Record surge in business liquidations on tough economy
The number of petitions for liquidation of companies by court hit a fresh monthly record in February, statistics by the Official Receiver’s office showed, underlining the struggles facing many businesses in a tough economic environment.
The data shows that there were eight petitions for liquidation of companies by court filed in February this year alone—the highest number in a single month since the office started publishing the records in 2015, except for October 2022 and February 2020 when we had nine filings each.
The statistics further showed that a total of 28 petitions for company liquidations by the court have been filed between July and March this year alone—closely tracking the number of compulsory liquidations registered during the pandemic times.
Liquidation is the process by which the management of a company’s affairs and control of its assets are taken out of its directors’ hands and vested in a liquidator.
The property and assets are then converted to cash or cash equivalents by selling them on the open market by the liquidator and debts are paid out of the proceeds of sale in order of priority. Once the assets are sold and creditors paid, the liquidator closes the company.
Liquidation of assets may be either voluntary or forced. Voluntary liquidation may be affected to raise the cash needed for new investments or purchases or to close out old positions. A forced liquidation may be used in bankruptcy procedures, in which an entity chooses or is forced by a legal judgment or contract to turn assets into a liquid form.
In Kenya, the law provides for three modes of liquidation including; members’ voluntary liquidation; creditors’ voluntary liquation, and liquidation by Court.
Liquidity by the court is a compulsory process and is often initiated by a creditor when the insolvent company fails to pay off liabilities owed to such a creditor.
The court has the power to wind up a company in certain circumstances such as when shareholders resolve by a special resolution to have the Court liquidate the company; or if the company has not commenced active business for a year after it is incorporated or it has suspended active business for a year.
Unable to pay debts
The court may also liquidate a firm if the company is unable to pay its debts; or if the court considers that justice will be rendered by liquidating a company.
Invesco Assurance Company, a firm offering covers to public service vehicles, is among those that were placed under liquidation by a court in February after it defaulted on paying claims estimated at Sh29 million.
The High Court had been deferring its final orders in the judgment on the application of the insurer, but little progress was realised in paying the debts.
Separately in January, the High Court allowed the liquidation of Royal Swiss Bakery after the bread manufacturer failed to recover from the effects associated with Covid-19 in 2020 and eventually ceased operations.
Royal Swiss Bread, the maker of brands such as Swiss Toast and SGR Bread, said it was unable to meet its financial obligations as the company was not generating any income.
In March, several companies including Mulley Supermarkets, Hashi Energy and Ecopole Industries (Kenya) Limited were also placed under liquidation. BY DAILY NATION
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