidation by Court. A compulsory process, liquidation by Court is most often initiated by creditors when insolvent companies are unable to pay their liabilities.
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Liquidation refers to the process by which directors lose control of the management of a company’s affairs and assets, which are then vested in a liquidator.
Liquidators convert property and assets are to cash or cash equivalents by selling them on the open market, with the insolvent companies’ liabilities paid out of the proceeds of sale in order of priority. The liquidator closes the company once the assets are sold and creditors’ claims verified and paid out.
Instructively, liquidation of assets can either be voluntary or forced. Voluntary liquidation can be used to raise the funds to close out old positions. A forced liquidation, on the other hand, often features in bankruptcy cases, when an entity chooses or is forced by a legal judgment or contract to turn assets into liquidity.
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